Author: VU Faculty

Quite a few agencies now practice agency underwriting by establishing minimum limits that they will write for auto, CGL, etc. There are definitely advantages to doing this and, in general, it's a great idea. However, there can also be pitfalls that agents should be wary of....

"We are attempting to establish agency minimum coverage standards in our personal lines department. Do you have any resources available that might tell us what the insurance standards or trends are suggesting in the way of industry guidelines in order to protect the agency?"

"Our agency has taken the stance of no longer writing new auto policies with limits lower than 50/100/50 or 100 CSL. We originally decided we would automatically increase all existing auto policies with limits lower than this level to 50/100/50 or 100 CSL, notifying our insured by letter. However, before making the final decision to have the companies automatically increase these limits, we wanted feedback or suggestions about possible E&O exposures."

A minimum limits concept is a great idea. Some agencies have minimum agency underwriting standards, but too few. There is no question, from reviewing E&O statistics, that the higher the limits, the fewer the E&O claims...in both frequency and severity.

The main problem with the approach you are considering is that you are doing it unilaterally. Since the agency is a "facilitator" in the insurance transaction, as opposed to a party to the contract like the insurer or insured, there could be a legal issue in doing this and then advising the insured after the fact. You might consider an attorney to advise you on the legality of doing this unilaterally, or at least run this by your state department of insurance.

We'd be more inclined to suggest developing a form letter for insureds with limits below this threshold, advising them of the policy and the reasons for it. If you're serious about this program, you could tell them that you will be quoting their renewal at these limits and, if they want something less, they'll have to find another agent. Of course, to avoid the perception that you're just trying to get more premium and commission out of them, it would have to be well written, your reasons supported, and presented in a professional, helpful manner.

Below are some observations of our faculty that might help in formulating your plan.


In Texas we have an insurance regulation that says "underwriting may not be based in whole or in part on whether an applicant wants to purchase types or amounts of coverage in excess of minimum liability limits required by law."

So, when we discuss this issue in E&O loss prevention courses, we point out that an agent can't refuse to write based on limits selected by the insured, but instead should make their agency's recommendation very explicit and have the customer sign off on a coverage disclaimer that reads something like:

"I acknowledge that (agency) recommended higher limits of auto liability and/or additional coverages. However, I accepted the following limits and coverages:"

An outline of their limits and coverages follows, then:

"(Agency) explained the possible financial consequences I might incur by rejecting higher limits and coverages. It is my intent to carry only the limits and coverages I requested."

Then their signature.

Seems to work. We've had some weird cases though. In one, the court ruled against the agent even though the customer had rejected UM coverage in writing. The ruling found that the agent hadn't explained the possible consequences of the customer's decision. To avoid this type of thing, letters and disclaimers of coverage could contain a brief summary of consequences.


It is my standard practice when consulting with an agency to recommend that they establish an agency minimum limits policy. In the course of quoting new business, using these limits is not so much a problem as increasing limits on existing customers.

I take the line that it is easier to ask forgiveness than permission. So, when moving to increase limits of existing customers, the agency must determine how and when they will do it...usually renewal is a good time. Developing a very good communication piece is absolutely necessary. Prior to renewal, say 120 days, a letter is sent to the insured advising them of the need to carry increased limits and that, upon renewal, their policy limits will be increased.

I like a letter that starts with a tactic that creates "fear" like...

"In today's litigious society where lawsuits seem to be common practice, as your insurance broker we feel that carrying the minimum limits of $_______________ is in your best interest. Effective on the renewal we have requested that your carrier increase your limits to $_________________."

Some other words about the agency, etc.:

"If you do not wish to have your limits increased, please sign and return to our office." (Do not include a return envelope.)

Use a clause that goes something like:

"Thank you for advising me about the reasons for carrying increased limits of liability on my (home, auto, or whatever the coverage). However, at this time I do not wish to have my limits increased, though I understand the consequences of not doing so.

"Name
"Date"

While this doesn't get the agency to the point where all clients are carrying agency minimums, at least there is something on file that shows they were given the opportunity. I have found, in my experience, that when you ask someone to sign something acknowledging that they do not want increased limits or certain coverage, they often think twice and in many instances go along with the recommendation.

Use the same tactic with new business...quote the higher limits and, if someone does not want them, have them sign an acknowledgement that they were given the opportunity. They will usually buy the higher limits.


I would say one more thing as a possible problem in telling the client that they may have to find another agent if they don’t take the increased limits. In Florida, the statute on Unfair Trade Practices includes a section called “Refusal To Insure.” That means that, if I refuse to write or renew coverage for someone just because they don’t meet certain agency standards, I could be fined and/or have my license suspended or revoked.

I would agree that there may be a legal issue with “automatic add-ons” as the AAI text calls them (even though it teaches that this is an acceptable method of account development). Another issue related to this is having the client upset because you made changes to their policy without their permission causing you to lose their business all together.

I think this agency is on the right track but I agree that legal guidance is necessary.


One problem I see is, if they say to bump to 50/100 and the client gets sued for more, the the client says the agency picked the 50/100. I'd lean more towards a standard letter to clients saying "you can always buy more." In my agent days when I wrote an auto policy, I sent a welcome letter thanking them, outlining what THEY selected, and had a line saying, "Higher limits are available and if you want to increase what you purchased we can help."


They could advise them that the AVERAGE Death AWARD under auto (according to the last stat I saw from Jury Verdict Research) was $1,004,500. Include a statement -- "DO YOU WANT TO BE AVERAGE?"


Increasing a person's coverage without their express permission should be avoided. I remember the case of the local cable company who enhanced customers' cable TV service and then billed them for the higher service. There was an opt-out provision where people could choose not to get the better plan. The cable company was sued and the court said their action was in violation of state fair trade laws. The court said it was a violation of law to make customers act in order to preserve their current level of service.

Twenty-two years ago I rolled replacement cost personal property onto a Homeowners book of business with only an opt-out note to the insureds. I wouldn't do it again in today's legal climate.


In states with difficult auto insurance climates, you may find the automatic increase or minimum limits position to be contrary to state law.

In states like NJ, with "take all comers" laws, the agency only has the option waiver letters or recommendation letters. The problem with waiver letters is they are not a binding agreement as there is no consideration exchanged. All these letters do is establish a document of offering higher limits. Unfortunately, I have seen too many agents who use the recommendation letter for higher limits, BUT never offer a bona-fide quote at higher limits. They only say higher limits are available. If you take this course, you must follow through and offer a bona-fide quote at higher limits.


1.  What limits provide a ninety nine point nine nine nine percent (99.999%) comfort level?

2.  This is truly a tough issue to tackle. We used to not sell minimum limits. We told people the price of a car was more than the minimum limits. They bought that argument. We tried to sell the second tier above minimum limits as the lowest we thought people should have. 

3.  Consider telling people what will happen to them if their limits are inadequate. Work at providing information for the buyer to make a better informed decision.


There are no industry standards or guidelines. Pool the mindtrust in your agency and get all producers and CSRs to work together in establishing this. Personally, I would insist on a personal umbrella for virtually anyone purchasing HO coverage...especially condo owners and apartment renters. How far will $100K liability go if the tenant burns down a 12-unit apartment building? I'd also automatically attach the personal injury endorsement. "Minimum limits" can go beyond just limits to coverages as well.


For as long as I can remember, and that is at least the last 20 years, most agencies strive to sell minimum limits of liability of $100/300,000 BI and $50 or 100,000 of PD. This applies to both auto and home. In addition, in cross sell activities this provides the base for adding an umbrella. Many agencies, from an E&O perspective, will only sell lower limits if the client/prospect has signed a rejection form rejecting these higher limits. Some turn the prospect away who insists on minimum limits.


What underlying limits are required by your umbrella/excess liability products? That will give you a good idea of where the vast majority of claims fall. It will also give you a good starting point for selling the umbrella/excess coverage..."Say, for only 15% more than you're paying now, I can increase your liability limits by a factor of 3-10!"


Whether an agency should recommend or set minimum coverage limits depends in large part on whom they are marketing to. If they exclusively market to affluent clients, they’ll want to recommend whatever limits are required for an umbrella and whatever umbrella limits their client’s attorney (and/or CPA) recommend(s). If they market to clients of modest means, those clients won’t buy more than they can afford and having minimum agency guidelines that are higher won’t work.

For middle income folks, personal auto limits of 100/300/100 to 250/500/100 are generally a good idea, but higher limits and umbrellas should always be recommended. Recommending any specific limit, even a minimum, can actually increase an agency’s E&O exposure. To be safe, agents should always quote higher limits and let the client decide. Documenting the offer and declination of higher limits, as well as Personal Umbrella coverage, can be very helpful in defending an E&O claim for inadequate limits.

Do you have an opinion? If you have implemented agency underwriting procedures that have been effective in this area, feel free to email your tips to Bill.Wilson@iiaba.net and we'll post them here:

We have started a procedure of placing a red stamp “WARNING…your limits are too low” by limits lower than 250/500 on BI, UM, UIM or 250PD. We then circle the low limit coverage. This has prompted a lot of phone calls to quote higher limits. We have definitely increased our average auto limits as an agency. I would say about 60% of our clients receiving their renewal with this stamp have increased their limits. We also expanded this to our C/L department recently. I don’t have any guestimates on their success, because most of our clients carry $1mil. I know that they did have some call activity.

Karen A. Cora, CIC, CPIW
Executive Vice-President
Deland, Gibson Insurance Associates, Inc.
Wellesley Hills, Massachusetts

Last Updated:  July 11, 2009