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Coverage Versus Price: Helping the Decision Making Process

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Standing before a client with several environmental quotes can be a daunting task for a retail agent or broker who rarely handles environmental coverage.

How do you explain the differences in proposals? How do you move the client to the most appropriate policy, especially when a cheaper policy is not the best choice or value?

“If the only thing an agent or broker understands about environmental insurance is price, he has no other tools in his tool kit but price,” says R. Ivy Riggs, senior underwriter in Burns & Wilcox’s Denver office. “To compete, an agent or broker needs to explain intelligently why a policy offers the best value for the money.” And to do that, the agent or broker needs to be marginally fluent on four points: coverage, terms, carrier and producer-partner


“Many agents, retail brokers and consumers are used to standard property-casualty lines where policies conform to ISO standards and modifications tend to be easy to spot,” says Adrien Robinson, vice president and head of the environmental practice at Navigators Insurance Company. “In environmental risk, all policies are proprietary to the company that writes them, so the agent or broker must read and understand the entire form before making a recommendation,” Robinson says.

In fact, a common agent or broker mistake in analyzing a quote is to simply read down the list of endorsements and stop. What they don’t realize is that some of the carriers who provide the broadest coverages have already built them into the base policy, Riggs says.

Insurers have a choice of highlighting their endorsements as enhancements or burying them within the base policy Robinson says. “We try to create a fair base policy, partly as a selling point and partly to make transactions go quicker. We just include the features most agents or brokers want” in the base policy so we all can concentrate on tailoring the rest to meet the specific needs of the client, he says. The downside of this approach is that features are then hidden from an agent or broker who doesn’t read the entire policy.

Terms of CoveragE

Environmental policies may be written on a claims-made or an occurrence basis and since losses can take years to develop, it often makes sense to buy an occurrence policy, even if it costs a little more. A tail or a nose policy extension may be necessary to avoid coverage gaps.

Another consideration is the rate at which premium is considered “earned.” Most common is 25 percent minimum earned from day one, but Riggs has seen very inexpensive policies that are 100 percent minimum earned from inception – the insurance equivalent of buying a sale item from a “no-return” rack.

She recalls a client who “came to use to a policy canceled and rewritten.” Riggs pointed out they could get no refund of unearned premium because the policy terms stipulated that all premium was earned at inception. Even when an insured stays with the carrier, banks often balk at financing premium on this basis.

Are defense costs inside the policy limits where they’ll deplete the money available for damages-or outside the limits? Outside is the equivalent of extra coverage and can be a better value, even if the premium is higher.

The client also may pay more for a lower deductible or for the freedom from scheduling specific operations or for a policy that can be audited at the end of the year to reflect revenue changes. Any of those features may be worth the extra cost.

The Carrier

The recent economic meltdown demonstrated the value of working with financially strong companies, even where there is a reasonable price difference, says Riggs. She advises brokers to work with carriers that have long, steady track records, experienced staff, claim­ handling expertise, and a commitment to providing environmental coverage.

Another consideration is the territory where the carrier writes, especially on an admitted basis. Admitted pollution coverage is usually cheaper and is subject to protection from the state guarantee fund. One the other hand, policies written on an excess and surplus (E&S) basis have advantages in flexibility and breadth of coverage.

Retail Agent/Broker-Wholesaler Relationship

The agent or broker would have to master a lot of information to effectively place environmental coverage, but it may not be efficient or even desirable to do so. Most agents/ brokers are generalists and are more effective working with the right partner instead of trying to be experts in everything, says Riggs.

Each carrier has its forms, its target classes, and its risk tolerance within those classes. Instead of struggling to identify carriers and understand their proprietary forms, the agent or broker can depend on the specialty wholesaler’s expertise to help build the right policy at the right price for the client. No matter what resources are used and which carriers write the policies, the agent or broker needs to make sure clients are aware of their specific environmental coverage needs and are offered policy features to address them. When there’s a loss, an inadequate policy quickly becomes the most expensive of all.

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