Smooth Transitions

First published in The Florida Insurance School News, May 2007, feature article.

SMOOTH TRANSITIONS
IN THE POST-BOP ERA

Robert Beverly

Agents once had many BOP-based packages available to them.  If you focus on the small business client, perhaps your woes began with a letter like this one:

Dear valued agency partner, we are writing to inform you of [Flagship Carrier's] new underwriting strategy.  Effective immediately, all new property business must be at least 81 miles from navigable water.  [Florida is roughly 160 miles from coast to coast.]  Existing business that does not fit our new guidelines will receive notice of non-renewal shortly.  On a lighter note, we are proud to announce our new financial services division…

Now is the time to download those checklists and query alternate markets.  It is also the time to send some mail to your clients.  You will be better prepared for hefty underwriting requirements if you send letters out early, and you will retain more business.

For retail agents several significant problems arise from the emigration of BOP markets.  Assume that a campaign of non-renewals will increase agency workload and decrease customer retention.  How do we reconcile the necessity of managing our own workload with the desire to serve the client's best interest?  And when transitioning from a BOP, how do we protect ourselves from errors and omissions exposure due to omitted coverages, lapses, and other problems?  Looking at what could happen might help us answer these questions.

Case study

Bob's Florals has two storefronts with refrigerated storage, and an office for managing orders.  A supplier in Miami and one in Tampa provide flowers.  Bob does a lot of local business, but also depends heavily on “Flowers by Phone,” a company that routes orders from national “800” numbers and web sites to locals like Bob. 

Bob's expiring policy included time element, equipment breakdown, contingent property BI, and spoilage coverage, all on a BOP form tailored for florist shops.  Unfortunately, the carrier's new strategy focuses on monoline casualty, janitorial bonds, and any line of business with exactly zero catastrophe exposure.  To obtain quotes for replacement coverage, Bob may now have to come up with:

In the absolute worst case scenario, the agent rewrites only the general liability and direct physical damage coverages, with nothing in writing to the insured about the importance of obtaining coverage for time element and extra expense, equipment breakdown, spoilage, etc.  We will proceed with the assumption that the agent would never let that happen.  After providing all the necessary information and seeing his new premium, it is possible that Bob will ask what the cost would be “without all the bells and whistles.”

Insuring Bob for building, business personal property, and general liability would not even begin to cover his risk, but that is what Bob will get if he asks for a bare-bones policy.  Any number of things, from fire to loss of power to accidental freon discharge, could cause his refrigeration units to fail.  With no coverage for spoilage or equipment breakdown, Bob is out of luck.  The interruption to his business will cause him to incur extra expenses to meet customer obligations; perhaps he will have to order from other florists, or call in a rush delivery.  Again, out of luck.  A similar situation arises if the computers and phones in his office are interrupted and he can not take new orders.

Many florists were seriously affected when FTD's order system failed on Valentine's day.  Bob has a risk if “Flowers by Phone” has an interruption to their computer and phone operations.  On a similar note, what if Tropical Storm Epsilon flattens Bob's supplier in Miami?  Another contingent property exposure.

If Bob is no longer the agent's best friend after his uncovered loss, his agent needs certain things on file.  Key among these is evidence that Bob rejected coverage, or that coverage was recommended but was not available through the agency.  Populating your files with this information does not require drowning your staff in paperwork, and can actually make the renewal process easier.

Tools for rewriting

If you are fortunate enough to receive advance notice of a non-renewal campaign, start sending letters immediately.  If you are not the most technology-enabled person in your office, find the person who is and have them do a mail-merge based on the company's non-renewal criteria.  This is almost always possible if you have an agency management system.  Any customer database is a useful starting point. 

In your letter, request information you are likely to need for rewrites.  If the accounts that are being non-renewed are very similar, draft a letter tailored specifically to the class of business.  For a more diversified book, come up with a one-page summary of coverages to send with a generic letter.  On your cover, ask the insured to check off the items that they need quoted and return to you; any checked item will instruct them to provide documents such as profit & loss statements, equipment maintenance agreements, etc. 

In one stroke, you accomplish three important things:

If a letter like this is not already part of your routine for non-renewals, you will find that it markedly increases the client's preparedness for the impending rewrite, and focuses them on staying in touch with you.  At the same time, you will reduce your workload, because you will not have to call every insured to ask them for documentation.  A follow-up letter or phone call to those who do not respond should do fine.

Depending on how much notice you have, it may not be possible to get all of these materials back 45 days in advance of expiration, but that should be your goal.  Ideally, you will have a formal offer 30 days in advance. 

If you only suspect that a non-renewal campaign is forthcoming, request materials from the client as part of your annual “insurance evaluation.”  Thorough evaluations are a good habit to cultivate anyway.  You can not predict when a BOP client will outgrow the BOP form. 

The benefit to the client from this extra document-seeking is that you are prepared to offer the best, most competitive insurance program tailored to their business.  If your request is well crafted, they should be happy to cooperate.

Your other best friend in the rewrite process is your coverage checklist.  Several industry publishers provide these at nominal cost.  There are coverage comparison checklists that show the expiring coverage side-by-side with the replacement.  If you do not already have a good library of checklists, put in a call to your agent association or favorite publisher and get some.

Coverage checklists are designed to be easy to use, and they show the client that you are thorough.  Asking clients to sign off on the checklist when rejecting coverages creates documentation that you did your job well, and that the insured made his own choices.  Later, when Bob is angry that he had an uninsured loss, you can show him that you warned him twice it could happen.  The first time was in your expiration letter where you asked for underwriting information, and the second on the checklist where he initialed his rejection.

Ultimately the emigration of BOP markets could benefit consumers and agents.  The BOP form was designed to be inexpensive to underwrite, requiring agents and underwriters to ask fewer questions and spend less time evaluating risk.  The upside is that this made it possible to provide extra coverages at a competitive premium.  But asking questions and evaluating risk is among the most important things agents and underwriters do for their clients.  For good or ill, many insureds are now receiving a thorough risk evaluation.  Be ready, and prepare your letters and checklists.  In a hard market, property underwriters and surplus lines brokers call the tune, and they will require exhaustive notes. 

See also: Additional Considerations When Re-writing BOPs