Exposure Analysis – A True Win-Win

09 Jan Exposure Analysis – A True Win-Win

Let’s start off with three key premises:

1. Every agency is looking to grow in 2020. While the market may provide some assistance in that area, generating new business is certainly a key component.
2. Due to the financial impact of an E&O claim, without a doubt, every agency is looking for opportunities to reduce E&O exposure. The less claims, the better the bottom line.
3. The third premise is also a key one. When one looks at E&O claims, a HUGE percentage of those claims involve an uninsured loss. What is not covered is typically the major cause of the client bringing some type of action against your agency. Thus, the more exposures of the client that are insured will play a major role in reducing the potential for the client to have an uninsured loss.

Over the last five years, the “exposure screening” cause of loss has generated nearly 30 percent of E&O claims and roughly 50 percent of the dollars spent to defend those claims – plus any judgments rendered against the agency.

It is somewhat common sense to recognize that the solution to minimize the potential from this happening to your agency, is greater use of an exposure analysis checklist for both new and renewal business. Clearly, the effective use of an exposure analysis checklist is the closest thing to a silver bullet in E&O prevention.

It is critical that performing this type of review is a common practice when marketing for new business. Identifying an uninsured exposure can be the difference between just quoting an account and actually securing them as a client. Developing and annually updating an exposure analysis checklist should be an agency goal. For many agencies, identifying new business prospects that meet their criteria for size and type of business can be a challenge.

Let me ask you a question – how much new business is there in your current book? Do your clients have exposures that not properly insured? Issues like drones, product recall, robotics, contingent BI, cyber? On the personal lines side of the agency, what about exposures such as ride sharing, kids at college?

The key issue is to find a way to ask your client, “Has anything changed in your life or in your business?” Reaching out annually to clients asking about changes in exposures accomplishes a multitude of things.

1. 1. This now puts the onus on the client to advise you of any changes. If they have a new exposure (such as they started a home business) and don’t advise you of the exposure, it is hard for your agency to insure something you don’t know about. The questionnaire you sent them asking about this exposure will no doubt be a key element of your agency’s defense should a problem develop.
   2. Your agency will write more business – GUARANTEED! There are numerous examples of agencies growing through a solid cross selling program. So, if you are looking to write more business, try looking for opportunities within your current book. A good place to start is to determine the average number of policies you have for your clients. Then use that average as the baseline moving forward. If your average number of policies per client is 2.5, set a goal of increasing that number to 3.5 by this time in 2021. Many agencies provide an incentive for these cross-selling initiatives.

There is a good chance your clients have a new exposure, but have no knowledge as to whether they are properly covered. Through the effective use of a renewal questionnaire, this will provide the agency with new business opportunities, while at the same time, shrinking the possibility that a client claim is not properly covered. A true win-win!