By Ken Kukral
As this point in the market if you ask the President of a multi-line insurance company where they are losing money, they will respond Workers Compensation and Homeowners. With the lack of profitability in these two lines of insurance you have witnessed price increases over the last 2 years with no end in sight. In fact many industry experts will say these products have been underpriced for years and are now finally catching up with the market.
What can you do about it? There is not a simple solution but you can actually do something about it. A few suggestions:
1. Roofing claims. When you have a roofing loss, a lot of times it ends up becoming a “total loss” on the roof since they can’t match the shingles. This means that the loss can end up being $4,000 to $20,000. Now I can understand a legitimate loss where a section of the roof is blown off, but many times this is not the type of claim we are talking about. The losses that end up happening are of two types:
– Where the roof is old and shingles blow off due to regular wear and tear and it was actually time to do a roof replacement. The insurance policy is not a “maintenance” policy and in a perfect world the insured will understand and will just make the roof replacement themselves. This will never happen. They will EXPECT that their roof be replaced. So how can this be avoided? Well, if you do some “loss control” and discuss with your clients that the “useful life” of their roof has hit its deadline at 25 years and recommend that they get estimates to get the roof replaced. This could also be a time to recommend they get trees cut back from the house that could potentially fall and damage the house. With more and more carriers changing their underwriting guidelines to go ACV on the roof after it hits the 25 year benchmark it will be in the best interests to be proactive about roof replacement.
– The other type of claim we are seeing is when a storm comes through and out pop the “storm chasers”. These are the roofing companies that approach your homeowners or neighbors of your homeowners and as a “public service” inform them that they may have experienced roof damage from the recent hail storm. They will gladly go up on the roof and “check it out”. It is amazing that nearly every time they do this, they find damage. Now an insurance company can bring in their own “roofing expert” and try to deny or refute the claim, but then they will look like the bad guys. So many times they have little choice but to do a roof replacement. Then the contractor goes down the street and “solicits” more business. Next thing you know a half dozen homes are having their roof replaced. Then they hit on your client. When your carrier denies the claim, they are the “big bad insurance company”. So how can you prevent this type of claim? This one is a bit tougher to prevent. All you can do is educate your client that can happen after a storm. Let them know what to look out for. If they need their insurance carrier to come out and inspect the roof then have them do that. Stay in contact with your client so that they feel they are being listened to and taken care of. They will then be less likely to fall for the “storm chasers” that will come around after a storm. Many times these storm chasers will not be local roofing companies, not have the proper bonding or insurance coverage or will have a “questionable” past. You may want to go as far as aligning your agency with a couple strong reputable roofers who will go out and help you with the inspections and only pursue legitimate claims.
2. Raise deductibles – It may take some effort but working with your insured’s to get them to take on and not transfer some risk (self-insurance) will pay dividends. If they no longer see their homeowners insurance policy as a “maintenance” policy they will be more responsible when a claim happens. They will be more likely to deal with problems that can lead to claims long before they become an issue. When they have a water heater that is going bad, they will replace it and not wait “until it goes”. We are seeing pressure by carriers to implement wind and hail deductibles in non-cat areas. It is only a matter of time before this spreads. Besides, a higher deductible will lower their premium.
3. Loss control – Educating your clients on things they can do to prevent losses will help bring your loss ratio down over a period of time. They should take pride that they are working to become a great risk and not just letting the house go until they have a claim. There are many, many things they can do to improve their risk profile and they should be constantly on the lookout to find more way to improve it. This needs to be an ongoing movement and you should share ideas on this via e-mail or newsletters.
4. Claims process changes – When receiving a loss from one of your insured’s, get involved. Have them get estimates and determine if they “really want to turn in the claim against their insurance policy”. A small claim that is around their deductible may be better off being paid by the client rather than having it show on their record. Explain what a “CLUE” report is and how their losses follow them. (keep in mind that I am talking about property claims and NOT liability claims). Many times after a loss an insured cannot “think straight” and you are there to help them put things into perspective. Your clients will appreciate your “straight shooting approach” and understand your sincere desire for them to have the best possible risk profile.
5. Communication – It is ever so important that you communicate with your clients and never avoid them when they have an issue. A dissatisfied client is more likely to run up a claim if they feel they have been ignored or unfairly dealt with. A client whom you have a “relationship with” is less likely to commit fraud or other dishonest acts that run up claims costs.
6. Don’t write monoline policies. Many carriers have found when they write only the homeowners and not any other lines of coverage their loss ratio is higher. There can be many reasons for this, but bottom line, carriers loss ratios are higher. Look at your book of business and do something about it.
7. Fire clients. Yes, I said fire clients. There are those insured’s who will always have claims. They will see their policy as more of a “maintenance” policy and submit every little claim. If there is this attitude, then ask them to move their coverage elsewhere. You will more than make up the commission loss in terms of contingent commissions or less hassle with your book of business. No one ever said you have to keep every client or write every potential client that walks in the door.
8. Valuation. When homeowners are written at too low a valuation, the carriers are not getting the proper amount of premium for the risk they are taking on. Taking the time to discuss, RC, ACV and market value to the client will help them feel they are not being over-insured.
9. Drill down. Look at your book of homeowners business and see where the losses are coming from. If you find a common theme, do something about it.
10. Improve your risk selection. Seek out clients that fit the risk profile you are looking for and don’t just take everyone that walks in the door. Fine more good clients. You will build a “sixth sense” and eventually know who will be good clients and who will be problem clients.
Your book of homeowners business will not improve without a concentrated effort to improve it. It won’t just magically happen. It takes a plan and a commitment to follow that plan. Your efforts will be rewarded long term and provide you with a much more profitable book of business.