Working with inexperienced Insurance Producers, I am aware that the concept of analyzing risk can be quite foreign to those newer to the industry. I'm finding that there is a lack of knowledge in the proper placement of risk in the personal insurance arena in general. I'm hiring to make that concept a bit easier to understand by examining what components of a risk need to be considered when making carrier placement decisions.
The widespread use of comparative raters has been the one factor that may confuse insurance personnel the most. Technology has advanced tremendously in the past several years, but none of the rats adequately possess the ability to analyze a risk and eliminate the rates of carriers that do not even want that particular risk. If a rate comes back and they are competitive- they must want the risk- right?
Overwhelmingly, the answer to that question is NO! In personal lines, we are typically starting the analysis by determining if a risk is "preferred" or "standard / non-standard." Here are the characteristics of a "preferred" risk:
– Positive physical attributes of property to be insured . Homes need to be well-maintained and depending upon the year built, updating of plumbing, roof (except some tile and slate), wiring and HVAC systems must be done in the past 30-35 years. Autos need to also be well-maintained and free of any damage. Pride of ownership is evident.
– Loss history is clear . A preferred risk has no losses in the past 5 years. A water loss or liability loss may indicate an exposure that may have a higher probability of having another loss. For property exposures, losses follow the insured. If you have an insured that owns multiple properties and the home is loss free but the rentals have losses; those losses will be taken into consideration on the home when determining the illegibility of the risk. This is especially true if the carrier will not be insuring the rental properties. You need to understand those losses even if you are currently not insuring those properties to have a discussion with the underwriter on the merits of the risk. On auto, multiple not at-fault accidents are generally precursors to an at-fault accident.
– Be aware of trends in the marketplace and how your risk may be affected . For example, in recent years in Southern California, water losses have been extremely prevalent among homes with a certain type of plumbing and and with certain years built. Your prospect may have a higher probability of loss due to these external factors.
– Insured wants proper insurance to cover assets . A preferred client understands that losses filed will be catastrophic in nature and not maintenance issues. They also understand the value of high deductibles because the long- term cost savings due to reduced overall premiums paid is in their best interest.
– Understand lifestyle and hobbies . There is a difference between having a large home to insure and a complex lifestyle. Insureds with large schedules, frequent travel, loan artwork to museums, have in-servant exposures or own "toys" belong in a "High Value" market as their lifestyle requires additional expertise at the time of a loss not to mention that they tend to have higher expectations of how a claim will be handled in general. Placing these risks in a "Middle Market" does a complete disservice to the client.
– Bills are paid on time . Clients that have billing issues or regularly get late notices do not belong in a preferred market. Choose lump sum or Recurring Credit Card / EFT for best retention and fewer phone calls.
– There should be an expectation that you will place the entire account . There is nothing positive about writing a mono-line policy. Even if the other policies do not renew for several months, you need all information when writing the first policy to make sure you are able to determine the best "home" for that particular client. The retention is higher (the only way you make money), another agent does not have the opportunity to market to an "existing" client, the client gets all the account discounts available which can be fundamental and you will know that all of the clients exposures are being properly insured.
– Prior insurance with high limits exists. Preferred carriers are offering their best rates to clients who qualify. Prior insurance with high liability limits reflects an attitude toward insurance that the client embarks the value of being properly protected. Insurance only works when the carrier is getting the proper premium for the exposure.
– Profit sharing and protecting markets matter to the agency. Placing risk with carriers with an appetite for that type of risk is extremely important to the long-term success of the agency. Carriers depend on their agents to be honest about the risk presented otherwise these decisions will come back to negatively impact their business relationships. It's extremely important to limit the number of markets you choose to do business with so that you can understand and keep up with changing appetites. You may want to assign each staff member to be a carrier expert so everyone does not have to know everything about every market.
It's really easy to get personally involved with a client or prospect and want to offer them the best rate possible no matter what. Do so at your own risk! This is a profession and you need the skill to keep the business considerations foremost in mind when placing risk. If you can do this, you will work in a business that can be very good to you!