7 Ways Not to Screw Up Your Next Property Renewal

Property underwriters are keen to restore profit margins, so here are tips for keeping them sweet.
By: | November 1, 2018 • 4 min read

Seasoned insurance and risk managers have a list of basic rules they adhere to for ensuring the renewal of their property insurance program goes smoothly.

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The list of ‘do’s’ include commencing the process well before the renewal date; promptly informing your insurer and broker of material changes occurring since the last renewal; adjusting cover as the company grows or changes; and ensuring cover extends to areas such as business interruption should an extreme weather event strike.

The ‘don’ts’ include omitting important underwriting information from the renewal submission; failing to update sums insured and limits of liability as necessary; not checking policy wordings to confirm what is and isn’t covered; and neglecting a back-up or ‘Plan B’ if renewal negotiations go less smoothly than expected.

To these basics, Marsh’s U.S. property practice leader Duncan Ellis recommends the following to ensure that renewal goes according to plan:

Be prepared to negotiate: The prolonged standard soft market characterized by regular rate reductions is over. There have now been four successive quarters of across-the-board increases; for the handful of programs that have achieved a reduction, it’s usually been in return for a concession such as a higher deductible.

So readiness to negotiate is now essential. That includes being prepared to work on your deductibles and make concessions. Many came down during the soft market, but in their bid to return to profitability, underwriters regard higher deductibles as an acceptable option to increasing premiums.

Duncan Ellis, U.S. Property Practice Leader, Marsh

Conduct an honest review to separate the ‘need to haves’ from the ‘nice to haves’: During the soft market, enhancements were freely given but now is the time to review which of them you can dispense with without too much sacrifice. For example, is earthquake cover of $500 million on a facility essential or could you live with $100 million? More is always better, but not all add-ons are essential. So cut back as and where needed in recognition of the changing market.

Ensure you fully communicate your true risk profile: From installing sprinklers to retrofitting your buildings to make them quake resistant, inform the underwriter of improvements to ensure you get any resulting benefit.

Recognize the importance of modeling and analytics: Is your data in a modeling-ready format and have you tested it first with your broker? Every insurance program is now modeled by the underwriting community; if your data isn’t in modelling-ready format it’s doomed to failure.

Be aware that in both property insurance and other classes, underwriters are now focused on overall profitability: Although they accept that not every single book of business will always be profitable, they are employing strategies and tactics to restore profit, so books of business exposed to potentially heavy nat-cat losses will inevitably see an increase in rates.

Consider a longer-term program: These are still available, but the carrier will only enter into a longer-term program where they are assured that the client is committed and won’t subsequently cancel in year two should market conditions soften.

Longer-term programs need to make sense for both the underwriter and the client. The carrier needs the opportunity to make money – if it doesn’t represent a good deal they will be more included to stick with a one year program.

Alternative risk programs are worth exploring for larger companies: Traditional insurance and annual contracts work well for many companies, but a growing subset are ready to investigate alternative programs.

There are integrated programs, where as many as 10 different lines of coverage can combine into a single block of cover and the client gets an improved premium. It’s good business for the carrier, as often they are written on a multi-year basis and are particularly suited to larger clients – so it becomes a win-win for both sides.

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Parametrics – aka index exceedance or event cover – is becoming more popular. Parametrics can provide a policy where the limit is triggered automatically by a certain event, such as winds gusting in excess of 90 mph near your property. Demand has grown from businesses weary of what can be a protracted claims settlement process under conventional cover.

Multi-year single limit (MYSL) is also in demand. Instead of buying catastrophe cover aggregated on an annual contract, a three-year policy offers a single limit spread over that period. A premium saving is provided in return for locking in with the carrier for all three years. However, if the limit is exhausted by a nat-cat event early during the period of coverage it’s possible to pay an agreed pre-loss additional premium to have it reinstated, rather than at the post-event higher price.

Lastly, be prepared to break some china if necessary. There’s always the risk of complacency setting in with a long-standing relationship, both with your insurer or broker. But risk and insurance managers should be ready to make changes if necessary – even where that involves breaking past relationships.

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at riskletters@lrp.com.