Do your clients understand the
different perils that trigger different deductibles?
[M]any policyholders are now subject to a minimum
of two separate deductibles that are triggered by different perils.
By Marc McNulty, CIC, CRM
If you’re a personal lines producer, you will hear variations of the following statements repeatedly over the course of your career: “We gotta get the cost down.” “What can we do to save premium?” “I feel like I’m paying too much.”
Of course, there are different ways to offer potential savings to your clients. Have they installed a security system, water flow detection device, or something else that will qualify them for a homeowners premium discount? Do they want to remove physical damage coverage on one or more vehicles? Do their child’s grades qualify for a good student discount? Do they want to remove an optional endorsement or two from their homeowners policy?
Yes, these are all ways to achieve some cost savings without making major changes—such as reducing liability limits—but obviously the easiest way to reduce cost is to increase deductibles.
This used to be a straightforward proposition: Increasing your homeowners deductible from $1,000 to $2,500 will save you X in annual premium. If we bump it up to $5,000, you will save Y per year.
Those days appear to be long gone, at least as far as homeowners insurance is concerned. With an increasing number of carriers requiring separate wind/hail deductibles that are higher than the all other perils (AOP) deductible, many policyholders are now subject to a minimum of two separate deductibles that are triggered by different perils.
If your client elects to purchase earthquake coverage, then a third deductible will apply—typically at least 5% of the policy limit.
Enter a fourth option: the plumbing and water damage deductible. At least one national carrier has introduced an option to cover water claims that aren’t weather-related but are instead triggered by appliances or plumbing-related losses. And, you guessed it, this coverage carries its own separate deductible.
What this means is that a client with this carrier can choose from eleven different flat-dollar deductibles ranging from $1,000 to $50,000 or seven different percentage deductibles ranging from 0.5% to 10% for their AOP deductible, their wind/hail deductible, and their plumbing and water damage deductible.
Then, if they want earthquake coverage, they can select one of five deductibles ranging from 5% to 25%.
In theory, this should be straightforward. However, those of us who have been in the industry long enough have seen situations where a client suffers a loss, didn’t recall that they increased their deductible to save premium, then get angry because their out-of-pocket exposure is greater than they anticipated. (Thankfully documentation in agency management systems comes to the rescue in these cases.)
What this means is that we as agents must be diligent in getting our clients to understand the different perils that trigger deductibles and ensuring they know what their deductibles are, based on the perils that trigger them (especially when percentage deductibles apply).
It’s easy for clients to scoop up the savings when deductible discussions are occurring and various losses seem like a low probability. It’s also easy for them to forget how much will come from their pockets at the time of a loss.
Again, documenting in your agency management system will be of the utmost importance as carriers continue to get granular with endorsements and deductibles. Noting your client correspondence and conversations in these areas can prove to be quite helpful by providing back-up assistance should a disgruntled client forget what their deductibles are.
The author
Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties. You can reach Marc at marcmcnulty@uhlagency.com.
