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The Rough Notes Company Inc.



June 28
08:12 2021

Mind the Gap

By Marc McNulty, CIC, CRM


Don’t let direct writers beat you on price alone

If you’ve followed this column over the years, you know that our goal is to help those who are new to the industry by pointing out various pitfalls or coverage gaps. We’ve explored a variety of topics ranging from personal lines coverage enhancements to lesser-known commercial lines endorsements.

However, after recently working on a new business opportunity who had obtained home and auto insurance quotes from a direct writer that will remain nameless, I realized it is time to go back to the basics.

We’ve all seen the commercials that focus solely on price. However, the dirty little secret is that the insurance companies taking this approach are often skimping on coverage and are offering solutions that are nowhere near as robust as what independent agents can offer.

While you will encounter some prospects who are fine with taking a chance, others will see the big picture and will appreciate that you are offering them a more comprehensive solution.

Let’s explore a few tactics the direct writers use to compete on price—and how to beat them on coverage (provided you represent carriers who are somewhat competitive from a price standpoint).

We’ll refer to my prospect’s quotes through out this month’s column, as these are all tactics I observed after reviewing her direct writer proposal. I’m confident you will find additional tactics as you work with your own prospects.

  1. Inadequate dwelling protection. By now you’re probably aware that the cost of building materials has skyrocketed over the past year. Obviously, this means the cost to rebuild homes has increased accordingly.

In the past, it has always been a challenge to explain to people why the replacement cost on their home was typically higher than the market value. However, with the price of lumber having almost tripled since the start of 2020, it’s an easier conversation to have.

I immediately noticed that my prospect’s homeowners quote (let’s call my prospect Jane Doe) had a Coverage A limit that was 14% lower than what I was proposing. That wouldn’t be a big deal as long as she had some sort of enhanced/extended replacement cost coverage that would provide her with an extra 20% to 50% in the event the dwelling was completely destroyed.

Jane’s quote did not include this type of enhancement.

I suggest you consider adding enhanced/extended replacement cost coverage onto every homeowners insurance quote you provide, as I can assure you that building contractors don’t provide discounts when they know an insurance company is footing the bill. In cases where our agency has seen total homeowners losses, the reconstruction cost estimates have exceeded the Coverage A limit every time, and the enhanced/extended replacement cost coverage was needed to fill the gap.

  1. Inadequate perils for contents. Jane’s quote proposal did a nice job of explaining what the “personal property” portion of her homeowners insurance quote covered. However, it did not disclose what perils are covered when contents losses occur.

After doing a little digging on the insurance company’s website, I discovered that the com-pany uses an HO-3 form. The site explained that the form uses “open peril” coverage for the dwelling but then casually mentions that personal property is covered by “named perils.” To their credit, they noted the following on the website: With named peril coverage, your policy helps pay to repair or replace your belongings only if they’re damaged by the perils that are specifically listed in your policy. If the peril is not listed, it is not covered.

I’m sure that most—if not all—of the insurance companies you represent offer a policy or an endorsement that will allow you to create a policy that is the equivalent of an HO 00 05, so this should be an easy topic to address with a prospect. If you encounter this situation, simply ask why the direct writer isn’t covering the home’s contents in the same fashion they are covering the home itself.

  1. Lack of homeowner “extras.” In our October 2018 “Mind the Gap,” we examined some of the new endorsements that available for homeowners policies. This included enhancements such as underground utility service line coverage, personal cyber protection, personal flood coverage, and equipment breakdown coverage.

I don’t think it’s reasonable to see these extras on every home insurance quote, so I wouldn’t were expect that. However, I also don’t think it is reasonable to see a “Not Selected/Not Applicable” entry next to Building Codes Coverage on a quote for a home that is almost 60 years old.

That is exactly what I saw on Jane’s quote.

Yes, the HO 00 03 (05 11) provides up to 10% of the Coverage A limit for costs incurred associated with the enforcement of any ordinances or laws, but it’s typically inexpensive to increase this amount via endorsement. In many cases, homeowners policy enhancement endorsements will also include this coverage as part of the suite of coverages provided.

Unrelated side note: I’ve also seen plenty of instances over the years where extremely low limits of water backup coverage were quoted on homes that have finished basements. Don’t let that situation go unnoticed!

  1. Low auto liability limits. You’ve most likely seen situations where prospects are quoted low liability limits to save some premium. Of all the issues I found with Jane’s quote proposal though, this one puzzled me the most, as I wasn’t completely sure if the auto limits were purposely quoted strangely or if it was done by accident.

The reason for my confusion is that the bodily injury limits were quoted at $25,000 per person / $100,000 per accident, but the uninsured motorist coverage was quoted at $100,000 per person / $300,000 per accident. Property damage liability was quoted at $100,000 per occurrence.

I’ve seen auto policies where the uninsured/underinsured motorist liability limits were lower than the bodily injury limits, but seeing this reversed was a first for me. No matter if this was done on purpose or was an oversight, you should have standard limits of liability that you use for new business quotes and those limits should be well beyond state minimum limits.

  1. Lack of auto transportation expense. In situations where an individual or family has multiple cars available for their use, it makes sense to consider eliminating transportation expense coverage since another car can be used while the damaged one is being repaired. However, in a case like Jane’s where there are two drivers on the policy and two vehicles, it didn’t make sense for this coverage to be left off.

This is another coverage that isn’t terribly expensive to add. If anything, especially given the current cost of rental vehicles, it would be wise to increase this coverage beyond the typical limit that you quote so that your client has more coverage should they need it.

The entire picture

When examined one at a time, each of these tactics doesn’t appear overly significant in the grand scheme of things. However, when you put them together, they certainly afford the direct writer the opportunity to cut back on premium cost and take your potential new client away from you.

Don’t let them do that! Take the time to explain to your prospect what he or she is missing by cutting corners when it comes to coverage.

Is the small amount of premium savings worth it if your prospect has to fork over $1,000 to a rental car company once they get into an accident? Similarly, will the savings be enough to offset potentially tens (or even hundreds) of thousands of dollars to the other party who was injured in the accident because your prospect’s liability limits were inadequate?

While you will encounter some prospects who are fine with taking a chance, others will see the big picture and will appreciate that you are offering them a more comprehensive solution. Those are the types of clients you want to write and retain.

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

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