Those not normally affected by natural disasters—hurricanes, earthquakes, and floods—may never expect their homes to be deemed hard-to-place risks. Insurance brokers and agents, however, should understand a different story.
Many brokers are finding homes and risk profiles that no longer meet the eligibility requirements of standard market carriers. It is important that when faced with the challenge of a hard-to-place home, brokers understand the exposures and turn to trusted partners to create tailored coverage solutions.
Bill Gatewood, Corporate Vice President and Director, Personal Insurance, Burns & Wilcox, Corporate Headquarters, and Tia Becker, Manager, Personal Insurance, Burns & Wilcox Canada, Toronto, Ont., discuss key details as to why a client’s home may become hard-to-place and how brokers can help prepare them.
1. Too many claims filed
“It is generally the case that a client has filed too many claims and the standard market has decided to non-renew their coverage,” says Gatewood.
A high frequency of loss should spark brokers and agents to understand the source of the problem. As a solution to clients that file a lot of small, unrelated claims, Gatewood says, “A higher deductible will decrease the number of claims on smaller losses.”
Becker states, “On properties that have a large loss history, risk and claims patterns need to be analyzed to understand if the occurrences are random and mitigating actions have been taken.”
There are also instances when clients are buying a new house that may be hard-to-place from the onset.
Clients should be aware of any major issues before purchasing a home and use Property Clue Reports that provide loss history on specific properties. In many instances, items may need to be replaced on the house before a standard market insurance company will insure it.
2. Not addressing the issues
“If the root cause of the problem has not been addressed, standard market insurers may decline covering a client,” says Gatewood.
If a roof, for example, reached the ends of its lifespan, a standard market insurer will not replace the roof. However, if the roof needs to be replaced due to circumstances beyond a client’s control – cold winter weather, for example – the surplus lines market is able to write a tailored Homeowner’s policy to cover the home and exclude the roof.
“There is more room for creativity with policies in the surplus lines market,” says Gatewood. “In any case, knowing the mitigating actions that have taken place to prevent the claims issue from resurfacing in the future—fixing plumbing, getting a new roof, or installing a security system—is good to know when approaching a surplus lines broker.”
3. The type of claim is severe
If the type of loss or claim is severe enough, a single claim may be the reason why a client is non-renewed in the standard market.
“Many clients are non-renewed for one dog bite claim or a massive sewer back up loss,” says Gatewood. “Surplus lines professionals can put a program together such as a Sewer Backup Deductible or endorsements that exclude or limit coverage regarding a specific portion of the home risk.”
The average dog bite loss is escalating, costing an average of $33,230 per claim in 2016 – up more than 73 percent since 20031. In addition to these claims, other claims that brokers should educate clients on are trampolines and water slides or diving boards related to pools. There are more than one million emergency room visits for trampoline-related injuries, including 300,000 injuries resulting in broken bones2.
4. Payment and mortgage issues
“If a policy goes unpaid, or there is a history of continual payment issues, a standard market may no longer be able to accommodate,” says Becker.
Standard insurance companies have varying rules of whether or not a policy can be reinstated once non-payment becomes an issue. Certain clients may need a monthly billing option to help break up the payments and financing options, such as those with Royal Premium, may be useful.
“Nonstandard mortgages, like those through private lenders, or clients who may have multiple mortgages on a single property may also have difficulty being covered in the standard market,” says Becker. “This is a prime example of a home that is claims free, but falls into the hard-to-place category.”
It has also recently been noted that poor credit can negatively affect the cost of policies three fold3.
5. It is high profile
A client’s home may need a specialty Homeowner’s policy because the Total Insured Value (TIV) may be above the threshold of a standard market. For example, this may be a $5 million home with no claims. However, since it is High-Net-Worth in nature, it exceeds the capabilities of a standard carrier.
Becker adds, “A home may also become hard-to-place because of the person living there, such as a television personality or professional athlete. This coverage needs to be specifically tailored in a way that the standard market cannot offer.”
What to do for your clients
Client preparation is paramount. Becker suggests that brokers and agents take the extra time to get to know a client and ask plenty of questions, as not all circumstances are the same.
“Once a client falls out of the standard market they’re not going to get an identical insurance plan in return in the surplus lines world,” says Gatewood. “Finding coverage is the most important thing, and options for placement may be limited depending on the situation.”
Gatewood adds, “Brokers and agents should not tell a client they don’t have coverage for them until they have exhausted all of their resources. Many times, a broker will simply call standard carriers that say no. Call a trusted surplus lines broker, because many times there is potential to cover. Do not say no prematurely – it may mean lost business.”