E&O Insights: Does Every One of Your Accounts Have a Personal or Commercial Umbrella?

By | June 20, 2011

The answer to the question posed in the headline is probably “no.” Despite your efforts, not every account (personal or commercial) buys this protection. The best follow up question would be, “Have you provided an umbrella proposal to every one of your accounts?” I’m hopeful the answer to that question is yes. If not, this is a campaign worth considering – and is also a great step toward errors and omissions (E&O) loss prevention.

As you have noted either through various insurance trade journals or one or more of your agency accounts, large losses can and do happen. They are not necessarily easy to predict and, when they occur, they can have, without the proper protection, a devastating impact on your customer. This is why, when a large loss occurs, the absence of an umbrella can have the potential to result in an E&O claim against the agency.

The Big Claim Can Happen

Discussion on the various primary coverages is not that difficult. Most accounts see a need for the primary coverages. Yet when the coverages become somewhat optional, things may get a little tougher. When the conversation gets around to the umbrella, there may be times you must create the need because if customers don’t perceive a need for this coverage, they are less inclined to secure it. They may be convincing themselves the “big claim could never happen to them. There are several things you should do in this regard.

Always offer a range of umbrella proposals.

To begin, do your best to understand the account and its exposures. One of the more popular ways is using an Exposure Analysis Checklist that provides a solid understanding of that class of business and key questions to ask. This will help you discuss each of the coverages with the customer and bring to their attention some areas where there is significant severity potential and, thus, the need for an umbrella.

Always offer a range of umbrella proposals, starting at $1 million, with options at least up to $5 million, if not higher. In addition, include a statement that higher umbrella limit proposals are available upon request. If you were to offer only one option for $1 million, the customer may be led to believe this is the only limit available.

Do not recommend the limit you think is best. If you were to recommend a $1 million umbrella and then the client has a significant loss where this $1 million umbrella was not enough, they could come back and question why you only recommended a $1 million limit.

The customer should select the limit. You definitely want to get their sign-off on those limits you offered that were not selected.

Help Customers Understand

To help the customer understand the need for coverage and the potential for the size loss his or her type of business could suffer, ask your carrier for claim examples. These real-life examples are a great way to impress upon a customer that large losses do occur. For many risks, the large loss could come from a variety of exposures involving general liability, commercial auto, professional, etc.

If you are securing umbrella proposals from several carriers, review the policy forms to see if there are any differences among them.

After identifying any differences, bring them to the attention of the customer and let them determine which form and pricing best fits them. Is the coverage follow form? Be certain, too, to review both the primary and umbrella forms to see if there are exclusions in one but not the other. These are important issues that need to be resolved to do the job properly.

Are any of the underlying policies written on a claims-made basis? How well does the umbrella address that exposure (underlying policies written on both a claims-made and occurrence basis)? If one of the coverages is on a claims-made basis, is full prior-acts being afforded or is there a retro date? There is a critical distinction you, as the agent, need to bring to the client’s attention.

One of the common E&O claims involving umbrellas is the result of the primary policies not being at the required underlying limit. This creates a gap before the umbrella policy will respond.

Whether the account in question is a current customer, an account you just took over from another agent or a new business prospect, the process is the same. There is a definite caution involving accounts new to your agency. While the account may request to “duplicate what I have,” it is best to take a fresh approach to their insurance program. Exposures do change and it is doubtful that “renewing as is” will address these changes.

If the client states, “let me think about it,” document back to the client that you have not placed the coverage and, if coverage is desired, the client should contact your agency promptly.

Bring in Additional Sales, Solid E&O Protection

Look to ascertain what percentage of your accounts, both personal and commercial, have an umbrella policy today. Undergo a campaign to provide an umbrella proposal for those that don’t currently have this coverage. Then, next year at this time, look to see how much progress you have made.

Accounts that bought an umbrella have helped you grow your agency through additional sales. At the same time, for those accounts to which you offered the coverage and they have signed-off rejecting the proposal, you have made great strides in errors and omissions protection.

Sounds like a good win-win proposal to me.

Topics Commercial Lines Business Insurance

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Insurance Journal Magazine June 20, 2011
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