As an experienced Insurance Producer, I know that it can be difficult to understand the concept of risk analysis. It seems that the knowledge required to properly place risk in personal insurance is lacking. This concept is not easy to grasp. I will be examining the components of risk that must be considered when placing carriers.
Insurance personnel may be confused by the widespread use of comparative raters. Although technology has improved tremendously over the years, none of the raters are able to accurately analyze a risk or eliminate rates from carriers that don’t want that risk. If they offer a rate that is competitive, they must be willing to take on the risk.
The overwhelming answer is no! In personal lines, we are typically starting the analysis by determining if a risk is “preferred” or “standard/non-standard.” These are the characteristics that make a “preferred risk”:
– Property must have positive physical attributes. It is important to maintain your home. Depending on the year of construction, any updates to plumbing, wiring, or HVAC systems should be made within the last 30-35 years. Also, autos must be kept in good condition and free from any damage. Pride in ownership is evident.
– The loss history of is clear . The preferred risk has not suffered any losses over the last five years. An exposure with a higher likelihood of experiencing another loss, such as a water loss or liability loss, may be a sign that there is heightened risk. Losses for property exposures are covered by the insured. If an insured owns multiple properties, but the home is not at risk, the losses will be considered when determining eligibility. This is particularly true if the carrier won’t be covering the rental properties. Even if the carrier is not currently insuring these properties, you should understand the losses and have a discussion about the merits with the underwriter. Multiple non-at-fault auto accidents are usually precursors to an at fault accident.
Be aware of market trends and how they may affect your risk. In Southern California, water loss has been very common in recent years. This is due to the fact that houses built in certain years and have certain plumbing types. These external factors could increase the risk of water loss for your prospect.
– The insured wants adequate insurance to protect assets. Preferred clients understand that catastrophic losses will not be covered by maintenance issues, but they are prepared for such eventualities. High deductibles are in the best interests of the client as they can save money over the long-term due to lower overall premiums.
– Learn about lifestyle and hobbies. There’s a big difference between having a large house to insure and living a complicated lifestyle. Large schedules, frequent travel, loan art to museums, in-servant exposures and own “toys”, are all examples of people who should be insured. They also have higher expectations about how claims will be handled. These risks are not appropriate for a client’s “Middle Market”.
– Bills paid on time. Clients who have billing problems or receive late notices often are not eligible for a preferred market. For best retention and fewer calls, choose a lump sum or recurring credit card/ EFT.
– It should be expected that you will use the entire account. Mono-line policies are not a good idea. Even if your other policies don’t renew for several months you still need to gather all the information you can to write the first policy. This will allow you to choose the right “home” for the client. Retention is more profitable than other agents. Clients who are already clients get all the account discounts that can be significant and you’ll know that they are properly covered.
– There is no prior insurance with high limits. Preferred carriers offer the best rates to clients who are eligible. Clients who have had prior insurance with high limits of liability reflect a willingness to be properly protected. Insurance works only if the carrier receives the correct premium.
Profit sharing and protecting the markets are important to the agency. It is crucial to take on carriers who are willing to take that kind of risk. Carrier companies rely on their agents being honest about the risks presented. Otherwise, these decisions can negatively impact their business relationships. Limiting the markets that you do business in is crucial to be able to understand and adapt to changing market needs. Each staff member may be assigned to be a carrier expert to ensure that everyone isn’t able to learn everything about every market.
It is easy to become involved with prospects or clients and offer the best rates possible. You do so at your own risk. This is a profession, and you must have the ability to think about the business when taking on risk. You will be able to work in a business that is very rewarding if you are able to do so.