By Ken Kukral
With the industry standard being a 1 year policy in the insurance business, agents are not used to monthly reporting form policies. The hope is that once an account is placed, they can put the policy to bed and not have to touch the file until they start to work on the renewal. There is the belief that every time you touch a file, “you lose money”. So why ever do a monthly reporting form policy, right?
Not so fast. There are certain situations that are best served by a monthly reporting form policy. Some examples are:
- A schedule of properties that fluctuates (properties are added and deleted on a regular basis)
- Contractors Builders Risk policies, where they are working on a number of projects and the values can fluctuate or increase over time.
- Floor plan monthly reporting form – Where values will fluctuate from month to month and they only want to pay for actual values
There are other uses for monthly reporting forms and they are mainly used where a risk will fluctuate over time. It would become a nightmare adding and deleting locations and accounting for debits and credits would be a book keepers horror story. Some of the advantages are:
- Administrative – The insured can make numerous additions and deletions and just file one report at the end of the month. Within the underwriting guidelines the adding of properties becomes effective immediately upon closing on the property. No longer do you have to push to get a binder for the closing, it’s covered.
- Accounting – You know the monthly charge for each property, the rate is set up front and you don’t have to worry about cancellations credits. This makes premium allocation to each property a snap and helps the investors to properly know their “cash positive” situation on a monthly basis.
- Cash Flow – You “pay as you go” and only pay for the coverage you need each month. You are not fronting unearned premium like you do on a normal insurance policy.
- Matches account evolution. So if the property value increases each month as renovations occur, you can up the values accordingly. If nothing changes in a given month, they would bill off of the last month reported and assume the values and locations are exactly the same.
So reporting form policies are the “bomb”? Not so quick… they do take some getting used to. The insured will usually have to put up a 1 or 2 month premium deposit (escrow), that they will get back. You have to complete the initial schedule rather than individual applications. This may take a little extra time but is well worth it. Next, you need to train your clients and your staff on how to administer them. You need to finish each month and without fail request the monthly report, usually 3 to 5 days after the end of the month. Reports are normally due the 10th of the month with the broker or carrier. So once you get this routine down, things will flow properly. Since the schedule will usually be self “computing”, you just need to have the insured include a check for the amount due with the schedule. This alleviates the accounting collection issues that can arise with other types of policies.
Take a little extra time to go through the reporting procedures so that when it comes time to report it will flow smoothly. One of our programs at our office is run this way and once the client gets used to it, then it flows smoothly. We find that clients love this type of policy and wondered how they did without it!
Keep this in mind when trying to determine what type of program would be best for your client and their situation. It is not always what is best for the agency and you need to keep that in mind. It is not that difficult, just different.