The CLIP
Contractual Liability Insurance Policy (CLIP)
I live in the world of creative insurance (is that an oxymoron?). As my good friend Broker Brett says, “I like to build cool sh*t with my friends.” I’ve created insurance programs rated on a per-hour basis, embedded master policies for large groups of independent contractors where one policy covers thousands instead of thousands of policies just covering one. Just when I think I’ve seen it all - the CLIP enters the stage. People bring me the craziest ideas (and I love it). Numerous times this year I’ve taken those ideas to creative, super-talented people at the carriers I partner with and they keep saying, “Yeah I think we could do that with a CLIP.” A what?
IRMI defines a CLIP like this - “…It is a commercial insurance product that covers the contractual obligations of the insured (always a commercial entity)… A full reimbursement CLIP would indemnify the insured commercial entity for all monies it expends to fulfill a contractual commitment. The insured's need to procure a CLIP can be driven by a regulatory requirement or simple economics.” It’s the risk transfer of a contract (guarantee, warranty, a statement of indemnity).
They are most commonly associated with homebuilders and automobile warranties. Would you like to buy an extended auto warranty? [Those phone calls that make you hang up immediately]. However, CLIPs can be used for so much more. A car warranty says up to so many miles, if x,y,z goes wrong, we’ll fix it and incur the cost (risk). That concept can be expanded -
Take for example the Airbnb host promise or Aircover. When Airbnb was getting started, folks were having a hard time getting on board with letting strangers rent their houses (imagine that). Airbnb wanted a way to give hosts the warm and fuzzies - and it worked. Hosts on Airbnb get $3M in damages coverage and $1M in liability coverage provided by the “promise” or guarantee, and it looks like that startup Airbnb is doing alright. Fast forward with me to May 2023. The commissioner of insurance in Washington looks at Aircover and says, this looks a lot like an insurance policy. It has coverages and you’re even accepting/denying “claims.” Here’s the story. The short story is the state of Washington says it needs to be an insurance policy - a CLIP!
Could your company or your insured be utilizing a CLIP?
Are you offering some type of warranty on your product or services? Do you guarantee your services? Do you want to so that you can give customers the warm and fuzzies? Have you considered transferring the risk of full refunds, reimbursements, or the cost of failed services? It can be used by any industry - software, peer to peer sharing, financial institutions, fintech, insurtech, anywhere.
Hopefully this spurs some thought and creativity, either way, all this talk about guarantees makes me think of this iconic scene from the movie “Tommy Boy”
