Too Much Manual Effort is a Show Stopper
Insurance Experts' Forum, July 11, 2014
We write thousands of small homeowners policies with the excess and surplus (E&S) market. Most of the premiums are under $1,000. We also write thousands of policies with other major admitted carriers. However, the administrative burden of doing business with the E&S market is about to be a show-stopper.
For agency bill policies, retail agents are required to follow up on every renewal two to three times. Every three years, we are required to get a new application reviewed and signed by the client, and we respond to an inspection that typically requires additional interactions with the client as well as follow up on any property issues or disputes over replacement values. We can’t afford to keep doing this.
We love the E&S market. It covers unique risks and has great rates that are easy to sell; however, the administrative requirements are putting us in the red.
Over the years, certain processes and requirements were put into place, but it’s now time to take a hard, logical look at some of the onerous tasks that exist.
Example 1: What additional value is derived from requiring an application on every policy every three years? The applicant’s date of birth, social security number and address will not have changed. What new data received could possibly justify the enormous clerical burden placed on the retailer and wholesaler?
When we work with standard carriers, they only require an application when the policy is originally written, unless there are some extenuating circumstances, and their billing is handled automatically with very little clerical involvement by the retailer.
Example 2: What additional value is derived from requiring an inspection on every policy every three years? Inspections are a huge cost to both the industry and wholesalers that is passed on to the clients. The receipt, review and analysis of every inspection is an onerous task for the wholesalers. Then, if any issues are identified, the wholesaler sends the inspection to the retailer to communicate to the insured. Almost every policy becomes a dispute over the replacement cost and property clean-up requirements.
To make the swamp even deeper, obtaining a replacement cost estimate far from an exact science. In our area, if the coverage is within a “reasonableness” range of $90 to $110 per square foot, and the client is comfortable with the coverage level, then who are we to disagree? I have run several different cost estimators on a 1,000-square-foot home and I have received values from $75,000 to $200,000. The exercise is futile. For the less than $100 per policy, per year we are paid, we cannot afford to do this.
In addition, the insured often is offended by the inspection experience, and we spend excessive time explaining the process and calming them down.
To validate the risks being insured, standard carriers conduct infrequent random inspections on small properties, and concentrate more inspections on higher-value properties. They put an inflation guard on the policy and bump up the coverage a bit each year so no one has to run expensive cost-estimators that provide extreme variations in results.
How can we fix this insanity?
Angelyn Treutel Zeringue, CPA, is president of Southgroup Insurance Gulf Coast and the chair of ASCnet's Industry Solutions Industry Initiatives Committee and the past-chair of the IIABA Agents Council for Technology.
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