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The Case of the Missing Agent
by Ann Krilanovich
Insurance premiums go up, while service goes down. How can that be? Let’s start this discussion with the acknowledgement that sellers of commercial property casualty insurance work fairly hard to get your business in the first place. They review your needs, submit your information to a lot of insurance companies (if they can), and they make sure you get a good deal. But a few years after you’ve bought your policy, they are nowhere to be found.
Because insurance companies are paying their sales agents less than they did five years ago (average 10% commission on the total premium), your agent is down to working at less than $250 per hour! Shocked? I thought you would be. In truth, after the first year with your account, the agent/broker is making about $500 an hour on an account that pays $50,000 a year in commercial insurance premium. Are you getting service that is reflective of that kind of money?
Here are some clues you are being shuffled to the bottom of the service pile:
You don’t get a yearly visit anymore. Nobody checks in advance to see what needs to be changed at renewal (or any other time for that matter).
You don’t talk to the person who soldyou the insurance. Low-level clerical staff are your helpers and they turn over more than you would like. In fact, the agency may have sold or transferred your business to a small operation where the wages are lower (soon, overseas….).
The renewal premiums are edging up, even though premiums have dropped significantly in the past five years.
The cover letter with your new/renewal policy suggests that you find the errors and call them. There is no insurance summary and no sign of extra effort.
You are asked to prepare your own certificates of insurance and similar regular documents. You don’t get competitive quotes at renewal unless you demand or threaten.
Get Served
Insurance agents/brokers (don’t be fooled that there is a big difference) are laying off personnel in record numbers to keep their ample profits (paid to some big banks and holding companies in a lot of cases) at good bonus levels for the officers of the agency. Clearly, they can’t keep up the level of service with 25% less personnel.
Here is how you turn the service deficit around. Most importantly, put everything in writing. Tell sellers of insurance, in writing, that you expect excellent service: a visit once a year, updates 90 days in advance of renewal, and their general awareness of your business changes and needs.
Tell sellers to design specifications (Acord Applications) with optional quotes for property coverage improvements through higher deductible options and the premium savings. The definitions of building (property insured) must include foundations, underground piping, drains above ground and under ground, paving, lights and light poles, land, plants, trees, shrubs, sprinkler for landscaping, wharves or docks, and any underground utilities (you guessed it, these are not insured or are severely limited).
Also included, building ordinance, demolition, increased cost of construction, contingent liability from operation of building laws, including time element, increased time to rebuild and an extended period of indemnity. The ordinance limit should be at least $1 million in the Bay Area. Tiny built-in limits of $25,000 are not enough. Ordinance should include loss of rents and “down zoning” (limits the insured’s ability to rebuild damaged property at the described property location to the current density, use, size or number of units).
Coverage for loss of rents (including the potential value of vacant units) with extended period of indemnity for two years (this extends coverage after the building is rebuilt to get rents to the level they were before the fire or other covered loss) should also be included.
All real and personal property should have a blanket limit; in other words, one limit applicable to all of your buildings and loss of rents. Beware of the coinsurance clause (it’s a penalty clause). Perils insured should include but not be limited to risks of physical loss or damage, mold cleanup, earthquake sprinkler leakage (all locations), broad water damage including backing up of sewers/drains, and flood if there is any exposure. Include equipment breakdown with no exclusion for hazardous substances used in the machinery, and no exclusion for refrigerants. Building codes and increased time to rebuild due to codes are perils.
Also include the cost of reclaiming, restoring or repairing land improvements (any alteration to the natural condition of land by grading, landscaping and additions to land such as pavements, roadways or similar works), as well as the soft costs for building in the course of construction or renovation.
You also want coverage for architects, surveyors, engineers and legal fees incurred in the reinstatement of property insured. There should be no exclusion of damage to existing property for buildings undergoing renovation and a waiver of conditions suspending or restricting insurance coverage (increase in hazard, vacancy and unoccupancy).
If vacant units are increasing in these hard economic times, make sure a certain percentage of vacancy does not invalidate all or part of your property insurance coverage. Finally, employee dishonesty or vandalism should be included. Don’t be afraid to ask the seller of insurance to suggest additional improvements. The more you pay in premium, the more likely you are to get some of these modifications.
Also, tell sellers to design specifications (Acord Applications) with optional quotes for liability coverage improvements through: coverage for personal injury liability assumed by contract; blanket additional insured and waiver of subrogation wording; and pollution.
Bodily injury should be defined to include mental injury, anguish or shock without a requirement that the mental injury, anguish or shock result from bodily injury. You also want coverage for property damage to work performed by or on behalf of the named insured by contractors/subcontractors; there should be no absolute exclusion of “property damage” to work performed by or on behalf of the insured.Intentional acts should be covered, particularly the use of force to protect persons or property as respects the acts of third parties, unless directed by any insured.
Amend any “other insurance clause” to provide that this insurance is primary and noncontributory, and any additional insureds. Include discrimination, of course, as well as cross liability suits and coverage for liability arising from mold or fungus. Make sure there are no pre-existing damages, designated premises or cross liability suit exclusions.
You also need liability coverage (primary and excess/umbrella) to cover the amount you could lose. Yes, you probably need high liability limits, as well as nonowned and hired auto liability, including coverage for cars of partners, if your buildings are owned by partnerships. As always, ask the seller of insurance to suggest additional improvements. The more you pay in premium, the more likely you are to get some of these modifications.
In general, tell sellers to provide at least three quotes every other year. Ask that the insurance company review your leases, contracts, safety manuals and related documents, and suggest improvements that can avoid losses or save money on insurance premiums. Have insurance personnel attend employee safety meetings, conduct employee safety meetings and suggest ways to lower your human insurance costs.
Insist on a very good summary of your insurance and/or a booklet that outlines your insurance coverages in plain English. The summary should also suggest other coverages that you might want to consider and what you might be able to get at no additional cost. You should get and understand a list of exclusions.
Also, tell the sellers to go over the workers’ compensation insurance experience modification calculation. As many as 10% of experience calculations contain errors. Hopefully, they will know how it is calculated. Ask for and expect all of the above at no charge. Try a written service contract at the time they are most interested in your account: the time of sale. Include a time line and have the sellers sign.
Have these meeting every year. Remain consistent. Believe me, I’ve worked in these brokerages and there are those accounts that get good service and those that don’t, even when the premium is the same. Be on the lookout. Not only is your service going down, your insurance premiums are going to head up sharply in 2009. With the troubled AIG and soon others, you can expect all insurers to take full advantage of the situation and start nudging up premiums. They’ve all caught the AIG flu.
What can you do, especially with the housing market down as well? There are a few more procedures to make sure you are getting the best premiums available.
Tell your agent/broker/insurance company representative to send your five-year loss history so you can shop around; I’m sure you understand what message this sends.
Don’t be afraid to say that business comes before whatever personal relationship you might have, and that you want three ideas of how to reduce your premium through safety, risk transfer or risk prevention techniques. Say that you expect maximum credits for your buildings in good condition and that you want to talk about the amount of income they make on your account and what they do for that income.
Every four to five years, call in a competitor to spice up the bidding process. Always do this. Be sure to assign insurance markets so that two sellers don’t go to the same insurance company. Your agent/broker is worried about his/her income and although they pay lip service to the disaster of increased premiums, they are secretly throwing their hands up in joy. The higher the premium, the higher the commission income. If they can get away with a premium increase that doesn’t make you scream, so much the better. The squeaky wheel gets greased! Time to squeak!
Ann Krilanovich is with Insurance Dynamics and can be contacted at ann@insurancedynamics.com. She has over 25 years of risk and insurance consulting as well as being an insurance teacher, speaker and expert witness. She has special expertise in helping property owners and property managers of all sizes. Copyright © 2009 Ann Krilanovich/Insurance Dynamics. All rights reserved.