Author: Richard Faber You struggle to get commercial leads. Finally, you get the appointment with the prospect. You go back to the office, complete the application and fire it off to your preferred market underwriters. A day goes by. Then another day goes by. A week later, and still nothing!
Did the application fall into the Great Application Black Hole? While science has not proven that such a black hole exists, as a career commercial underwriter, I can confirm that The Great Application Black Hole is real! Why are your submissions falling into the black hole? The answer is simple. You are failing to attract the underwriter’s attention. To understand why this is happening to you it is best to start by understanding the underwriter.
The first thing to understand about underwriters is that their training predisposes every underwriter to decline risks. Yes, every underwriter. I don’t care how production oriented an underwriter may claim to be, the preferred outcome of every submission is a declination, whether declined outright or was simply closed out without any action taken. Reviewing a risk creates a lot of additional work and opens the underwriter to criticism. A high declination rate means they are being very selective while a lower declination rate means they are not exercising appropriate scrutiny.
The primary role of an underwriter is to protect their employer’s assets. Except for pure production underwriters who only review new risks, production numbers are usually third or fourth in the performance goals, trailing behind quality underwriting, renewal retention and compliance with company underwriting procedures. That means writing new accounts usually accounts for 20% or less of an underwriter’s performance evaluations.
Add to that concept that today’s underwriting probably receives 10 to 15 new risk submissions each day. As underwriters, we become masters at prioritizing. Given that new production is only 20% of our goals, we are going to be very selective. If an underwriter is going to go out on the limb and write a new risk, the submission needs to immediately grab the underwriter’s attention.
With that thought in mind, the agent needs to refrain from giving the underwriter any additional fodder to decline the risk. Often agents torpedo their chances to get past an initial screen.
Missing or Incorrect Information
During my last year of active underwriting, I performed an unofficial survey of submissions that were crossing my desk. I looked at well over 200 new general liability submissions, performing a pass/fail test for critical rating and underwriting data. Almost 80% of the submissions were deficient. That was just a single line of business. I would imagine if I were reviewing multi-line submissions, that percentage would be approaching 100%! The submissions were either missing information or had incorrect information and the agent did not even consider that the information contained would later prove to be incorrect.
There is a silver lining. If 80% of the submissions were deficient, having the ability to churn out a good submission puts an agent into the top 20% of their profession. The question is how do you get into the top 20%?
Providing a Complete Submission
Getting your submission to the top of the stack (or inbox) starts with knowing what information the underwriter needs to evaluate a risk. Acord applications are a universally accepted submission format for providing critical information. I will be the first person to concede that Acord forms are not the most efficient format to transmit the underwriting data as they are terribly redundant and ask for a large amount of less than relevant data.
Each line of business has its own twist. Thus, I doubt I can provide an exhaustive list of information in this article, but I will try to give you a feel for some of the basic information.
From a Commercial Property perspective, the acronym COPE encapsulates 80% of the underwriting commercial property insurance process. For the uninitiated, COPE stands for Construction (what the building is made of), Occupancy (ALL those who occupy the building), Protection (fire department rating, alarms and automatic extinguishing systems), and Exposure (what surrounds the structure). If you provide accurate COPE information, you have provided your underwriter with much of the information they will make their decision upon.
Provide Your Rating Basis
The Acord general liability application remains relatively concise. The questions regarding hazards and controls are straight forward. Where errors most occurred was in providing the incorrect premium rating basis. Without the proper rating basis, the general liability cannot be rated. When I received a submission without the proper rating base, I would send a quick request to the agent, then pend the submission for an extended period, before closing the file out. If the agent did not respond to my first request, the risk was effectively declined. If I did get an acceptable response, the risk would be in the back of the line behind all the other submissions that I received in the meantime.
As a rule of thumb, carriers rate all manufacturers, retailers, wholesalers, and distributors based upon sales. The most notable exception to this rule is for gasoline sales where the carrier uses gallons as the premium base due to the volatility of gasoline prices. For construction risks, the rating base is payroll, except for subcontractors where the carrier uses the entire cost of the subcontracted work (which includes supplies the sub furnishes on the job). Last, real estate-based risks will either be on an area or units/rooms basis, except hotels which rate based on sales. There are some weird classifications that may require a different premium base, but they are relatively few and far between. If you have access to Silverplume or Reference Connect, you have access to the ISO manuals. Spending some time to learn to navigate around them is time well spent
Frequent Submissions Defects
There are key elements that agents should always include in the commercial auto application. Accurate vehicle information is critical. One common error is an inaccurate cost new value. Physical damage premiums are based upon what the vehicle costs as a new vehicle. Agents often use values that are more akin to the blue book price. Carriers slot vehicles in ranges, with an assigned based premium and not with a specific rate multiplied against the value. Therefore, if you use a value of $22,900 rather than $22,500, it will not impact the final premium. What is important is that the values on the application are within the ballpark of the expected value. An underwriter probably will not reject a cost new of $25,000 for a 2020 Toyota Camry but will reject a cost new of $12,000.
Another common defect of commercial auto applications is a mismatch of the number of drivers included versus the number of vehicles listed. If there are fewer listed drivers than vehicles listed, the submission will be pulled into the Great Application Black hole, never to be seen again. Commercial underwriters are concerned about applicants hiding problem drivers. If you know there are potential driver qualification issues, it is best to deal with it up front in your submission. If an underwriter discovers a problem driver, they will almost always decline the risk.
Commercial underwriters are concerned about the applicants hiding problem drivers. If the number of vehicles (self-propelled) exceeds the number of listed drivers, then a red flag is raised. If you know there are potential driver qualification issues, then it is best to deal with it upfront in your submission. If an underwriter discovers a problem driver, they will almost always decline the risk.
There is a school of thought that it is better to get an incomplete application into the underwriter sooner rather than waiting for all the important information with the idea that it is better to get the ball rolling. I would caution against the approach. You only have one chance to attract an underwriter’s attention. Completed applications get an underwriter’s attention. Incomplete applications are more likely to sit in limbo. Even if you provide the missing information later, it is a struggle to get the submission back in the cue. Like Newton’s law that a body at rest stays at rest, while a body in motion stays in motion. Once your submission gets off track, it will remain off track. Getting a submission back on track will be a struggle and cost you taking the underwriter out to lunch.
The Danger of Coverage Wish Lists
Frequently an agent will create a wish list of additional coverages they want the underwriter to include on the quote. This is done under the guise that the agent wants the underwriter to offer the broadest coverage possible and if it is something the underwriter cannot or does not want to offer, then they will just not offer it. Unfortunately, coverage wish lists provide the underwriter with another reason to reject the submission and move on to the next risk in the cue.
A better approach is to streamline your coverage requirements to what the insured truly needs. If there are other “nice to have” coverage options, it is better to address them after the underwriter has already quoted the risk. Once the risk has been quoted, the underwriter has already screened the risk in and has a time investment into the risk. Trying to revive a risk already declined is a much more difficult task than getting a favorable coverage grant on one that has already been quoted.
Risk Summary/Snapshot
Underwriters are very busy folks. One method that helped attract my attention is a one-page risk summary. This summary was either on the first page of the submission or included within the body of the email or cover note. Typically, it included a good description of what the insured does, the basic rating information, highlights of the risk, and a loss summary. The snapshot was usually enough to get past the initial screen to get the risk into the rating cue.
In a similar vein, you do not get extra points for volume. Some brokers would send me a binder filled with superfluous data but still lacked some of the items I spoke of earlier. The result was a declination. It is better to have the critical data in a concise format.
Loss History
Attaching loss history is mandatory. In years past, it may have been acceptable to simply input loss experience into the application or confirm there had been no losses. Acceptable forms of loss experience include company loss runs, or statements on the insured’s letterhead indicating they have not had any claims. Do not send an application without an acceptable loss history.
Target Premiums
Target premiums are a contentious issue. Some underwriters require target premiums under the premise that they want to know what to shoot for. In a practical sense, target premiums do not have any upside for the insured. If the target premium is too low, the underwriter will decline the risk due to competitive reasons. If the target premium is too high, the underwriter will likely hold back rate credits that they would have given. The carrier will consider expiring premiums fair game because they usually represent another underwriter’s assessment of a fair price to start with.
If the underwriter requests a target premium, the best response is that the insured is looking for a fair premium based on the risk characteristics. Furthermore, I also recommend a discussion with the underwriter about how they arrived at the quoted premium that includes credits and surcharges applied and the logic behind them. Good underwriters are ready and willing to have an honest and meaningful discussion surrounding the premium.
It is always helpful to know where the quote relates to the “manual” premium. The manual premium is the premium before any underwriting modifications. Comparing the quoted premium to manual gives you an idea of how favorably the underwriter treated the risk.
Safety & Quality Control Programs
The Acord applications include questions regarding safety and quality control programs. In a practical sense, if the agent checks the box on the applications, the underwriter assumes that the risk may have a safety or quality control program. A copy of the table of contents of either helps inform the underwriter that the risk has a safety or quality control program. Underwriters are not Certified Safety Professionals of Quality Assurance Engineers. Underwriters are more concerned about confirming their existence rather than the sampling methodologies. So, a copy of the table of contents should suffice 90% of the time and improve the chances of attracting an underwriter’s attention.
Follow-Up
When I started as an underwriter in 1980, there were only three methods to communicate with an underwriter – mail, phone, or in person. In the mid 1990’s email appeared on the scene. Two days after the appearance of emails, underwriters discovered how easily they could dodge responding.
Some things never change. Direct communication is always better than electronic communication. It is more difficult for underwriters to dodge phone calls effectively. Plus, a phone call demonstrates your interest in working with the underwriter. Underwriters are more likely to discuss program improvement over the phone than via email.
Richard Faber is a highly experienced insurance professional who possesses a wide array of skills and a distinctive combination of experience, ranging from marketing and consulting to managing/underwriting a staggering array of risks. His background and extensive experience work together to make Richard a highly sought after authority in his field. Richard began his career four decades ago, starting as an underwriter for in 1980. He has held various positions within the insurance and risk management industry, gaining experience and skill sets.
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Originally Published: November 8, 2024
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