COVERAGE CONCERNS
Offering auto and homeowners coverage choices
helps ward off irresponsible competition
By Roy C. McCormick
The insurance industry has carried on an ongoing effort to keep dwelling coverage in line with construction costs.
Never before has there been such a groundswell of siren calls tempting consumers to shop around before renewing their automobile and homeowners insurance policies. The implication in many instances is that if drivers haven't switched auto insurance carriers periodically, they've been throwing money away. Be your own insurance agent and save hundreds of dollars!
Conscientious insurance agents and brokers certainly cringe when observing some of the fast-moving television and dot-com promotional material. Most insurance ads are good, fair, competitive efforts, and a credit to the industry. They are directly proportional to the quality and integrity of the insurers who present them. But a few relatively unknown underwriters, their representatives and some newspaper columnists underscore lower premiums with little attention to the nature and function of the protection involved.
It is true that insurance companies are under great pressure to adjust rates upward in light of recent loss experience and events. What are poor insurance professionals to do? Plenty! By paying particular attention to existing accounts, they can succeed in preserving those accounts and possibly attracting many more--through word of mouth "advertising."
By conducting periodic reviews of personal accounts and following up with a personal contact, agents and customer service representatives can maintain protection that reflects the buyer's changing needs. Money can be saved or reallocated by adjusting the following:
* Increasing the automobile collision coverage deductible to $1,000 on relatively new and well-maintained cars. The premium difference between a $100 or $250 deductible and a $1,000 deductible can be considerable. By all means, discuss the wisdom of dropping collision coverage on an older car that is kept for utility purposes. The current book value can tip the scales in favor of doing this.
* Increasing the homeowners policy deductible to $1,000 from, for example, $250. In some cases, this can make a difference of several hundred dollars in the annual premium. Precise figures for various deductible options will make the right choice apparent to individual insureds.
The reallocation of these savings to significant improvement in protection will appeal to many insureds. A review of customer files, property acquisitions and personal activities can warrant recommendation of various coverage adjustments for individual policyholders. Significant considerations include, but are not limited to, the following:
* Increasing the amount of insurance under dwelling coverage, with corresponding automatic upgrading of other Section I coverages in the policy. The insurance industry has carried on an ongoing effort to keep dwelling coverage in line with construction costs. Many insureds, however, while meeting the replacement cost requirement (usually 80%), will be better off with a protective buffer that fixes the total amount of dwelling coverage closer to 100%. This could be significant in the event of a total loss. Examples are the devastating summer fires in the western states, hurricanes in the southeastern states, plus tornadoes and local fires that are all too familiar.
* Converting personal property coverage under Coverage C, for eligible insureds, to full, present-replacement cost without deduction for depreciation on damaged, destroyed or lost items. Personal property losses are basically settled, of course, on the basis of replacement cost less depreciation. (The replacement cost figure applicable to general personal property is that charged at time of loss rather than the amount actually paid at time of original purchase.) Coverage provided by optional replacement cost endorsements used by the various insurers is not standardized, but its intent and effect are similar.
* Scheduling valuable items of personal property for specific amounts of insurance, based on bills of sale or appraisals. Inquire about costly items for which there are special limits under Coverage C and which are especially vulnerable to losses only partially covered or not at all. A few examples are jewelry, furs, stamp and coin collections. Note that removal of such items from general personal property, for coverage purposes, frees up more insurance for the latter.
* Raising the limit of personal liability insurance under Section II. In light of frequent and widely publicized personal injury lawsuits, substantial protection is a reasonable subject for discussion.
* Increasing automobile liability insurance limits--the most important coverage adjustment for many insureds. If an insured's file shows bodily injury liability coverage limits of $100,000/$300,000, savings from deductible increase or other coverage removal may buy substantially higher BI limits. PD limits should be fixed to at least $100,000 in most situations.
* Explaining and suggesting uninsured motorist coverage and/or underinsured motorist coverage to the insured, if not already effective. The cost of such protection can be offset by dropping towing and labor cost coverage and/or rental reimbursement coverage, if such benefits are provided by credit card or automobile club membership.
* Discussing personal umbrella liability insurance and recommending it to various insureds. The policy is an important option for insureds who are especially vulnerable because of substantial resources or name recognition. It provides $1 million or more limits of liability protection over the primary automobile and homeowners policies, as well as for various exposures to which the underlying policies do not apply, subject to a self-insured retention which is, in effect, a deductible.
All buyers of personal insurance can benefit from acceptance of higher homeowners and automobile collision deductibles or the elimination of certain coverages, such as collision coverage on older cars. Premium reallocation will provide significant additional coverage for many people; the amount of money saved will be an important factor to others.
In any event, it is far better that insureds hear about these beneficial options from those who currently furnish their protection than from competitors or the media. *
The author
Roy C. McCormick is consulting editor of the Policy, Form & Manual Analysis Service (PF&M) published by Rough Notes.