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Confusing World of Commercial Insurance

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by Shawn Heiser, CIC, ERM, CLCS, WCS on Mar 21, 2016

We receive inquiries every day from people that have called every agent they know to “put in a bid” (shotgun). A “jump ball strategy” is more than dangerous; it is often a time-consuming administrative disaster for you and a risky waste of time for most of the agents that foolishly chose to participate. Even worse, the customer orchestrating “quotes” hides the “teams” from each other so that one hand does not know what the other is doing. It’s like playing battleship for a puppeteer in the dark and you are constantly bumping into the other players while trying to get face time with the puppeteer. But, the puppets (agents) are still somehow expected to be responsible for the immense task of protecting your balance sheet and assets…in the dark!

This is a strategy that is rooted in fear, which is lack of knowledge, and does less to improve how you deal with risk and more to increase risk to the business when (not if) common mistakes are made. And, since you don’t know coverage forms, and have not chosen representation consultatively, you will simply default to lower price (not lower cost). There is a better way!

First, you must realize that the insurance market is limited. This market, although serving many businesses, is served by a limited number of insurance agents and brokers who represent an even smaller number of insurance companies. It is possible to lower your costs with a better strategy. How? Keep reading.

First, you should pick one broker (or two) whom you trust. Second, ask for a complete list of companies (markets) and assign access to the particular insurance carriers available (with appetite) for you. Always keep organized records of their responses to help with your marketing strategy going-forward. Or, be prepared to lose control and let the insurance marketplace pick your agent for you at random from a box of apples and oranges.

If you are shopping for competitive quotes for your renewal, be prepared to be asked for claims history or “Loss Runs”. More specifically, these are “currently-valued within 90 days hard-copy on insurance carrier paper” loss runs. Loss runs are provided by your past insurance providers within 30 days of the request, and are more readily available from your previous agents. Current and prior agents are also required to provide them when requested (unless the agent acts in an anti-competitive manner, in which case you may wish to reconsider your relationships!). Don’t trust an agent that does not require loss runs or “no-loss letters”, as this is always an underwriting requirement and should be a red flag for you.

Loss Runs are documents provided by the insurance company indicating any losses, the amount paid, money reserved to pay losses and associated costs and expenses. If you have had no losses, that is good, and the Loss Runs will indicate this. If you have had losses, you will need to be forthcoming with this information. At the end of each policy year, three months before renewal, you should ask for currently-valued Loss Runs from current (incumbent) and prior carriers for all lines of coverage. This is a good hedge against uncertainty and should be kept with your records. It also helps you to optimize and think strategically about your total cost of risk. Be organized and be prepared to provide detailed explanations about large losses, frequent claims, and loss patterns.

All of your records should be kept for at least four years. You will always be asked for the previous information, and this will help in answering questions. Most companies require three years insurance history plus the current year; some are requiring five years. If correct information is given, the insurance provider will be able to secure a firm quote. There is nothing more frustrating than putting together a quote (marketing), having the insurer commit to it (bindable!), and then finding out that not all of the information was correct or accurate. At that point either the premium has to be increased (re-rated), terms and conditions change, or the quote withdrawn (pulled).

At this point, once you have taken it upon yourself to shop your coverage, one important point is to keep the information that you provide each broker or carrier the same. The insurance industry overlaps, and if there is conflicting information, questions will be asked and answers will be needed. At this point, the quote may be pulled and the insurance company assumes that you are not interested or worthwhile to pursue.

Do not be tempted to withhold any pertinent information to alter underwriting knowledge with the response that “nobody asked”. That game will bite you eventually. If you are underwritten incorrectly, you may not have the coverage you think you have when you need it or you may receive an audit for additional premium.

Many times, insurance companies that have seen your risk several times from different agents will respond unfavorably (multiple submissions). When a company has seen too many submissions, they may put you at the bottom of the stack. If the underwriter decides to quote, they will only provide a quote to the first broker to provide them applications. This can gum up the process. It also serves as a way for agents to be anti-competitive, called “blocking” the market.

If a broker has been beaten to a market, or blocked, he may ask you to release the carrier or BOR (verb) it to him. Occasionally, you will have to decide on a broker to represent you to get that quote (i.e. sign a Broker of Record Letter (BOR) on letterhead to release the market and quotes). This may take effect immediately or there may be a 10-day grace period before it takes effect and the underwriter can re-start work (rescinding period). Sometimes, the timing can wreak havoc on your renewal options. Choose your “appointments” wisely and work with those you trust and find to be more capable.

Good luck.

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