What limits should I carry?

By Ken Kukral

With the recent disaster in West Texas the debate has surfaced on what limits should an account carry?  Having only one million limits for a hazardous risk is now being labeled as “irresponsible”.  There will be millions in uncovered losses and I am sure attorneys will be looking for someone to pay up.

So when your prospect or client asks you what limits should they carry, how will you respond.  There is the stock answer of “as high a limit as you can afford”.  That will most likely not satisfy your client.  Keeping in mind that your job is to help protect your clients assets and that you need to take a serious look at the amount of assets you are looking to protect.  Being cognizant of what your “client has to lose” is a starting point.

You can look to see what their peers carry in terms of limits.  Short of writing a lot of accounts in a similar business, this will not be very effective.  Even if there are industry statistics on this matter, every accounts situation is different and you cannot just say “this is what everyone else carries”.

I think the true starting point is finding out your clients risk tolerance.  What limits do they feel comfortable with?  If the they want to carry are too low, it is your job to convince them they need higher limits.  Look at losses in their industry, recent court cases, cost of defense and other factors that may influence them.

Give them optional quotes for higher limits.  Many times they do not realize how reasonable the cost is for a one million, five million or ten million dollar umbrella.  There are many carriers (like Torus Ins. Co, that we deal with) that have quick online rating programs that allow you to get quick indications or last minute quotes for higher limits.  Keep in mind that this is also a good E&O defense when your client has a large loss and they come back to you asking why you didn’t offer them higher limits.

Looking at who they are doing business with will also help.  If they are dealing with large corporations, the insurance requirements will be mandated and will usually start at five or 10 million.  Don’t wait until they are ready to sign a contract and are coming to you at the last minute to get higher limits in place.  You may not be able to get them reasonable pricing at the last minute and that could hurt their profitability.

Keep in mind also the number of times they have to name other parties as additional insured.  If they have numerous parties sharing their limits, they should seriously look at carrying higher limits.  Nothing worse than having a large loss and having your limits compromised already.

Last of all, set minimum standards in your agency.  If you don’t think ANY of your clients should have less than $300,000 auto limits, than just flat out tell them, you do not offer lower limits.  Your carriers might but you have set minimum standards in your agency that you will not go below.  With the cost of litigation, even those limits will not go very far in the event of a serious accident or large claim.

Remember, your clients come to you for advice and guidance.  Make sure you have the discussions on carrying higher limits and let them know when you are “uncomfortable” with the limits they are carrying.  If they truly value your counsel then they will seriously consider carrying higher limits.  If you have to, get their account and or attorney involved to help convince them.  You are all there to help protect your client and do the best job for them.

Now get started implementing this in your agency!

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