Something for nothing

Using non-money endorsements for fun and profit

In a competitive situation, my favorite gambit is to get the prospect to focus on non-money endorsements that broaden the coverage without raising the premium. We're in a very competitive business, of course. Getting the prospect to focus on non-money endorsements has several positive benefits that somewhat reduce the pressure on pure cost and can make it easier for you to compete in the commercial lines marketplace. Here's why:

* It causes the prospect to focus on substantive insurance discussions, thus enhancing your professionalism and, by inference, putting you above other agents who failed to find the items you've recommended.

* It puts the holding broker in an untenable position. Invariably, the holding broker will comE back offering to provide the same benefits, also a no cost. That begs the question: "If you can do it at no cost, why didn't you do it before this new person found it?"

* It almost always eliminates all third-party bidders. If you can show that the holding broker didn't do a good job, and that others who are jumping around, waving their arms, and bidding on the same specs, are proposing the same thing as the holding broker, why should the prospect change to them?

* Focusing on non-money endorsements is a way of getting the prospect to understand the difference between value and cost, without beating the prospect over the head.

So, what exactly are non-money endorsements? In simple terms, a non-money endorsement is anything you put on a policy for which there isn't a specific, additional premium charge. It may be a part of the standard policy's declaration page (such as the named insured, or the effective dates), it could be a standard bureau form (such as one of several selling price clauses), or it could be a manuscripted endorsement.

Conceptually, anything that can be "defined" can be improved. Take the time to look over any policy, and you'll find terms and conditions that define the insured, the perils covered, the valuation clause, the exclusions, even the insured's (and carrier's) duties in the event of loss. Virtually all of these can be modified. Some of these are even determined by the agent, when he or she orders the policy.

Named insured wording

A significant number of accounts include a sloppily written named insured. Properly naming the named insured is a combination of art and science. Most agents don't think much about this and use a simple "Acme Corporation" or "Acme Corporation, an Illinois Corporation." There is nothing more personal to a business-especially a small business-than its name. If you can't stretch the name out long enough that it has to appear on a supplemental endorsement, you haven't really tried.

Broadened definition of building

Under normal circumstances, a property policy will have broader coverage on the building than it will on personal property. Therefore, broadening the definition of "building" to include property that otherwise would be personal property makes the coverage better. If the current policy, for example, defines "building" to include "attached walls and fences," then any unattached walls or fences are personal property. Here's a very simple, broadened definition of "building":

"It is hereby agreed that the definition of 'building' is amended to include walls, fences, pools, patios, fountains, trees, shrubs, plants, driveways, and pavements, all whether attached or not."

Why is this a non-money endorsement? Well, specifically, there is no actual charge for this wording. If it increases the amount for which the building should be insured, the carrier is protected either by a correspondingly higher building valuation (if you're doing your job well), or the coinsurance penalty (if you're not). Of course, you should be using a combination of 100% coinsurance clause (to get the best rate) and a waiver of the coinsurance penalty clause (so the insured doesn't get clobbered by a partial loss). You do that, right?

Besides doing a better job at the end of the process (when you give the prospect your proposal), using these wordings as a matter of practice can make it easier at the beginning of the process. In one case, I had a prospect who was reluctant to turn over the complete policies he had, offering to photocopy the declaration pages instead. I explained that we wanted to read the entire wording, used the example of a broadened building definition, and verbally gave it to him. There was a long pause, and then he told me that he recently had $10,000 uninsured loss to a poured concrete driveway which would have been covered under our wording. We got the account.

First-of-the-month policy dating

How many times have you seen a corporate policy with an effective and expiration that is the 8th, 13th, or 22nd of the month? Does the insured's fiscal year begin and end on that date? No. If the insured's policy starts on February 12, you can be reasonably sure that the last time the insured's policy was cancelled (voluntarily or not) was on February 12 a few years ago. The insured's corporate year probably starts on January 1 or July 1, or the first of some month. A simple non-money endorsement is to quote on an annual basis, of course, but recommend that the policy be prorated to expire on January 1, or whatever date is the beginning of the insured's corporate year.

Why does it matter? Well, first, it's much more professional. Second, though, the insured is going to have a CPA, and that person is going to have to figure out how much of the premium to put in each fiscal year. Do you think the accountant has a Rough Notes Company calculator wheel handy? No-more likely he'll figure it out by hand-at $100+ per hour!

(There's another benefit, too. When the old agent finally contacts the insured next January, after the holidays, to try to get the account back, you've already renewed it. You do work on your renewals a full 90 days ahead of time, right?)

Manufacturing inventories

Retailers have inventories, of course. Manufacturers, however, usually have three different kinds of inventory: raw materials, goods in process, and finished goods. Some of those finished goods will be sitting in inventory, waiting to be sold, but some of it is already sold but not yet shipped to the buyer. In these days of "just-intime" inventory controls by many businesses, they are pushing the manufacturers to hold inventories until the buyer actually needs the goods.

As you know, business interruption insurance pays for loss of profit and ongoing expenses for sales that are lost while the insured is rebuilding from an insured loss (such as a fire), and the primary fire insurance pays for the insured's inventories. However, the inventory is valued at the insured's cost. That leaves a gap, because neither coverage covers the insured's profits on finished goods that are sold but not delivered. How do you cover it? With a no-cost manufacturer's selling price clause. Even better is to manuscript an endorsement that says that goods sold but not delivered will be valued at their selling price.

Using "blanket" limits

Suppose you have an insured with a small chain of three or four stores. If you simply list the locations with a value at each, you might end up underinsured at one location (which will have the loss, of course) while being overinsured at another. The best way to handle this is to write one "blanket" limit of coverage, which applies to all locations.

If, in a competitive situation, you see that the current broker has not done this, it is an easy recommendation to make. If the current policy does have a blanket limit on multiple locations, the first thing to check is that the limit does, in fact, truly reflect the real set of values. (Underinsurance in blanket situations is very common, which is why a seasoned property underwriter will check it carefully.)

In addition, you cannot write a blanket limit only on contents, or on buildings. The broadest solution is to write one blanket limit to cover all buildings, contents, and business interruption. (Note, if you ever write building or contents coverage without also writing some form of time element coverage, stop reading now and go raise the limit on your E&O insurance, because you cannot have a direct property loss without an associated time element loss.)

Summary

These are but a few examples of the changes you can recommend which will make the policy broader without raising the premium. Invariably, the prospect will discuss them with the prospect's present agent, but you've sown the seeds of discontent. It's almost impossible for the current agent to say anything other than, "Yes, I can make the same changes," and "No, there won't be any additional cost for them." You will have successfully moved the focus of attention away from cost and onto value-and shown your better value at the same time.

Go get 'em, Tiger!

By G. Barry Klein, CPCU, CLU

The author

G. Barry Klein, CPCU, CLU, is director of ebixExchange, which provides interface products and services to the insurance carrier marketplace. Klein also maintains the industry reference site, www.ultimateinsurancelinks.com. His e-mail is [email protected].

Copyright Rough Notes Co., Inc. Dec 2002
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