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The Business of Knife Making A forum dedicated to all aspects of running, managing and legal operational issues relating to the custom knife making and custom knife selling industry.

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Old 03-24-2009, 04:55 PM
Brett Schaller's Avatar
Brett Schaller Brett Schaller is offline
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Alternative to insurance?

I've been following some threads here and on other (non-knife) discussion boards on the subjuct of insurance when shipping packages. A common complaint has been that the carrier will use any excuse it can not to pay out a claim.

One technique is requiring the claimant to "prove" the value of the item lost. I doesn't matter if you purchased $400 worth of insurance - before they pay, you must prove the item was worth $400.

Of course, presenting a sales receipt and cancelled check from your customer is not enough to establish "true market value." Some have reported that their claims have been turned down flat because "it is impossible to establish a value on a one-of-a-kind, handmade knife."

Anyway, i"ve been thinking of an alternative to insurance, and I'd like some opinions on it. What I would do is, when shipping a package, I'd look up the amount to insure it for full value on the USPS site and add that amount to the shipping cost to the customer, just as I do now. But I wouldn't actually buy the insurance - instead, I'd deposit the money into an escrow account. Since most packages are not lost, the amount in the account would grow every time I shipped a package.

Eventually, a package will probably be lost or damaged. By the time that happens, I will (I hope) have enough in the account to cover the refund to my customer.

Of course, this is not without pitfalls. If the fourth or fifth package I send out after I start this is lost, I won't have nearly enough to cover it. On the other hand, if USPS fails to pay my claim, I'm no worse off - and at least this way, things will even out eventually.


So, what does everyone think? Is this practical? Ethical? Legal? Fattening?


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Old 03-24-2009, 08:21 PM
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SharpByCoop SharpByCoop is offline
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Hi Brett,

I can't answer your question as you pose it. I use a different solution:

I can't imagine paying insurance to the carriers. You have also heard the horror stories.

I use an insurer that covers knives specifically: Collectibles Insurance (www.collectinsure.com). Underwriter is Lloyds of London.

I consistently have a flow of knives coming and going. They cover them coming to me (My clients like the savings) and sending them back. Coverage varies, but all of the carriers must have a signature to receive. Even Priority Mail with sig req'd is covered up to $2000. Express (or registered) is covered up to $15k. FedEx and UPS are similar.

I pay once for the year, and I'm covered no matter how many shipments. My coverage goes up to $15k. $400 per year as a 'dealer'. You will pay less for less coverage. (Also is covered for theft and traveling to shows.)

Now: the million dollar question: How do they handle a claim? Well based upon others who have had a problem, apparently well. You see, after 5 years and many hundreds of shipments, I have never, ever had a problem. Probably because I always use a premier service.

Hope this helps.

Good luck.

Coop


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Old 03-24-2009, 10:29 PM
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Brett Schaller Brett Schaller is offline
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Thanks, Coop! I had never considered anything like that, but I will definitely look into it.

One of these days, I WILL get some knives to you to photograph.


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Old 03-24-2009, 11:17 PM
AcridSaint AcridSaint is offline
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Brett - as an alternative, I think that you should continue to insure your packages and save the same amount in a separate account. When you've reached enough money saved, then perhaps purchase dealer insurance like Coop has. I do know that these insurance claims are getting harder and harder, at some point there's got to be a class-action or some sort because they are really just taking your money.


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Old 04-08-2009, 09:22 AM
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dbalfa dbalfa is offline
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If you look up my profile, you will see that I speak from specific knowledge of this subject.

What you proposed is exactly what insurance companies do with your premiums. No insurance company relies solely on premium payments to make profit, but rather by investing your money to their benefit. So if you were to spike your escrow account as you term it with a small start-up amount, say $100, into an interest bearing account, then fund it with each knife sold like you stated, you would be in essence what we call "self-insuring." If you are a small to moderate scale maker, that would be a good way to do it. I would think that only if you were a larger or very upscale maker would off-site insurance underwritten by Loyd's or the like be useful or economical. Insurance companies don't typically loose money on claims, only on investments. That's what got AIG, not claims.

Remember, you are gambling something will happen, insurance companies are gambling nothing will happen - they are almost always right> That's why a lot of young, "indestructible" people choose not to have health insurance- odds are they will be healthy and would rather spend that money on other things.

Long story short - I like your idea. Why shouldn't you eventually reap the benefits, not UPS, of insurance cost payments???


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