Sure, when you discuss insurance needs with prospects, you often illustrate your recommendations with loss examples. As I've mentioned in past columns, anyone who isn't using Katrina stories, news clippings or even videos from Anderson Cooper to show prospects the need for every kind of insurance under the sun–including flood–is missing the opportunity of a lifetime to drive home the value of our products and services. May I offer a few examples?

Prospect/client: “I appreciate your mentioning flood insurance, but I don't think a flood will happen where I live.” Cue the tape of the folks living near the Mississippi coast who say: “Living on a 12-foot bluff that remained dry even during Camille, we figured we were fine without flood insurance. Can you believe we had 12 feet of water in here?”

Prospect/client: “Business income sounds fine, but even if we suffer a loss severe enough to close us down, we'll be able to reopen soon enough to handle it.” Cue the tape of business folks in New Orleans talking about their hope to reopen within the next few months. Then point out they are saying this on the first anniversary of the storm–meaning they've already been shut down for over a year!

Prospect/client: “We don't need all that extra insurance in case of a catastrophe. Our disaster planning and past experience indicate the limits we have now are quite adequate to cover our expected losses.” Cue any tape of FEMA officials or New Orleans politicians saying there was no way to anticipate the levees breaking, the number of storm victims needing help, or that the Superdome wouldn't be just fine to shelter a few thousand folks for a couple of days until they could return home.

I'm fairly certain most businesses don't expect much will happen to their cash registers either, but IBM thinks it doesn't hurt to check out the merchandise ahead of time.

Students in my classes are well-acquainted with one of my regular coverage points. It goes thusly:

Me: When do clients most often find out their insurance is inadequate?

Class: At the time of a claim!

Me: And what is the worst possible time for a client–or you–to find out their insurance is inadequate?

Class: At the time of a claim!

Notice the problem?

Now consider two examples of folks who learned the best laid plans of mice and men often go astray–but had the good fortune to discover their error in much less painful circumstances than at the time of a loss.

A computer security consultant visits a business. The business is quite proud of a recent large expenditure specifically designed to enhance their security. Proudly they lead the consultant to their brand-new computer room, replete with reinforced doors and digital alarms. The consultant takes a quick look. The beaming business owners await his praise. The consultant asks for a step ladder, climbs up into the ceiling by pushing aside an acoustic ceiling tile and drops down on the other side of the wall-inside the new computer room.

A mother feels quite happy about her latest purchase to keep her young daughter safe in the event of a fire. Her daughter, if trapped in her upstairs bedroom by a blaze, can open the window, attach the recently purchased coiled ladder to the windowsill and safely climb down to the lawn below. And Mom is even prouder of the fact that, instead of settling for the cheaper and seemingly less robust rope version, she opted to pay extra for a highly durable, aluminum model.

Several months later, as part of a school assignment on home fire safety, mother and daughter make a test run with the ladder. The mother is dismayed and embarrassed to discover she overlooked two seemingly minor but crucial facts. First, even with Mom's help, the daughter is barely able to haul the new ladder from the closet, which means there is no way she could do it herself if trapped alone upstairs. Second, the ladder, when properly attached to the windowsill and uncoiled, barely reaches halfway to the ground. Assuming the daughter was somehow able to drag the ladder across the room, heave it out the window and climb down, she would find the risk of burns had been replaced by the distinct possibility of a broken neck.

The best way to summarize every example above is with the tried-and-true observation, “It's not how you start; it's how you finish.” In each case, the person admirably had given thought to the possibility of loss, and made a reasoned decision that either no action was needed or that the actions already taken would prove sufficient. In each and every case, the person was dead wrong.

Have you prided yourself on giving serious thought to the insurance recommendations you've given your insureds and on the effort you've made to explain them? Congratulations! You have done well–so far. But, as in the above cases, you've only made a good start. Are you ready for the finish?

I suggest we take a leaf from Randy Adair and IBM. Let's not just sell insurance, let's abuse it first! No, don't drop a CG 0001 from a table, or leave an HO-3 in the freezer overnight. Simulate the type of abuse your client's insurance will be expected to endure–claims. And not just theoretical, classroom-illustration claims. I mean the real, live, down-and-dirty claims that actually hit folks. Run the ones that seem most applicable to a given insured through his or her coverages, and see how the protection stands up.

For example, anyone in the Gulf Coast region who was fortunate enough to have a carrier pay Katrina losses under a BOP no doubt has been enjoying the outstanding 12 months of unlimited business-income coverage that is one of a BOP's best features. Yet, if they are among the many as yet unable to rebuild or reopen, they are about to find out that 12 months, which seemed an eternity when they bought the policy, can go by awfully fast in real life. What are they going to do when those crucial payments cease, with the possibility of many more months of business-income loss yet to come?

How often after a disaster–be it earthquake, hurricane, tornado or forest fire–have we read of insureds discovering that their seemingly adequate property coverage falls well short of the full replacement cost of their buildings and equipment? And while an increase in repair costs mandated by ordinance or law is certainly an issue, in far too many cases the insured and whoever set those policy limits evidently failed to consider the significant increases in the costs of building materials and contractor prices that typically follow disasters. Go back through every major or even minor catastrophe of the last several decades. Didn't building-supply prices always leap, due to scarcity or simple demand? Isn't there always a shortage of qualified contractors after disasters, and doesn't that shortage inevitably lead to higher prices? Shouldn't that be factored into the calculation of adequate limits?

And how often have loss valuations come up short, in the insured's estimation, for replacement of computers, electronics, software, key equipment and business-income or extra-expense reimbursements?

Remember to use real, not theoretical, data in your abuse-testing. Crunch the numbers based on the insured's real inventory and revenues. Factor in realistic increased costs due to disaster scenarios. Use actual losses from your own experience with similar accounts. If a claims scenario you find in a magazine or seminar rings a bell, don't just nod your head and think “interesting.” Pull a couple of accounts similar to the one in the scenario and run the simulation. What if that specific claim happened to your insured? Would you still be smiling?

Many folks over the years have intoned sagely, “Experience is the best teacher.” But I always think, “Yeah–but in all honesty I'd rather have learned the lesson and skipped the experience.” I have no doubt that the business with the flawed computer security plan and the mother whose escape plan for her daughter literally came up short would heartily agree.

How about you? When would you like to learn that the coverage you recommended and/or sold is inadequate? When would your insured like to learn? Isn't it time your agency appointed a Solutions Test Manager?

Ladies and gentlemen: Start your simulations!