the five questions your agent hopes you never ask

– KPA CONFIDENTIAL –

The Five Questions Your Agent Hopes You Never Ask

November 19, 2009

Summary

What you don’t know about quoting your insurance is hurting you in higher than necessary premiums and less than optimal coverage.

In this webinar learn how to reduce your insurance costs by understanding how your quote is developed by agents and brokers and how to use this information to your advantage in gaining the right insurance for your organization at the lowest cost.

Additional information on ICA can be found at www.yourconsultingexpert.com

3– KPA CONFIDENTIAL –

http://www.yourconsultingexpert.com/

Questions

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Polls


The Five Questions

1. What is the true cost of my insurance and is it an estimate or fixed premium?

2. What is your expertise in risk management and which other Dealerships do you insure?

3. How can you ensure this is the optimal coverage at the best price?

4. What is the relationship you have to the insurer you represent?

5. We are going to have an expert representing us during the renewal, is that a problem for you?


Who Are You Dealing With?

• Broker is a “middle man” and represents specific carriers

• Cannot quote entire market

• Is limited by quoting carriers they are appointed by only

• Broker vs. Broker premiums can vary

• Could have multiple carriers on one policy

• Try to lock up the market in order to avoid competition

• Very large and broad market of clients (Service could Suffer)

• Can adjust premiums after renewal based on competition

• Direct Writer is an employee of the insurance carrier and only quote their employer’s policies

• Designated territories and specific markets

• Large territories ranging by cities or states

• Commissions are driven on new business production and cut in half on renewals (Service could Suffer)

• Premiums could suffer based on how they pitch the business to the underwriter


Who Is Making The Decisions?

• Underwriters

• Submit quote requests based on agent requests

• Review the quality of the risk and assign premium credits

• Credits (State and Scheduled)

• Bases coverage’s on the certain risk, agent requests and those allowed by carrier

• Underwriters are employees of the carrier and think of them first

• State: Rates mandated and filed yearly

• Scheduled Credits allowed as a discount on premium based on yearly review and changes within the dealership

• Actuaries

• Assign price to the policies

• Price of the policy generally is in line with state filings

• Not involved with risk on a coverage standpoint

• Do not have involvement with end client nor agent

• Works directly with underwriters


The Insurance Quoting Process

Pre-quoting InterviewQuote

SubmissionProposal


The Pre-Quoting Process

• Time Frame

– Ideally 45 to 120 days in advance

– All information must be in and complete generally 30 days prior

• General Information Required (Will Vary By Carrier)

– Complete Census with Birth Dates, Drivers License Number and Titles

– Currently Valued loss history

– Previous Year End and YTD Financial History

– Current Monthly Inventory Report

• Previous Policy

– Complete book should be reviewed and deductibles, limits and coverage’s compared apples to apples

– Always require agents to offer alternative options outside of their initial policy proposal


The Interview Process

• Agent Interview

– Agents first sale is to the underwriters and must find valuable information to share with underwriter to ensure proper information

– All proper information submitted - generally 30 days prior to quote

– Interviews range from 30 minutes to an hour and include pictures of locations plus information on new procedures

• Pictures

– Some companies require 7 pictures per location and dimensions of building

– Other in depth information such as year built, construction type, security measures and experience are taken into account

– Building age is taken off of when the foundation was poured regardless if there has been a complete remodel

– Some carriers do not offer replacement cost coverage on buildings 25 years or older and will offer an Actual Cash Value minus depreciation


Quote Submission

• Quote Submission

• Once the quote has been submitted agents generally will not contact the insured unless questions arise

– This could pose a problem since the market and business climate changes regularly

– Dealerships must be in contact weekly to ensure all agents are quoting apples to apples policies

– This is the time where agents can get crafty


Proposal

• Proposal

• Carriers have rules that policies are to be in the hands of the agents generally 7 days prior to the effective date

• The earlier a dealership starts the quoting process the sooner the agent will get the quote back

• Agents waiting until the last minute generally are for position and not because of lack of proposal


It’s All About the Key Coverages

• Business Income

• Employment Practice Liability Insurance

• Deductions

• Errors and Omissions

• Floored or Non Floored

• Health Insurance

• Workers’ Compensation


Business Income

• Generally found in the property section

• Is the coverage which protects the dealership from lost wages and sales

• Written as an actual loss sustained policy or set limit

• Timeframes (Indemnity, 6 month or 12 month)

• Deductibles could apply (Generally on a time frame not set limit)

• Is the coverage which retains your key employees and stops you from going bankrupt

Extra Expense

• Included within the Business Income policy and covers expenses incurred by the dealership that would not have happened had there not been a loss

• Can be quoted as a set limit or actual loss sustained


Business Income

• Actual Loss Sustained

• Covers the actual loss regardless of limit

• The only limitation is on time, generally 6 months to a year

• Claim payments could take time since loss must be proven after the loss has occurred and prior to payment being made

• Monthly Limit

• Will cover any potential loss if written properly per financials

• Written by virtually all brokers and few direct agents

• Generally assumes that dealership will be conducting business “as usual” from a rented space

• Could pay claims quicker since potential amount of loss has been underwritten and limit approved.

• Deductibles could apply (generally on a time frame not set limit)


Employment Practices Liability Insurance

• Coverage from a loss incurred by harassment, discrimination and/or wrongful termination

• Generally will cover the loss of employees, some policies do not include coverage for 3rd party (denial of loan due to race or harassment of/by a customer)

• Written on a claims made basis or occurrence basis

• Defense costs and limits may vary

• Over 50% of dealers nationally have used this coverage

• Eliminated from many policies due to losses (Especially in California)


EPLI (Claims Made)

• Written by All Brokers (some Direct Agents)

• As long as the original policy is in force coverage will apply for those years after inception (retroactive date)

• Will not provide coverage for the prior years that the policy was not in force

– Generally dealerships move between claims made policies while maintaining the same retroactive date

– Defense Costs included within the designated policy limit

• If the policy is cancelled or closed by either Dealer or Insurer then coverage for all losses incurred during those years will be denied

• Tails can be purchased, are outside of initially quoted premium and generally are 125% of premium cost


EPLI (Occurrence Based)

• Written by Direct Agents Only

• Provides coverage for life for the year’s covering even after the policy is cancelled by the dealer or insurer

• Deductible is generally a percentage of the loss shared by the dealer

• Defense Costs are outside and above the stated limit

• Does not provide coverage for anything written before it’s inception

– Moving from a claims made to occurrence will require additional cost



• Coverage limits and Underwriting

• Generally written in line with the liability limit

– $300,000, $500,000 or $1,000,000.00

• Can be added within the umbrella limit (Occurrence Only)

– Additional Charge

– Generally not needed since average claims are settled for less than $100,000.00



Deductibles

• Flat or Percentage

– Flat Deductibles can protect from large out of pocket expense if a claim is large

– Percentage deductibles can be a lot less if a claim is minor, however can be as large as $100,000.00 if a claim hits the policy limits


Floored and Non-Floored Coverage

Covers the inventory owned by the franchise or owned by the dealership

• Policies are written on a reporting or non-reporting form

– Some policies are audible and agents could show lesser limits to achieve a better premium allowing the dealership to make up the overall cost in an audit of over time

• Be aware on what your agent is covering

– Coverage’s on Comp, Collision and False Pretense can vary by dealership

– Policies can exclude coverage’s for cars being driven outside a certain range outside the dealership

• Wrap Around Coverage

– Carriers that do not cover the floored vehicles can provide as a secondary behind any limit the floor plan carrier does not

– Quoting this coverage will require your current agent to produce an average inventory limit and currently valued loss history from the floor plan provider

• Deductibles

– Deductibles generally range and are a flat limit based on per car and per occurrence

– Hail and Wind Damage deductibles could be unlimited

– Stop Loss Provision except on wind/hail losses


Errors and Omissions

• Coverage includes protection from odometer damage, title issues, truth in lending and employee benefits

• Limits can vary between in line with the liability coverage or be a specific amount

• Settlement and Defense

• To reduce premium some carriers write a defense cost only policy. This means that the coverage limit will cover the charges to defend the dealership but if a settlement is made then that amount is paid directly by the dealer.

• Insurance Companies Control

– Insurers deciding whether the policy is settled could pose a large problem since the dealer will be financially responsible

• Deductibles

• Generally a set limit and can vary depending on agent requests


Health Insurance and Work Comp

Health Insurance

• Overall plan design

• Lack of participation

– Is the key to high premiums

– Create the lack of proper quote opportunities

• No two brokers are alike

– Priority with an insurer

– Get paid to keep your premiums high


Health Insurance and Work Comp

Work Comp

• Experience Modification

– Fluctuates based on loss history

• Directly written policies exist and are missed

– Brokers unable to quote

– Can be price competitive but hard to find

– Trusting a single broker will limit you

• Proper Claim review and negotiation

– Claims can decrease by over 50%

– Brokers/Agents do not understand how to negotiate with insurers nor want to

– Frequency over Amount

– Quarterly loss history review


Contracted Time Frame(Rules and Regulations)

• All Dealer insurance policies are written on a 1 year basis

• After a certain number of days after the effective date insurers are unable to adjust coverage’s or premiums in a negative fashion

• Material changes of a Dealership are the only ways carriers can adjust

– Closing of locations, change from new to used, etc…

Insurers terminate policies to re-write new during the effective date AT THEIR ADVANTAGE. In this economy coverage, premium rates and carriers adjust regularly. This is their time to effect that change on you without penalty from the state.


Why You Should Quote on an Annual Basis

• Insurers generally lose money on year one

• Carriers do not like dealers that quote their insurance on a yearly basis. Most carriers teach their agents to renew an account well in advance of the renewal

• No policy is bound or renewed without the first premium payment.

• Some insurers will decline to quote new business opportunities if quoted previously and not written

• There is no profit history or known company experience in order to rate that company’s future performance

• Just because a company has had no losses in the past does not mean that there is a less of a chance for future problems

• Dealerships that consistently renew with a carrier over a long period of time will generally see the biggest savings when quoting properly


Gaining The Advantage

• Agents/Brokers conduct insurance daily and know when and where they are competitive

• Agents will probe the dealer to find out who they are competing against to better understand what their coverage strengths are and where their price needs to be

• Timing is everything for Agents

• Most times dealers see agents during the last and final minute

• Agents like to have the last word in order to close the business right before the renewal

– Direct Agents have no control over pricing but know what the bottom line is and where they need to be

– Changes take days and could require additional information, waiting until the last minute ensures that changes made during proposal will not be reflected in premium

– Brokers can adjust based on competition and desire


What Really IS the Final Premium?

• An agent may see that a dealership is getting quotes from weak carriers therefore not adjust premiums accordingly

• Some agents may see valid competition but hold onto the best number until provoked properly

• Agents get paid a percentage from every policy the dealer buys. Decreasing overall premium results in a decrease in commissions

• Our experience has shown that most agents can decrease their premiums an additional 10-20% after their initially presented premium


4 Steps to Better Coverage and Lower Rates

1) Quote Every Year– Carriers generally are most aggressive on new business

quotes

– It is okay to change carriers regularly

• Insurers make it taboo for their advantage

2) Know All Carriers that Can Quote Your Policy

– On average Insurance Consultants of America requests quotes from 15 agents for every dealer we assist in every state

– On average dealers see quotes from 3-5 agents missing out on 200% more competitive opportunities

• An increase of competition equals a benefit to the dealership

• Quoting is good business, make sure you do it right



3) Competition is Fierce and Changes Every Day

– Auto Malls can consist of 3 different dealers or more

• Why aren’t all of those dealers insured by the same carrier?

• Regardless of loss history

– Cheap rates are cheap rates

– Competitive edge

• This year’s most competitive company may not be competitive next year and vice versa

• Coverage’s change and insurers are making adjustments due to large losses and reinsurance increases



4) Get Help

– On average controllers and/or dealers spend a minimum of 40 hours per agent in getting quotes

– Have an expert like ICA that speaks the insurance language assist in the process

• Reduces legwork for controllers

• Increases bids by A rated, admitted carriers over 200%

• Generally saves 5 to 10 times more than the cost

• Provides peace of mind and a better understand on what you are covered for and what you are not.

• ICA Guarantees your dealership a savings versus last year’s paid premium or versus your renewal bid


Questions and Answers


QUESTIONS?

www.yourconsultingexpert.com

Jason T. Roberts

INSURANCE CONSULTANTS OF AMERICA

Ph:- 952-232-8188

www.yourconsultingexpert.com

[email protected]

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