Why Customers Need Personal Umbrella Coverage More Than Ever

That we live in a litigious society is not something new; we’ve been there for decades. Lawsuits have long followed auto accidents and mishaps that occur in homes, very often causing defendants to dig so deep to pay restitution that they jeopardize, or lose, their hard-earned financial independence. In recent years, however, the increasing transparency of our actions has created even more exposure than the traditional risks.

Today, parents can be sued because of something their teenagers write on Facebook. A blog post about a CEO or celebrity could result in a defamation suit. Whether these lawsuits from traditional or newer risks are valid or not, customers often end up having to defend themselves, which can cost thousands of dollars in out-of-pocket expenses if an umbrella policy is not in place.

With 13 percent of personal injury liability awards and settlements at $1 million or more, and with lawsuits as widespread as social media, umbrella policies are now truly a must-have for most. Banks require the purchase of home insurance to authorize mortgages, and virtually all states require drivers to buy auto insurance. Yet there is no mandate to buy a policy that could turn out to be the most important part of a customer’s insurance coverage.

In this environment, the personal umbrella policy becomes a strategic differentiator for independent agents, providing an opportunity to accentuate the role of trusted counselor and widen the service gap with the direct channel. The “value dialog” for the independent agent conversation is about the exposure clients have in their everyday lives versus naming their own price. It’s about walking them through the risks and explaining the potential consequences versus a quote for insurance in 15 minutes.

While the amount of coverage an independent agent recommends should bear some relation to their customers’ net worth, virtually all customers with a home and auto have a need for the protection that an umbrella provides.

How protected is your average customer who suddenly is facing a $2 million legal judgment? What protection would they have if a judge were to order a liquidation of their investments, personal property, or even garnish wages or future assets such as an inheritance?

Umbrella Needs

We know that well over one-half of personal lines customers do not have an umbrella. Today, the best independent agents are taking time to review physical and financial assets and create a risk profile to help clients find exactly the right policy or blend of policies for their lifestyles. Coming out of a recession, as people buy new cars, new homes and add recreational toys, there is an increased interest for them to protect their hard-earned assets. Also important is minding the gap between the umbrella policy and the auto and home policies so customers don’t end up inadvertently self-insuring for the spread.

One recent claim illustrates the value of this important coverage. A suit was filed against an insured whose teenage son was driving a jet ski erratically on a lake. A passenger was thrown, sustained multiple internal injuries and needed to be air lifted from the scene. Her year-plus recovery included multiple surgeries. While the jet ski owner had primary watercraft coverage with liability limits of up to $500,000, that was insufficient to cover all of the injuries and related expenses. The insured owned a successful business and had other significant assets that would have been at stake. Fortunately, this person had a personal umbrella policy that covered the total settlement with the injured claimant.

Most people don’t appreciate how much exposure they have until an independent agent walks them through the potential risks they face – from a fun day of boating to a car accident to the handyman that gets hurt while on their property. More account managers today are taking the time to educate customers about the potential value of an umbrella policy, and as a result, selling more of this coverage.

Here are three natural client conversation tracks that agents can use to infuse a value discussion about umbrella policy coverage.

Renewals

Coverage that may have been perfectly sufficient only a few years ago may not fully protect a client’s assets today. Renewal is probably the most opportune point to have a conversation about increased exposures and the need for an umbrella at the right policy limits. The best agents systematically incorporate this into the renewal handling process. They do training and role plays that create a mindset with their entire personal lines staff that umbrella coverage is a regular part of the renewal conversation.

New Business

Another important client interaction is new business. We see better agents not just completing the quote – instead they are having a discussion about risks first. We see some agents starting the umbrella discussion by asking new clients about their current umbrella limits, as often there is no in-force umbrella. Most customers are surprised at the relative low cost for so much protection. Since umbrella is generally not offered by low-cost sellers, this approach becomes another key differentiator.

Luxury Items

More and more customers are purchasing luxury items like boats, motorcycles or rental property – and they should always have an umbrella policy. Some agents are designing marketing programs that directly target these customers, with account managers reaching out to them individually. Customers appreciate the education and expertise, and they value those agents who are creating a differentiated experience from direct-channel providers.

Industry research supports this value-selling model as being lock-step with today’s consumer expectations and supports the benefits of improved account retention. A 2013 Accenture study revealed that 40 percent of consumers are willing to pay more for personalized advice or assistance when purchasing personal insurance – a number that has increased in the last three years. More and more consumers appreciate the expert advice that helps them protect their hard-earned assets.

Retention is several points higher for customers who purchase an umbrella, which can be the difference between an agent posting acceptable margins and achieving great margins. A value-selling strategy to evaluate risk and recommend umbrella takes direct aim at the weaknesses of low-touch, limited-coverage, remote-service competitors.

Actively selling the total account, including the umbrella, is a winning strategy that differentiates agents and also increases retention and margins. Umbrella policies secure long-term value and greater customer loyalty, two core growth strategies for independent agents in 2014 and beyond.

Topics Auto Agencies