Commentary: Reverse Bad Habits Formed During the Soft Market

Without revealing your age, do you remember the hard market of the mid-’80s? Rest assured, we are a long way from returning to the marketplace of 15-plus years ago. However, the market has bottomed and is beginning to harden—only slightly in some lines, more so in others.

Just like bad habits that slowly get away from us, companies tend to develop poor underwriting habits. Agents develop poor habits as well. Financial realities, such as worsening loss ratios and lower investment income, are forcing some companies to go on an underwriting diet. The time is right for progressive companies—and their agents—to change some of the poor habits that have been solidified by an extended soft market.

First, companies and agents need to understand that they are constantly being evaluated by each other. Long-term relationships require mutual respect. In most cases, agents have a choice of different companies with which to place business. While price and commission are important, many times agents opt for one company over another because of service, ease of operation and those long-term relationships.

In soft market survival mode, many national companies have cut staff. Some companies have merged with other companies. As a result, service often deteriorates and long-term relationships wane. Policy and endorsement processing standards have gone from a matter of weeks to a matter of months. Many agents have reacted by finding smaller, niche carriers who provide more personalized service, or by finding companies/program administrators that specialize in program business. Any independent agency carrier, whether national, regional or specialty, must always bear in mind that their customers are their agents. Without customers, a business will not be in business very long.

Now, what about those bad habits of agents? The clearest example of bad habits is found in the quality of agency submissions. As company underwriting has become less stringent through the soft market, the quality of submissions has fallen in the area of underwriting information that is provided. I can remember when it was standard procedure to include building photos with any property submission. Now, it is a rarity and cause for comment. While most company underwriters no longer require certain underwriting information, we often receive submissions without basic
rating information.

We frequently get auto submissions on accounts that might have locations in 15 to 20 cities, ranging from major metropolitan cities to small towns in other counties. And yet the auto submission frequently does not show which auto is garaged in which city. Our program insures passenger-carrying vehicles and the number of passengers is a basic rating factor. However, many auto submissions do not give us that information, and we often can’t tell by the make/model description.

About 35 percent of our submissions do not include a description of operations, no brochure, nothing. When that happens, we normally look at the GL application to see the rating codes and bases in order to get an idea of what the account does. However, we often find that the GL application showed the desired limits of liability, but omitted all the code and rating basis information. That leaves the underwriter in a position of not being able to underwrite or rate the submission.

Companies and agents alike have become slack in some underwriting areas. Many companies are no longer checking insurance to value. Likewise, many agents are being slack in their due diligence to advise insureds to insure to replacement cost. Unfortunately, insurance to value remains one of the most frequent E&O claims sources. Just a few years ago, most companies said that drivers of passenger-carrying vehicles could not be over age 65, some even as low as 60. I always questioned that since I knew many very capable drivers in their 70s. As is typical in a soft market, many companies went to the other extreme. I remember losing an account because we declined one of their drivers—age 91. But, as the underwriting pendulum swings back, look for companies to be more stringent in this area.

More often than not, submissions lacking information are coming from the incumbent agent who should be familiar with the account. Smaller agents, cheer up! Surpris-
ingly, the size of the agency does not necessarily equate to the quality of submissions.

Rather than the size of an agency, the prize often goes to the smartest or the most accurate. For example, one agent sent a submission and indicated that the current carrier had a restaurant code on the GL. However, upon questioning the agent we learned that the insured actually had the meals catered instead of cooking them in-house. This information changed the code and resulted in a significantly lower premium. Another submission indicated that the current carrier was charging for a 5,000- square-foot office. In reality, we determined that the building had 1,000 square feet of office space and 4,000 square feet of warehouse space.

Agents should never take at face value the work of another agent or another company. I have seen so many instances where an agent picked up a new account because they questioned what the insured was doing and thereby discovered gaps in existing coverage. The agent was no longer selling price, but selling coverages, service, expertise, etc.

We often provide agents with free marketing assistance (leads, sales kits, mailers, etc). However, only one in 10 agents who receive that assistance are actually using it. Generally, our program includes a generous package of coverages, but then we quote numerous options. Sadly, very few agents are selling the extra coverages.

So, wake up, companies and agents! It’s time we gave each other what we needed.

Robert Nasits is president and CEO of Care Providers Services, a Texarkana-based program administrator. Care Providers’ property/casualty program is designed exclusively for nonprofit social service organizations and is available in 16 states.

Topics Agencies Pricing Trends Underwriting Market