How is the economy affecting your clients?

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

First, this is not going to be an article on the economy – none of us have to look too far to hear the latest news. Instead, the purpose here is to review how the economy is affecting your clients and what actions they may be taking that your agency should be on the lookout for. It was interesting that when we addressed this topic at the recent Massachusetts Big Event in Boston, there was some great discussion from the group with some real life stories on what is happening in their shops. Based on that feedback, this might be a great topic at your next staff meeting to help / educate your staff on this issue. 
                                               
Here are some of the things that we are seeing:

Vacancies – there is no doubt that vacancies, whether on the personal lines side or in the commercial lines area are on the rise. In fact, my oldest son and his wife have moved back to Utica from Albany, leaving in Albany a house that they are trying to sell. When I asked him if he has advised his insurance agent that the house is vacant, he asked “Why would I need to do that?” It was evident that he was not aware of how his homeowners policy responded to a vacant dwelling. Many companies differentiate between a house that is vacant and one that is up for sale. Make sure that your customers do!

In the ongoing effort of educating policyholders, this would be a great topic to cover in your next newsletter and to put on your website. Generally, the public is probably not as knowledgeable on this topic as we may think.

Payments – are you seeing more customers paying at the very last minute? Are you seeing some paying after the policy has been cancelled? On the Personal lines side, I presume that most of that business is direct bill. Be alert to customers coming in your office to make payments; advise your staff (receptionists, CRS’s, etc.) to check the policy status before accepting payment. Some agencies have taken a position of not accepting the premium when it is right around the due date – instead giving the customers an envelope for that company and advising them to go ahead and send the premium in themselves.

You may also have the situation where they are looking to delete certain coverages right around the premium due date and look for you to recalculate the premium due. The best approach is to advise them to pay the correct amount due and that any overpayment will be credited towards their next installment.
  
Coverage deletions – there is no doubt that policyholders are going to look to their insurance program as a potential means of saving some money. This will translate into dropping various coverages, such as comp and collision on their auto, dropping their jewelry / fine arts floaters, maybe even dropping their personal umbrellas. If the customer advises you that they wish to make these changes, be sure to get the request in writing. This will serve as your defense should something happen and they disavow any knowledge of asking you to delete the coverage.

Asking for lower limits – instead of totally dropping the coverage, the policyholder may ask that you reduce the limit. For example, if it is an auto account and the insured wants to drop their limits, be certain that you are not creating a gap between the auto limit and any applicable umbrellas. In regards to property coverages, be alert to any co-insurance clauses that could result in a penalty at the time of a claim.

If the insured understands the implications and wants you to proceed anyway, get it in writing. In the event of a claim, your customer may disavow any knowledge of this or state that they didn’t understand it. Your file needs to reflect the discussion that took place and the ultimate decision.

Audits – oftentimes, on policies that are subject to audit based on sales, receipts, payroll, an insured may “low ball” on the exposure since they really are not sure what their exact exposures will be. This way, the premium is lower on the go in. When the policy is eventually audited, if there is an additional premium, make sure that your staff understands the appropriate way to handle these and what the implications are if the insured refuses to pay or states that they don’t have the money today. Virtually every agency contract has a clause that refers to the necessary way to handle these and when they need to be turned back to the company. Be certain the staff knows the right way to handle these.

Hopefully some of this resonates with you and are issues that you are experiencing first hand. Take the time to discuss this with your staff – it will help them understand the implications and allow them to exercise the necessary judgment.