ARE YOUR HOMEOWNERS ACCOUNTS INSURED TO VALUE?
by Curtis Pearsall
You’ve decided to add a family room to your house with big bay windows, and French doors opening onto a back garden. You’re talking to contractors, deciding on paint colors, and supervising a host of other details. How likely are you to contact your insurance agent to modify your coverage limits? Read what Curtis Pearsall has to say about underinsured clients in this document.
Nearly three in four (73%) homes in the United States are underinsured by 35%. When I first saw this statistic I found it hard to believe. But that was the conclusion of a survey by Marshall & Swift/Boeckh, a firm that provides building cost information to insurance companies.
I then checked to see how many of Utica’s E&O claims in 2000 arose from failure to provide proper Homeowners coverage. The answer: 16%. I’m sure that improper limits contribute to that 16%.
For many companies, Homeowners is no longer the profitable line that it once was. The lack of adequate premium for the values could be a significant reason. After all, the underinsurance statistics mean that insurers are only getting around 70-75% of the premium they need to write Homeowners risks.
Who’s to blame for this situation? Companies certainly have a significant responsibility because they often rely on telephone conversations to evaluate the value of homes. Although agents should also take a fair amount of the blame, I believe that they’re in the best position to fix the problem — and to reap the benefits of doing so.
The fact that most agents rely on the limits in their customers’ current Homeowners policies to set coverage at renewal means that underinsured homes will continue to remain so. However, the root causes of the problem are additions and renovations. Put yourself in your customer’s shoes. When they’re planning to put a new deck on the back of their house or to add a new room, chances are that calling their insurance agent to increase Homeowners coverage ranks low on their 'to do' list — if it’s there at all.
If you’re in a small community where most people know each other, ask your staff to keep an eye out for construction on customers’ homes when they’re traveling around town.
Because your customers probably aren’t going to tell you about this new exposure, you need to contact them. One method is to conduct an annual review of every Homeowners account. Lay the groundwork for these surveys by sending Homeowners customers a newsletter (printed or electronic) with articles that stress the need to contact you whenever they renovate their home.
Automation makes it easy to send customers letters to make sure that they’re insuring their property to its proper value. The survey should ask such question as 'what changes have you made to your home in the past 24 months?' Include a stamped self-addressed envelope. Or you might prefer to have CSRs do a telephone survey, with every conversation fully documented.
Use these surveys to upsell Homeowners customers and to create a paper trail that can be used if a customer refuses to increase their coverage, suffers a loss, and then threatens to sue you for failing to insure their residence to value.
Newsletters and surveys are great tools to educate your customers, reinforce your professionalism, build your bottom line — and reduce your E&O exposure. How many of your customers fall into the 73% of underinsured homeowners? There’s no way you’ll learn unless you ask them.
This article originally appeared in the Utica National Insurance Co. E&O Bulletin and is reproduced with permission. Curtis M. Pearsall, CPCU, AIAF can be reached at Utica National Insurance Group, P.O. Box 530, Utica, NY 13503, (800) 274-1914, fax (315) 734-280, or e-mail [email protected].