When I started in the insurance business some 30 years ago, I began as an underwriter. This meant I needed to learn the “rules” and how to do rating if I was ever going to put out a quote. As a wholesale broker I needed to figure out pricing, terms and how to sell the underwriter on accounts that were “submit”. I always felt I needed to know a significant amount of information if I was going to have the “upper hand” with both carriers and clients. This was my basis of eventually becoming a “coverage guy”.
Part of my initial training was reading and understanding specific sections of the ISO Commercial Lines Manual. Without this, I wouldn’t have the necessary foundation of which to build on and understand the technicalities of this business. I can’t tell you how many times I searched through the classification tables in order to find the most appropriate classification for an account. There was not always one, so I needed to find the most appropriate one and then convince the underwriter to use that classification. There were many times that there were additional “rules” associated with a classification and I needed to know how that impacted the account.
Some of the areas that were the most important were the following:
- Minimum state payrolls. Each state has their own minimum owner payroll and many carriers had modifications to that. A mistake here could result in a mid-term endorsement increasing the payroll and the agent and insured would certainly NOT be happy.
- Premium basis. Understanding what each type of premium basis is and what was included was important. Knowing if it was “each”, per $100 or per $1,000 could make all the difference in rating up the account. A mistake here could result in a premium 10 times too high or too low. Carriers also had modification to this such as contractors where they might rate per employee instead of payroll.
- Details of what was included in payroll. Should executive payroll be included? Clerical payroll? Salesmen payroll? Overtime or holiday double time? Other forms of remuneration? Knowing the rules here could help significantly reduce the premium basis and subsequently the premium. This could mean the difference between writing an account or just narrowly missing it. Since carriers allow for up to three years to audit an account, you can go back that many years and possibly get significant return premiums by properly applying the rules. Do not assume the auditor knows all the rules. You may also want to “school” your client on these rules so they properly keep track of proper payroll and do not have any surprises at audit time. Also make sure your carriers do not have any modifications to these rules. Know what Rule 24 is? A clue, it gives many of the important payroll rules. When you get bored one day, do an internet search or e-mail me and I will send you a copy.
- Square footage. There are a few quirks here too. Sometimes carriers base their premium basis on “customer accessible” square footage. Calculating this out can sometimes make a significant difference. I have also found that relying on county property records can be an issue. The county property records may not have included a recent addition or change and will be picked up when the carrier inspects the property.
- Additional insured endorsements. In over 90 percent of requests we receive to add additional insured’s, we are NOT given the specific endorsement that should be added. This begs the question, if the wrong one is used, whose fault is it? All requests for additional insured status should give what endorsement form number to be used, when it is to be effective, the interest of the party looking to be added as additional insured and any other specifications that are needed. Using the wrong additional insured could even cost your client a bid for a job if they catch this detail and reject their bid, no fault of their own. Keep in mind that certain additional insured endorsements are “free” and some may incur a charge per additional insured. Talk to your client up front about how many they expect so you know if you should pursue a blanket additional insured or not.
- Rule 85 – Know what this is? This the rule that defines the criteria for a specific risk on if the fire rate will be specifically rated or class rated. A good risk is eligible to be rated after ISO inspects it and takes into account all fire protections. This can make a risk come in with a much lower rate than if it was class rated. You need to check the effective date of the rating and check with your customer to see if any changes were made since that time that would improve the fire rating.
- Debits or credits – The ISO manual defines what the potential credits are bases on certain criteria. Of course carriers may have their own criteria that supersede this criteria so also know the modifications your carriers make and your authority to use this debits or credits.
- Package credits – Who doesn’t like credits. There is a wide range of package credits based on classification. Your carriers may also have modifications to these.
- Deductible credits – Does your client have a higher tolerance to retaining risk? If so, you can quickly figure out how much they might save by going to higher deductibles.
- Construction definitions – Questions on masonry versus masonry non-combustible? Definitions are here so you can properly determine the proper construction class.
- Changes – ISO goes out of their way to discuss changes being made to classifications, rules or forms. You need to read and understand the changes so then when your clients ask about them, you are on top of them. This is especially true if there is a reduction in coverage. Keep in mind that carriers do not immediately accept changes and you need to watch for their adoption date.
- Exception pages. There are always exceptions. Many do not apply to what you are doing, but you need to make sure if they do.
While reading the ISO manual may not be an exciting read, it could help you out in writing business. Knowing the rules will help you to use them to your advantage and show your client that you understand the minutia of your business so they don’t have to. How much would your client love you if you were able to get them a return premium from the policy they previous wrote with another agent? Think helping them out would help solidify the new relationship? Just like in golf, it is important to know the rules so you can use them to your advantage. Happy reading….
Kenneth Kukral, CIC – VP of Special Risks – That means, call me if you need help on placing a unique, difficult, large or more complex risk. Kennethkukral@intlxs.com 800-937-3497 ext 2079