Author: VU Faculty
With the beating that many carriers have taken over the past few years in personal lines, it is more important than ever to improve loss ratios. In this article, our agency management gurus will offer some suggestions to improve agency underwriting of personal lines accounts.
Recently, our "Ask an Expert" service received the following question:
Can you help me? One of our preferred carriers has asked me to "do what agents know how to do" to improve the loss ratio on a homeowners book of business. They say they are not agents and therefore have no suggestions other than to increase deductibles, ask the client to move their business elsewhere, or let them renew the client in a higher priced tier. They say that I should know as an agent how to make the book of business profitable. Do you have any suggestions?
To their credit, the carrier recognizes that no one is in a better position to improve the quality and performance of their personal lines book of business than the agency itself. Let's take a look at the issue, along with some suggestions of our agency management faculty.
Over the years, I have advised my clients to do some pruning on their books of business. Just like with trees, bushes etc. take out the deadwood, rotten parts and you have a much healthier tree or plant. The same holds true with a book of business. Instead of waiting until it is going bad, prune it every year.
This process requires that the agency develop guidelines on the type of business they want in their "healthy" book. Things to consider: claims activity, service activity, late payments, and anything else that requires ongoing attention to the account. It is okay to let a client know that you will be moving them. In most cases, the cost will be higher and they will probably seek out another agent.
Now for your current situation - develop a checklist and USE IT.
Location of home
Age of Dwelling
Value of home
Insured to value
Jewelry/Fine Art Floaters
Limits of liability (should have a minimum of $300,000 CSL)
Times late making payments
Number of calls to agency within the last 18 months (hopefully you track all client contacts)
Deductibles
Claims
From this list, decide what is acceptable to your agency. Then, start your pruning process. You will find that the accounts that need to be some place besides a preferred carrier will become very clear.
In the last six months, we've completed two agency re-underwrites. This is a process similar to a carrier re-underwrite but triggered within the agency based on loss ratio problems. It involves analysis of losses to determine whether they are unique, severity related or frequency related. The end result is a combination of deductible adjustments, non-renewals and "'watch list" clients. This can be done for an individual carrier or can be done across a line of business or a book of business. This pro-active approach certainly impresses carriers with an agency's desire to engineer his/her book of business to a profitable status in favor of company partners.
This could be a polite way of the company saying the agent should consider steering their personal lines book somewhere else.
Actually:
The agent should evaluate when and why he uses this carrier versus other carriers. Sometimes, an agent will steer an auto policy to one company and the HO to another because of...price, commission, incentive, ease of something. Some agents will write the Homeowners and not ask for the auto, and vice versa. Also, look at the limits being sold, are they state minimum or higher limits? Does the agent fit the insured to the company product?
These are all part of front line underwriting. They all can impact book profitability.
Based on my experience as a personal lines homeowners underwriter many, many years ago, I suggest auditing the book. We found that, as books aged, we were losing lots of premium dollars through underinsurance.
1. Find better agents. Some agents care about loss ratios and some don't and no point exists in trying to convert those that don't care.
2. I also suggest analyzing the book to identify other reasons for the high loss ratio. It seems there may be more to the situation than implied by the question because the carrier in question has a history of excellent loss ratios relative to the industry and is usually very much on top of their loss ratios.