What Makes a Good Underwriter?

By Ken Kukral


A recent article in National Underwriter got me thinking:  (read the full article here)

They boiled the qualities of a successful underwriter down to 4 things, but I think they left a couple things out.  The four things they found in a successful underwriters were:

  1. Maintain underwriting discipline
  2. Think outside the box
  3. Strive for a human connection
  4. Set yourself apart

Let’s discuss these and go a bit further.

Maintaining underwriting discipline.  Does this mean that the underwriter is consistent?  They look at a risk fairly and treat the risk the same for all agents?  They don’t write business they have any business writing (soft market expansion of classes).  To me this means the underwriter shows a long term consistent approach to looking at accounts.  The underwriter gives each risk a fair shake and you know they have given it a fair shot and priced it reasonably if they can write it.  No surprises.

I think this also means “looking for a way to write an account”.  Having an open mind and learning enough about the account to determine if it meets the underwriting guidelines for the carrier.  Over the years I have encountered many an underwriter who from the outset, is looking for a way to decline the account.  All gray area is taken in a negative connotation and unless ALL the stars line up, they will never quote the account.  All you want is for them to give it a shot.

Think outside the box.  In my thirty years in the business, this is one of the hardest things to master.  Many underwriters have become “box underwriters” and unless it fits the box, they decline it.  The “exception” underwriter is a dying breed and many underwriters are in fear of “coloring outside the lines”.  Just because a risk is unusual, one of a kind or “not like the others”, doesn’t make it a bad risk.  Some of my toughest “sells” to an underwriter has been accounts, they literally couldn’t have a loss, but the underwriter wouldn’t quote the account.  Coming up with a proper classification is an “art form” and not everything “fits the box”.

This can truly mean, looking for every possible angle to write an account.  Staying in the fight and duking it out till all your questions are answered and you have a comfort level with the account.   Especially if it is not a large account and will take some “work” to get the account done.  Not every coverage is readily available and might take some creative underwriting to come up with a solution.

A couple of examples of thinking outside the box:

  • We were able to come up with a solution for a large account where if they invoked their disaster plan and the hurricane veered off and there was not direct physical loss, they would have lost $1,300,000. So we were able to negotiate with a carrier for false trigger of disaster plan coverage.
  • We were approached by an agent whose client was a plaintiff’s law firm. They had evidence and documents stored in a warehouse, awaiting trial and were looking to insure for the expected settlement or award judgement that would be “compromised” if that evidence was destroyed by a direct physical loss.  Due to the “valuation” issue, we were not able to secure this coverage, but were able to find a carrier who would insured for the amount of expenses already expended on the case that would not be able to be recouped.

Bottom line, a good excess and surplus lines broker, who has been in the business for many years, has a wealth of knowledge and can many times find “solutions” to clients risk problems, by thinking outside the box.

Strive for human connection.  Trust is earned with an underwriter and the human connection cannot be under estimated.  So many times, submissions are e-mailed in without any phone conversation (or even a narrative).  Running an account past an underwriter can pay excellent dividends.  You find out what information they want, what the chances of placing the account and what the “hot points” are in dealing with the underwriter.  By having a preliminary discussion with the underwriter you can approach a potential client and get them on the same page with the underwriter from the beginning.  This will help a client feel like they are both working towards the same end and are not on either side of the fence.  This reduces a chance for us, versus them type of scenario.

How many times have you seen where after a face to face meeting, a dinner or an agency visit with the underwriter, you all of sudden start writing more business with that carrier?  A chance occurrence?  I think not.  It is a matter of building the relationship with the underwriter, finding common ground and a human connection.  It takes time and is a building process that pays long term results.

Set yourself apart.  Stand out in the crowd.  Don’t be a faceless drone.  Be the one they want to call first.  So this might entail taking more calls, sending periodic updates on where things stand or JUST GETTING THE JOB DONE.  While just getting the job done may not seem like something that sets you apart, it is.  As an underwriter, you want to be the “go to” underwriter.  The one they call first when they get a new piece of business.  The one who gets the “last shot” on an account.

This might mean staying late to get them a quote, knowing their cell number so you can get a hold of them at a moment’s notice or finding out up front what their client expects so you both don’t spin your wheels if you can’t meet the timing or pricing expectation.

So what did they leave out?

Qualifying accounts – Every underwriter can’t quote and write every account that comes in the door.  So asking a few questions up front, possibly putting out a rough indication or even declining an account if you know you can’t be competitive.  Respecting both your time and their time can be critical and will be important in the long term.  Who wouldn’t like to quote fewer accounts, but write more of them and have a higher hit ratio?

Just being responsive.  There is nothing better than a quick response.  Even if it is, hey, I received your submission and will look it over, looks like something we can do.  You would be surprised how many times, the first quote in gets the order.  Also remember a “quick no” is also good.  Allows the agent to go on to another carrier who can help them out.  This type of quick response can leave you in the number one position so you get first shot at that agent’s business.

Anything I missed?  Any other characteristics of your favorite underwriter?   Would love to hear your thought!

Ken KukralKenneth 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

Questions to ask prospective clients

Are there questions we should be asking prospective clients that we aren’t that would help us to better understand what they want?

Are there questions we are afraid to ask prospective clients?

Are there questions we should be asking that would help us to “qualify” prospective accounts?

I have a feeling that the answer to all three of the above questions is yes.  In fact I KNOW the answer is YES!  I do a post mortem on accounts I lost, didn’t write or spent significant time on and wondered if there were questions I should have asked that would have helped me to do a better job.  Questions such as:

  • What kind of premium or rate are you expecting or the insured is expecting? While they may not know, many times they do.  I have saved a lot of time and effort by just relaying minimum premiums for certain classes of business and found out they were expecting something significantly less.  That way the agent is able to move on to the next account and not spin their wheels that they aren’t going to write.
  • Why do you want to fire your current agent? Using a word like FIRE puts a touch of reality to the situation and many times the client will tell you what is important to them that the other agent is not providing.  If they say “they aren’t sure they want to fire their current agent”, then you have your work cut out for you.  Most likely they are just price shopping and you will have to work to differentiate yourself if you are going to have a chance to write account.
  • When do you need the quote by? Simple question, but I am surprise on how few it is asked.  It is essential if you want a clue as to what your prospective client is expecting.  Isn’t selling all about meeting or exceeding expectations?  If we don’t know the clients expectations, how do we have a chance to meet them?
  • What kind of premium are you currently paying? How many times have you worked an account, didn’t write it and found out the premiums they were currently paying after the fact?   If you knew up front you might have decided to not waste your time since they already had a great deal!  If they won’t tell you, that is a signal they are price shopping.  Do they think if you know what they are currently paying you will come in just barely under it?
  • If they don’t currently have coverage, why are they looking for it now? I know a number of carriers that don’t like accounts that do NOT have current coverage.  They found when they did “look backs” on the accounts that experienced losses, that the loss ratio for accounts that did not have coverage directly before them, experienced more losses.  I think the answer to this question, tells a lot about the potential client.  If they cancelled previously for non-pay, is this potential client going to be a payment nightmare or more susceptible to losses?  Are they only looking for coverage now since someone else is requiring it?  This is not necessarily a bad thing, but is important to know.
  • If they move coverage to different carriers over the last few years, why? They are most likely driven by price, don’t have any loyalty and don’t understand the true “cost” of switching carrier often.
  • Do we ask about their website? I can’t tell you how many times I do some internet research on a prospective account and the agent is unaware of what I found.  Many underwriters do the same thing and I hate to be “caught with my pants down” and unaware of what the insured’s website says or what is available on the internet about them.
  • How did you hear about us or come to call us? Did someone suggest us to you?  This give you some information on where your business is coming from and what is working.  If they were sent to you by another client, it lets you know who you should thank!
  • What is your biggest concern or what keeps you up at night about your insurance program? Again, it helps you to better know your client and find out what their “hot buttons” are.  Besides, if you don’t ask questions like this, how will you ever know?
  • Tell me about how you got started…. People love to talk about themselves and tell “their story”.  Knowing more about their “passion” and what makes them successful will help you to protect that commercial client.
  • What is their tolerance to risk? You will most likely get a confused look when you ask this question.  Ultimately you are there to properly protect their assets and they need to know more about what risk those assets take.  This is an opportune moment to help educate your potential client and help them understand what you are looking to do.

Finally…. Ask the prospective client if there are any questions you haven’t asked that they think you should?  This lets you know where you stand and how close you are to being on the same page.  Another expectation assessment moment.  If you are having to extract information and they are not very forthcoming, it will be hard for you to do your best job for them.  If it is a “need to know” type of environment, you have not built the trust element enough and are in for a bumpy road ahead and a reduced chance to write the account.

Keep in mind, you are there to learn about the account and portray them in the best possible light to the carrier to get them the best terms, most appropriate coverage and meet or exceed their expectations.  So ask away!

Ken KukralKenneth 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

Little tricks of the trade in the surplus lines business

Group of Business People Meeting

Over my 29 years, I have learned a few things and I would like to share some of those items with you.  Take them or leave them, they may help you out too.

  • Take a little time to learn about the prospective account. I have worked on many accounts where the “story changed” two or three times before getting down to what the account really did.  It is tough when a rush item is sent in, then going back and forth with the underwriter after the “story changed” when we asked more questions.  This causes the underwriters ears to “perk up” and they feel they need to dig deeper in order to have a comfort level.
  • Sometimes coverage is available on admitted paper. Do not assume just because you are going to s surplus lines broker that they will always use non-admitted paper.
  • Find out what endorsements you will need up front. This includes waiver of subrogation, primary and non-contributory wording, additional insureds, blanket additional insureds, stop gap liability, Employee Benefit Liability and per project aggregates.  It is easier to ask for these items up front and get them included in the pricing, rather than ask for them later.  Sometimes carriers cannot offer these and if they are required, we can move on to another carrier and not waste time.  Keep in mind also that most carriers in the E&S business charge EXTRA for these endorsements.
  • Read through the terms and conditions and ask for specimen copies of endorsements if you believe the endorsement/exclusion may be an issue. That way you can inform your client where their coverage starts and ends.  There are times exclusions can be “bought back”, so it can’t hurt to ask.
  • Different carriers use different premium basis. For contractors, some rate based on payroll and other base premium on receipts.  Some other base them on the number of owners and number of employees.  So make sure you include ALL of the potential premium basis when sending in a submission.  Keep in mind to break out owner payroll, clerical and sales payroll from the rest of the payroll.  A number of classifications exclude this payroll and that can help bring the premium down.  If fact, you may even want to do a three year look back on their payroll and see if they have been over charged.  I know of one such account that when we did this, we were able to get the insured $200,000 in return premiums!  Think they were happy?
  • One more note on payrolls. If your insured is doing a hazardous operation, such as say demolition, it would behoove you to break out the payroll by classification.  So for a demolition contractor, how much payroll actually goes to the demolition classification?  Should part of the payroll go to trucking (trucking the debris away), some to backfilling or grading of land (filling in the basement), some to debris removal… etc… you get the idea.  That way the proper amount goes to the highest rated classification.
  • Certain classes of risk require supplemental applications. Contractors require a contractor’s supplemental application.  Restaurants, bars and taverns require a hospitality supplemental application.  Apartments require a habitational supplemental application.  Find a comprehensive one you can use and be consistent.
  • If you can, try to determine the proper ISO classification. This alleviates the chance the underwriter will use the wrong one.  Many E&S carriers have manuals that break out the specific ISO classification and make it within binding authority (for the MGA), submit or prohibited.  So if they pick the wrong classification, the risk may be declined.
  • Just because you are “going E&S” doesn’t mean that you can ask for the endorsements or coverage you believe the clients need. You may get a quote with more restrictive coverage, but at least you asked for more expansive coverage.  Many markets can add expanded GL or property endorsements or some of the “fringe” coverages you need.
  • Websites – Nearly ALL underwriters will check out a risks website, so you might as well too. That way you can explain any disparities between the application and the website upfront.
  • If you know prospective pricing, let us know. We can quickly tell you if the expectations are unrealistic and save both of us a lot of time.
  • Narratives are appreciated. They become “rare” anymore and a submission with a good narrative actually stands out from the crowd.
  • We like to know what happened to the account… Many times we get in a rush submission, pull out all the stops.. send out a quote.. and never hear anything again…. We like to know what happened to a risk if we didn’t write it so we can find out what we did wrong or if our markets are not competitive.

I hope sharing some of these “tricks of the trade” will help you out.  I would appreciate hearing about some of the things you found out in this business that have helped you along the way.

Ken KukralKenneth 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

Need help figuring it out?

Composite image of young businessman standing back to camera scr

Having just spent a significant amount of time trying to resolve a coordination of coverage solution, midstream, I look back and wonder if we could have done it more efficiently.  In “plain English”, if I was given all the information upfront, could we have done a better job for the client?

An agency should never have a problem reaching out to help find a solution for a client.  You are not expected to know all the answers or know the best options or solutions for a client.  Realize your knowledge or technical expertise limitations and reach out to a broker who can help you arrive at the best solution for the client.

Do I have you confused yet?  Let me try to explain and give you a couple of examples.  Here are a couple of recent situations that came across my desk:

  • Agent calls to place general liability coverage for a “crime scene clean up” contractor. In going over the account, they were mainly interested in JUST getting general liability coverage.  I was able to convince them that a more comprehensive solution would be a better fit.  By going to the environmental market (who feels much more comfortable with this type of risk than a contractors general liability market who would be a bit more queasy) I was able to secure general liability, products & completed operations, pollution liability, professional liability, blanket additional insured, blanket waiver of subrogation, primary & non-contributory wording, stop gap and EBL for about the same price as just the general liability with another carrier.  It will make the account much tougher to lose since many agents will not be able to better or replicate the program to take it away.
  • Agent calls to place a barge that has been permanently moored and converted to an office. In was able to get a copy of their current insurance program and show the significant holes in their current insurance program.  I was then able to come up with a more properly written solution that covered their exposures.  Had I not been able to get significant underwriting information and a copy of their existing program, I might have been doomed to continue with the same issues or problems with their current insurance program.  Sometimes it is like pulling teeth to get the information but it helps us to do a better job in the end.
  • Agent has us help with the aviation portion of an account without providing us with the full details of the overall insurance program they put in place. Upon pressing deeper, I found that there was duplication in coverage and I am in the process of coordinating coverage to help reduce the customer’s insurance premiums.

So what am I asking for?  I am asking for a shot at helping  to provide a solution instead of just “filling an order” for a piece of the program.  Wholesale brokers see such a wide variety of accounts, build an expertise and knowledge base and many times can provide innovative solutions to your customer’s insurance issues.  This is where getting on the phone to discuss and account makes sense.  Just sending an e-mail doesn’t cut it and leaves a lot to be desired.  I get on the phone with my underwriters and have these types of discussions so I can get an idea of how favorable they are to the particular account and what innovative type of solutions they may have.

You can also take the perspective of looking to improve on the prospects current insurance program.  How can you address the client’s exposures better than the current agent?  This might involve adding broadening endorsements, removing exclusions or offering higher limits.  A wholesale broker may have some ideas that could help you accomplish this.  Remember, we are here to write business and I am assuming that is your ultimate goals so we are both headed in the same direction.

Ken KukralKenneth 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

Are we preparing our clients for an audit?


Over the years I have been involved with many policy audit situations and I wonder how well we really prepare our clients for an audit.  Understanding that most Workers’ Compensation and General Liability policies are written on a “deposit premium” basis, do our clients realize that?

Having once collected a $1,000,000 audit on a $60,000 account, I realized early that audits had to be handled properly, each and every time.  I think if we better prepare our clients, the audit process will go even smoother.  Ultimately we want the client to be happy and have their expectations met and don’t want any surprises.

Some things I learned along the way:

  • Read your carrier contracts. Over the years I have read over a 100 brokerage and carrier contracts.  MOST of them address audits and how they will be handled.  They set the procedures and timelines that you have to follow or you could become liable for the audit premium of your clients!  I don’t know about you, but there are less than a handful of clients that I would GUARANTEE that the audit premium was collectible and I would pay it whether or not I was paid.  But I can’t tell you how many times the brokerage or carrier contract said I was responsible for collection of the audit premium, even if it was uncollectible from the client!  This literally the first thing I look for in a contract!
  • Procedures for handling of audits for each of your markets needs to be spelled out and followed to a T. In fact I recommend that a specific management person be in control of this procedure and be responsible for tracking audits.  Ultimately if the procedures are not followed, the owners may be the ones on the hook for the audit premium if it becomes uncollectable.
  • Audit premiums are “extremely” collectible. By this I mean that when an insured is taken to court to collect, the carrier is almost always successful in getting a judgment in their favor (collecting the judgment is a separate matter if the insured has gone out of business).  So it is worth the effort to try and help the carrier collect the audit since you will make commission on the premium if you are successful.  Once collected, it goes towards your “earned premium” with the carrier immediately and can help improve your loss ratio with them.
  • It is worth understanding how the premium basis is computed. Just because payroll may be the general liability premium basis, all payrolls should not be included.  For many classes, executive and clerical payroll (sometimes sales payroll) is excluded.  I have been able to get significant return premiums for clients from past carriers by pointing this out.  It helps to solidify a relationship with that client when you help get them money back by pointing this out.  In fact an “old timer” once told me that with any new client, you should do a three year look back (the normal timetable in policies of how far back a carrier or client can go on audits) at how their premium basis was computed and detect if there have been any prior mistakes.  There are a number of other excluded payroll rules (like how to count over time) and you should make yourself aware of them.
  • One carrier we represented used an “audit letter” (The letter explained the premium basis, showing what premium basis they used and showed how the rate times the premium basis resulted in the deposit premium). They found that if they took a little extra time up front to educate the client, their audit collectability went up significantly.  It also provided a document they could use in court that would show the insured understood the audit provision of the policy, that if their premium basis increased during the policy that they would be responsible for additional premium and that they signed off on this.
  • Stay in contact with your clients during the policy term. If you notice you are issuing a significant number of bonds or certificates for clients on new business they were awarded, ask the question on how this will affect their premium basis.  Make sure they are setting aside funds during these times so they aren’t left scrambling at audit payment time.
  • Make sure clients understand the term “minimum and deposit”. Simply put this means they can only have an additional premium audit and never a return premium audit.  Trying to get a carrier to soften a minimum and deposit endorsement or waive it after conclusion of a policy is nearly impossible.  If they learn early on that they didn’t get a number of contracts they were expecting and the premium basis will be significantly reduced, get a hold of the carrier at that time and see if they are willing to make adjustments.  They might be willing to drop the minimum & deposit percentage to help out.  It can’t hurt to ask.

Too many times audits come as a total surprise to a client.  It makes for a wedge between the agent and the client that many times results in the loss of the account.  It doesn’t have to be that way if we prepare them up front and make the client understand how their insurance works.  Pay as you go workers compensation has eliminated the need for audits and has taken the guessing game out of projecting premium basis.  This may be something worth exploring in the future.

Hopefully, some of these tips may help and take away some of the angst and frustrations with audits in the future.  Happy collecting!

Ken KukralWith over 25 years of experience in the insurance industry, Ken Kukral has developed expertise in: Complex and larger accounts, Casualty Insurance, Property Insurance, Inland Marine Insurance, Professional Liability Insurance, Directors & Officers Liability Insurance, Employment Practices Liability Insurance, Products Liability Insurance, Product recall Insurance, Insurance Program Development, Surplus Lines Regulation, Coverage Analysis, Difficult Insurance Placements, Excess and Umbrella Insurance, Carrier Contract Acquisition, Unique or “one of a kind” insurance solutions, Association Leadership and Association Management, Insurance Sales and Marketing. For questions about this topic, or to have an exposure looked at, contact Ken directly at kennethkukral@intlxs.com

The art of “pre-qualifying” an account

Checklist on whiteboard with businessman hand drawing win-win an

Over the years one of the most important thing I have learned is you CAN’T quote every account that comes in the door.  As much as you would like to you just can’t.  The logic that you have to quote an account in order to write it is flawed.  If things worked this way, your hit ratio would be down in the low single digits.

So what do I mean by pre-qualifying an account?  Ultimately I mean getting enough information about the account and the prospects expectations in order to determine the odds of quoting and writing the account.  Since we don’t make money quoting, just writing an account, we would love to work on fewer accounts and write more of them.  Sounds easy, right? It doesn’t seem to work out that way.

A couple of years ago we took a look at our “hit ratio” (the number accounts we logged into our system and the number we ended up writing).  When we compared one year against the following year we found a significant jump in our “hit ratio”.  So much so that we tilted our head (like a dog would when it hears a high pitched sound) and wondered what happened.  In discussing this we found out that we spent more time qualifying an account UP FRONT to determine if we had a significant opportunity to write the account.  If we didn’t feel we had a decent chance to write it, we relayed that information on to the producer and DIDN’T log the account in (to our agency management system).  (By relaying information to the producer I meant we either declined the account, gave them a “ballpark indication” or let them know what minimum premiums we might be up against)  If the producer didn’t think we were going to be competitive or wanted to go back to the prospect to run the potential premium range by them, we stored the submission and went on to the next one.  When our industry (E&S) usually has hit ratios of 5% to 15%, getting a hit ratio over 20% was HUGE!

Some hints for pre-qualifying accounts:

  • Don’t be afraid to ask the prospect if you are the first agent to be working on getting them a quote. It is OK if they have another agent working on it, especially if they haven’t heard back from that agent in a long time.  That opens the door to “look great” in their eyes if you can get something quickly.  Ask who, since it may let you know what markets have already been approached.
  • Ask them if they have a premium range they are expecting. I just worked on a quote that came in originally at $5,000 and a second quote came in at $2,500.  I was sure we would write it!  I failed to ask up front what premium they were expecting and found out after I quoted it that they expected it to come in under $1,000.  Had I known that I would have come back to them that my best potential quote would START at $2,500 and would have not spent the time working that particular account.
  • Find out current carrier and premium. Some prospects may be reluctant to give you this information and just ask you to come in with “your best numbers”.  At this point you have to ask if the account is worth spending your time.  A prospect who does not want to give you this information does not yet “trust” you enough or you have not yet built enough of a relationship with them.  This type of transaction hinges on pure price.  Those are the type of customers that will also leave you on price.  Also they don’t value your time since it will take you time to put together a competitive quote and your chances or writing it is low.  Many times we ask this question and are told a “standard market” is on the account and they are NOT non-renewing. (just an FYI… the very first question I look at on an ACORD application is the one asking if they are being non-renewed.  Second question is the expiring carrier).  If the current carrier is willing to renew, then we ask why you are coming to the E&S market with the submission.  We do very few “standard market” accounts and would have to have a good reason to try and work an account that is and have any chance of writing it.
  • Learn minimum premiums for certain coverage lines. By this I mean many products liability markets start at $5,000 minimum premium.  So if the insured has only $25,000 in expected sales first year, can they afford a $5,000 premium?  Many times the sticker shock will sent the prospect moving on and you can spend your time working accounts you actually have a chance to write.
  • Find out how quickly they need a quote. I have accounts that I worked on and turned around a fabulous quote, only to find out they needed one within 24 hours and I lost my chance to write it.  Not to say something cannot be quoted quickly, but you need to know that up front so you can make the decision if you are going to drop what you are doing and pull out all the stops to get them something.
  • Last of all if they currently have a quote (or renewal quote) ask them why they want to move their business to your agency. Their answer will be a great determining factor on how serious they are and will help you to pre-qualify the account.

The “holy grail” is to work fewer accounts and write them all (or a higher percentage of them).  The only way you ever stand a chance of making that happen is to pre-qualify accounts that come in the door so you work fewer of them and write more of them.  New producers will tend to work EVERY account they happen across and they need to be trained to be more discerning and work on only the ones they stand a chance of writing.  The quicker they learn this the more successful they will be.  This is a great New Years’ Resolution to make and keep in 2015.  I know I am working on this one daily and after 29 years in the business still have a lot to learn.

Ken KukralWith over 25 years of experience in the insurance industry, Ken Kukral has developed expertise in: Complex and larger accounts, Casualty Insurance, Property Insurance, Inland Marine Insurance, Professional Liability Insurance, Directors & Officers Liability Insurance, Employment Practices Liability Insurance, Products Liability Insurance, Product recall Insurance, Insurance Program Development, Surplus Lines Regulation, Coverage Analysis, Difficult Insurance Placements, Excess and Umbrella Insurance, Carrier Contract Acquisition, Unique or “one of a kind” insurance solutions, Association Leadership and Association Management, Insurance Sales and Marketing. For questions about this topic, or to have an exposure looked at, contact Ken directly at kennethkukral@intlxs.com

The Difference in Conditions Insurance Coverage

One of the coverages that has traditionally remained in the excess and surplus lines market is Difference In Condition Insurance Coverage (DIC). This is defined as:

A property policy insuring “all risks” of physical loss or damage, excluding fire and extended coverage perils. Any cause of loss that would result in the property being left in a condition different from what it was prior to the occurrence of the loss event, except for those causes of loss specifically excluded. Such unnamed losses would include collapse, water damage, theft and (optionally) flood and earthquake. Often, this coverage is provided on an inland marine basis.


DIC insurance provides coverage designed to close specific gaps in standard insurance policies and is usually available only for larger industrial or commercial risks. It allows coverage to be customized to extend to such exposures as water damage, flood, collapse, earthquake, landslide, etc., according to the insured’s needs. DIC coverage may be provided by means of a separate insurance policy or it may be added by endorsement to the basic policy.

ISO even came out with a form for this coverage in their inland marine coverage area and defines it as follows:
The Insurance Services Office (ISO) Difference In Conditions Coverage Form provides broader insurance coverages for insured property than the insurance provided by many conventional property coverage forms. While it does not provide excess limits for existing property coverages, it does provide coverages not found in the underlying coverage forms or policies. Its name arises from the different coverage provisions that exist between it and the underlying coverages. The more differences there are in coverage between the underlying coverage and the Difference in Conditions (DIC) form, the more coverage the DIC provides. This form supplements the underlying coverage forms by providing at least some additional coverage, such as Earthquake and Water Damage, including Flood. The DIC limits are usually equal to or less than the underlying limits because the underwriting intent is for the DIC to be a companion policy to the conventional property policy covering on the same property. However, is possible for a DIC to provide excess coverage for a cause of loss covered by the underlying or companion policy. The form provides coverage for risks of direct physical loss or damage, except as limited or excluded, including Earthquake and Water Damage, on covered property at described locations, at unnamed locations and while in transit.

Difference In Conditions coverage is not a controlled line of insurance and no standard form is available for use. In the past, each insurance company designed its own coverage form or policy and provided its own unique coverages and other features. However, ISO has a reputation for developing excellent inland marine coverage forms used in whole or in part by its members and subscribers. ISO’s coverage forms are used here as the model to analyze, evaluate and explain the Difference In Conditions Declarations and Coverage Forms.

With these multiple definitions what does an agent need to know about DIC Coverage?
1. Agents need to assess what the insured’s property exposures are and determine what coverage and limits their clients need. DIC coverage allows and agent to “fill gaps” in their clients program and not just settle for the coverage and limits provided by their carrier.
2. DIC Coverage can be used when a carrier sub-limits a specific peril due to comfort level with that exposure or reinsurance restrictions. A DIC policy can provide those excess limits that the insured needs to complete their insurance program at the limits they want. A good example of this is when using a DIC policy to provide excess flood limits over a NFIP flood policy. Also can be used when a carrier puts a theft sub-limit on an underlying policy and the insured wants higher limits.
3. Some agents will call DIC Coverage a “Property Umbrella” policy. This is because they may be using this “property umbrella” to eliminate coverage gaps or drop down when limits do not reach the levels needed to satisfy a client.
4. Although ISO came out with a coverage form for DIC, most carriers use their own form so there is little standardization with this coverage. A full analysis of the form needs to be done and not just the specific perils that are being covered.
5. Perils that can be covered? Just about anything but most commonly flood, earthquake, collapse, fungi, wet and dry rot, theft, unusual transit exposures, international exposures and unique burglary exposures.
6. Agents must review exclusions and policy conditions that might be different between a DIC policy and the insured’s standard fire policy.
7. Policy structure can be done one of three ways
– An “all risk” primary coverage form that excludes perils that are being provided by a standard policy
– A specified peril primary coverage form with only the perils that are to be covered on the DIC form listed
– An excess property form with underlying policies scheduled and standard property causes of loss excluded
8. DIC policies do not normally include coinsurance provisions.
9. It is important to review the definition of each peril since they can vary widely in DIC policies.
10. DIC policies usually have higher deductibles so those deductibles need to be reviewed closely with the insured to make sure they have a comfort level.

The final consideration in handling DIC insurance coverage for your clients is that you need to work with a carrier or a broker who will listen and help you tailor the coverage to your clients needs. Use a detailed application, provide loss runs and give a detailed narrative of what you are looking to do. Leave some lead time so you can negotiate with the underwriter to provide the most favorable program for your insured.

This is your time to be creative with your clients insurance program and help provide coverage that fits their needs. Your innovation and attention to detail in providing DIC will help to impress your client and will show them that you will not settle for “off the rack” coverage when a more tailored program is needed. Since very few agents propose DIC coverage to their clients, it will help you stand out and will show your expertise and professionalism.

If you have any questions, please contact me at: Ken Kukral 1-800-937-3497 ext 2079 kennethkukral@intlxs.com