Why Would I Ever Use a Surplus Lines Broker?
When dealing with a predominately personal lines heavy agency (home, auto, life, health, etc), I find myself explaining less about ‘why my company’ and more about ‘why Surplus Lines’. The agent has every reason to be skeptical about Surplus Lines policies due to the potential E&O exposure and finding a suitable broker. More often what I uncover is a lack of understanding of the Surplus Lines marketplace and its importance. Commercial lines heavy agencies have every reason to utilize the non-standard market, at times it’s almost a necessity. Here are a few scenarios of why you would seek out a Surplus Lines policy.
We will most likely have the retention conversation when explaining why you might seek my help. It’s the middle of winter and temperatures are becoming increasingly colder. You arrive in the office first thing to a call that resembles, “Help, my pipes busted!” This could be the second or third claim your insured has had within the past 5 years which now becomes a risk that your Standard market would no longer like to insure. Not only has this individual of yours been a client for 10 years, you also write their auto, life, personal umbrella and assist with some investments.
Instead of creating the potential that another agent may have a product to suit your clients’ needs and the opportunity that the rest of the business may go as well a surplus lines broker can help make sure you go from problem to solution. Eventually the claims should time themselves out in turn creates the possibility that you can move them back to your standard book.
Your insured decides they want to take their hobby to the next level and start a home based business. Most homeowner’s policies are not designed to cover losses from the business leaving about 66% of people who do this without adequate coverage. An endorsement could be placed on the policy to cover the potential for a loss but it would also create the potential for a claim on their homeowner’s policy. With rates averaging $220 it’s more affordable than you think so why not give them their own commercial policy?
Where this may actually help is when a customer visits your insureds home for business slips and falls. Since the customer was at their home for business purposes the Home Based Business policy will provide the needed liability coverage excluded under their homeowners policy. Moreover, your insured is working at a trade show and someone trips and falls over their display, the Home Based Business policy would provide the liability protection they need. Their homeowner’s policy would provide no coverage since this was a business event.
When looking to provide additional coverage to your clients through a personal umbrella, sometimes it may not be possible depending on what lines of business you provide them or a surplus lines policy can provide some additional coverages a standard may not.
If you’re just providing a monoline homeowner policy or auto insurance your standard markets may not have the appetite to provide the personal umbrella coverage. Not presenting the possibility of increased coverage in the event of a serious claim could create the potential for and E&O exposure as well.
Depending on what carriers your broker works with will affect the advantages of their product. Here are some umbrella advantages that may benefit a number of your insureds:
- Limits up to $10,000,00 for preferred applicants
- Coverage for an unlimited number of automobiles
- Coverage for up to twenty-five rental/ investment dwellings
- Both pre and post judgment interest coverage
- Definition of bodily injury is expanded to include mental injury, anguish, humiliation and shock
- Defense costs paid in addition to the policy limit
Claims scenarios where an umbrella may help:
Your 14 year old is online making negative comments about his teacher to his friends and posting them on a Web site. The teacher finds out and sues. $750,000 was paid.
While driving to work, a 38 year old male was temporarily blinded by sun glare while making a left turn, causing him to hit a van with 5 passengers. Two of the passengers in the van were seriously injured. The bodily injury claims were $900,000.
An insured hosted a party at their house. A guest, who had been drinking, left the insured’s party while under the influence. On their way home, the guest drifted into the opposite lane, hitting the claimant’s vehicle head on and caused a fatality. The host of the party (the Insured) was sued for $2,000,000.
As always ensure that you are working with a broker that uses quality carriers. They should also be able to assist you in obtaining policies to fill in the gaps of coverage. Even better is when they can contribute to your sales process and drive new business to your agency.
The Smart Choice Agents Program provides Virginia Surplus Lines Brokers products thought CRC, RPS, TAPCO, Burns and WillCox, Commonwealth Underwriters, and more.