Everyone Benefits from Agent Underwriters
By Dave Willis

Insurance agent Lisa Parry-Becker only has one head. But you wouldn’t know it by talking with some of her agent friends. When Parry-Becker tells these friends she inspects every risk she writes, she usually gets the same response: “They look at me and say, ‘You do all that?’” she says.

Sometimes they look at her like she has four heads, Parry-Becker adds. But she doesn’t mind the questions—or the looks. “I think that’s what good agents do,” she explains, referring to the extra work the inspections entail.

Underwriting locally
Parry-Becker, vice president and fifth-generation family member at William B. Parry & Son, LTD., an agency based in Langhorne, Pa., does the physical inspections because she wants the risks she submits – and in many cases actually underwrites – to be solid. “In today’s environment, it makes a lot of sense to go out and evaluate the risks you are writing,” she says. “It’s not worth writing one bad risk and impacting either your relationship with the carrier or your profit sharing.”

The approach works best for agents willing to take a long-term view of their business and their relationships. “Maybe we don’t make money in the first year because we’re going out and doing all the inspections,” she admits. “But if you write it correctly the first time, it pays off. We maintain good carrier relationships because we’re bringing in good risks, risks that are profitable, and we’re not just shot-gunning everything.”

Underwriting and risk inspection does more than just maintain good relationships. It provides greater insight into potential risks. “Since many carriers have started to use predictive modeling, underwriters often look only at the risks that don’t fit into the box,” she says. Unfortunately, predictive modeling can miss what a human might not.

A set of local eyes – with a focus on good risk selection – can help, as Parry-Becker recently found out. She was working with one account – a new venture – where the predictive modeling identified the risk as part of a good class, and offered a substantial credit. Parry-Becker pushed back. She said she didn’t want that level of credit applied because the business was just getting off the ground. “However, I recommended we get a little bit of experience and consider using the credit, if warranted, in the future,” she recalls.

Similar situations arise with renewals. “I recently was renewing an account that had been on the books for 20 years,” Parry-Becker recalls. The modeling flagged the account for a double-digit percent credit because of its good track record – something Parry-Becker had been talking about for some time.

According to Parry-Becker, such examples of how agents can be the eyes and ears for a carrier support the notion of extending underwriting authority. “Trust your agents and give them the authority” she says. Of course, it doesn’t have to be a forever thing. “If you start having loss ratio issues, then pull the strings back and rein them in,” Parry-Becker notes. “As performance improves, let the leash out a bit more.”

Agents with underwriting authority are able to bind risks in concert with company underwriting guidelines. Parry-Becker has such authority for property, general liability, and certain umbrella products, up to certain amounts.

She says the ability to underwrite on behalf of carriers helps set her agency apart from others. “It provides a real benefit to the customer since we get to make a decision on the spot,” she explains. Given customer expectations of fast turnaround, this can spell the difference between making the sale and losing it.

Parry-Becker says carriers that extend underwriting authority to agents sometimes refocus their staff underwriting roles a bit. “In some instances, the underwriters also have responsibility for the relationship aspect and how they can get more business,” she says. “They’ve assumed more of a marketing underwriting role.”

Attention to detail
Parry-Becker believes she’s able to carry out underwriting tasks effectively as an agent because she knows as much as possible about the potential insured, and understands its suitability for a particular carrier. For each risk, she builds her underwriting decisions on a thorough account inspection.

Arch Michael, vice president of underwriting at Lititz Mutual Group, Lititz, Pa., believes these in-person assessments add value – to the agent, the carrier, and the customer. When agents visit a potential client and do an on-site inspection and risk review, they go a long way in protecting their errors and omissions policy, he says.

“When they go out and discuss with the potential client their needs, they can ask questions that help them find exposures that might not be identified with just a phone call,” he notes. For instance, a homeowners policy often needs to cover more than just fire or wind. “The prospect may have a jewelry collection or some other collection,” he explains. “Or there may be an occupancy within the home that would preclude it from being eligible for homeowners coverage.”

Certain home-based businesses, for example, might carry unusually high risks. “The agent would need to ensure the proper coverage and limits for that exposure,” he adds. “Of course, certain types of home businesses can be covered under the homeowners policy, but they have to be disclosed.”

A second reason Michael sees value in such inspections has to do with pre-existing loss situations. “These would have been covered by the previous carrier,” he says. “If a claim were to be submitted to the new carrier, you’d get into an argument between the old carrier and the new one over who covered what when.”

Parry encountered that very situation some time ago. “I went out to a home to inspect the risk, and as I was sitting at the kitchen table, water was dripping on my head,” she recalls. “The prospect said, ‘Oh, we didn’t tell you about this on the phone, but we have this leaky roof problem.’” Parry-Becker declined the risk, and advised the prospect she was better off staying with her present agent and insurer.

Michael says the situation is not all that unusual. “Agents are finding, more and more, properties that are not in the best repair,” he says. Such properties, Parry-Becker says, often are better served by surplus lines markets – a call she can make more easily when she has full risk information up front.

Profitability – for carriers and agents – is another reason to gather comprehensive risk data as the basis for solid underwriting decisions. “We often hear that the difference between profit and loss in an agency is that company profit-sharing check,” Michael says. “To enhance the ability to get those checks, agents have to go out and write good business. You can’t go out and insure a home where the roof is coming off or it leaks.”

Good business works to bolster carrier financial results, too. “We’ve seen, over the years, that the agent who actually works with the policyholder, who goes out on the property and understands the risk, is more profitable to us than those that don’t,” he says.

Finally, Michael says, on-site, in-person visits bolster the agents’ worth to clients. Consumers know agents are paid a commission, but when they never see the agent or hear from them only at renewal time, if then, they tend to wonder what the commission really covers. “It’s important, certainly, to meet the insured on their premises that very first time, and then maintain a relationship of some type, depending on that insured’s needs,” he says.

That means now and in the future. “We all have exposures that change,” he adds. “Everybody’s very busy today. And quite frankly, policyholders don’t always remember that they have to do certain things to maintain their coverage, other than paying their premium.” Things like adding jewelry or notifying the agent when something else changes. An agent who has an ongoing relationship can help cover these gaps, and can work to round out accounts. Plus, they can grow the business as the client’s family grows.

Through in-person contact, agents also can make certain that clients understand the impact of increased replacement values, and the need to keep up. “When agents get out there, again to protect their E&O, they need to make sure to establish the right coverage amount for the risk.” Michael has found that agents who follow through with inspections do a better job at this, and are recognized by their companies as being better producers.

Parry-Becker recognizes the extra effort that’s required to deliver this level of service. “It could potentially be more work to us,” she says. “But I believe it’s better to know up front what you have, than to have the carrier go out and inspect it and come up with issues. Then you get the recommendation letters, and then you have X, Y, and Z issues to address with your insured.” That could end up being more work than the original inspection would be.

Plus, she says, “If you go out and do the original inspection, you might see something that would lead you to not write the risk. Or you’d have a better idea, up front, of which market would be right for the business.” It might be better suited for surplus lines or the specialty markets, which welcome risks that fall outside traditional carrier underwriting appetites, and which are used to accommodating such business.

By assuming an underwriting role, Parry-Becker believes agents can – and do – deliver better results for carriers, build stronger and lasting relationships with clients, and generate more profitable business within the agency. It requires a willingness to take on some extra work up front, the ability to balance the sometimes competing interests of production and disciplined risk selection, and a good head – one is all that’s needed – for profitable business.

Dave Willis is a freelance writer and regular contributor to IN magazine.

© Copyright 2007, National Association of Mutual Insurance Companies (NAMIC).