Understanding How to Analyze Personal Insurance Risks

The widespread use of comparative raters has been the one factor that may confuse insurance personnel the most. Technology has advanced tremendously in the past several years, but none of the raters adequately have the ability to analyze a risk and eliminate the rates of carriers that do not even want that particular risk. If a rate comes back and they are competitive- they must want the risk- right?
Overwhelmingly, the answer to that question is NO! In personal lines, we are typically starting the analysis by determining if a risk is "preferred" or "standard/non-standard." Here are the characteristics of a "preferred" risk:
- Positive physical attributes of property to be insured. Homes need to be well-maintained and depending upon the year built, updating of plumbing, roof (except some tile and slate), wiring and HVAC systems must be done in the past 30-35 years. Autos need to also be well-maintained and free of any damage. Pride of ownership is evident.
- Loss history is clear. A preferred risk has no losses in the past 5 years. A water loss or liability loss may indicate an exposure that may have a higher probability of having another loss. For property exposures, losses follow the insured. If you have an insured that owns multiple properties and the home is loss free but the rentals have losses; those losses will be taken into consideration on the home when determining the eligibility of the risk. This is especially true if the carrier will not be insuring the rental properties. You need to understand those losses even if you are currently not insuring those properties to have a discussion with the underwriter on the merits of the risk. On auto, multiple not at-fault accidents are generally precursors to an at-fault accident.
- Be aware of trends in the marketplace and how your risk may be affected. For example, in recent years in Southern California, water losses have been extremely prevalent among houses with a certain type of plumbing and with certain years built. Your prospect may have a higher probability of loss due to these external factors.
- Insured wants proper insurance to cover assets. A preferred client understands that losses filed will be catastrophic in nature and not maintenance issues. They also understand the value of high deductibles because the long- term cost savings due to reduced overall premiums paid is in their best interest.
- Understand lifestyle and hobbies. There is a difference between having a large home to insure and a complex lifestyle. Insureds with large schedules, frequently travel, loan artwork to museums, have in-servant exposures or own "toys" belong in a "High Value " market as their lifestyle requires additional expertise at the time of a loss not to mention that they tend to have higher expectations of how a claim will be handled in general. Placing these risks in a "Middle Market" does a complete disservice to the client.

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