Are You Identifying All Of The Personal Lines Exposures?

by Curtis M. Pearsall, CPCU, CPIA
Special Consultant to the Utica National E&O Program

Generally, some E&O experts believe that predominately Personal Lines agencies are better E&O risks than their Commercial Lines counterparts. For the most part, this is true. After all, there is more standardization among Personal Lines policies and fewer types of coverages. However, in analyzing the data more closely, it is evident that Personal Lines agencies actually generate more E&O claim activity per 100 agency people, probably somewhat due to more transactions.

The biggest key is that the average size E&O claim in Personal Lines is much smaller than a Commercial Lines E&O claim. As with Commercial Lines, though, the #1 cause of E&O claims in Personal Lines is failure to provide the proper coverage. In fact, this actually accounts for just slightly less than half of Personal Lines E&O claims.

What is the “silver bullet” to addressing this issue?
The answer is some type of checklist that would assist you in identifying the various exposures your Personal Lines customers face. On the surface, you may be thinking, “How many exposures can they really have?” In some recent research I conducted, there were two exposures that really caught my eye and certainly have the potential to cause problems now and down the road: home-based business and collectibles.

According to studies, there are more people working out of their home today than ever before. In checking Department of Labor data, of the more than 7 million people who work out of their homes, almost 5 million of those have a home-based business. Nearly 5 million home-based businesses! While there are several reasons for this trend, it will be interesting to see that with today’s fuel costs whether this will spur even more home based businesses.

A couple of agents I spoke with on this subject stated their customers are now inquiring about coverage for their home-based business. One reason for this may involve a fact stated in a recent study by the Insurance Information Institute, the Department of Labor and RLI Corp. That study revealed that 48% of home-based business owners say they rely on their Homeowners insurance to protect their businesses. While there is some coverage under a Homeowners policy for this exposure, typically around $2,500, it certainly begs the question on whether this amount of coverage is adequate for the value of the property that home-based businesses have. Probably not. Plus, what about the potential for professional liability exposures where that specific coverage is needed?

How do you solve this issue?
There are probably at least two approaches that will help uncover this issue and not only help you sell more insurance, but also provide greater protection should an E&O claim be made against your fine agency.

An education-focused newsletter that goes out to all your Personal Lines clients addressing this issue is a good first step. Covering how Homeowners policies respond to this exposure and what the approximate cost would be to secure more specific coverage (Businessowners) should be included. A periodic mailing to your customers with a checklist that lists this exposure, among others, is a great means to identify those customers who have this exposure. It also will prove valuable in the event a claim is made against your agency and the client states they assumed their Homeowners coverage was adequate.

Collectibles. In a recent well-written article in Insurance Journal on this subject, I was amazed to learn that there are over 2,500 collectible clubs, ranging from the Barbie dolls and baseball cards, to various figurines and so on. Suffice to say, the chance of at least a few of your Homeowners customers having a collection of some type is extremely high. As with the issue of home-based business, an education-focused newsletter would be valuable to educate your customers on what is covered by their Homeowners policy and what is not. For example, while theft may be covered, is breakage? Is the value at a level where an independent appraiser should be brought in? After watching a few of those TV shows on antiques and collectibles, it is amazing to hear the value of some of these items. Without a fine arts schedule of some type, in the event of a fire, I would guess some customers are not going to be happy with their settlement. Who are they going to come after? Possibly you as their insurance agent, alleging you should have advised them on the proper means on protecting their valuable collectibles. In addition, a mailing to your customers with a checklist that lists collectibles is a great means of identifying this exposure among your Personal Lines customers.

If your agency is involved in Personal Lines, take the necessary means to educate your customers and advise them how to protect themselves properly. You might just sell more insurance, too!