IRMI Update—Issue #180
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
March 26, 2008
In This Issue
Message from the Editor
Colleague,
The marketplace has softened considerably for most lines of insurance, and
rates have steadily decreased over the last couple of years. In their frenzy
to save money in soft markets, many insurance buyers overlook the other two
legs of the three legged insurance stool: coverage and service. But, while insurance
cost is important, the scope of the coverage being obtained and the value added
services being provided by the broker and insurer are also critical.
Declining prices put pressure on insurers and brokers to reduce costs, which
can lead to a deterioration of service. On the other hand, broadening coverage
terms has provided insurers with additional competitive tools in past soft insurance
markets. Thus, a single-minded focus on pricing when placing or purchasing insurance
for an organization of any size is a major strategic error.
Look at all three variables in your insurance equation well before your renewal
this year. Are your broker and insurers providing high quality service, or are
you less than pleased? If the latter, it is time to consider a change. Does
your program contain any significant coverage deficiencies that might be corrected
in the current marketplace? If so, develop a strategy to plug the holes either
by negotiation with your current insurer or a move to a new one. And, lastly,
how does your pricing look? If you are uncertain, ask your broker or a consultant
to benchmark your prices against other companies in your industry or consider
obtaining competitive proposals.
With respect to pricing, just remember that the old saying, "you get what
you pay for" often does apply to the service side of the insurance equation.
Remember, no one asks how much the insurance cost following a catastrophic event
where you need broad coverage, high limits, and superior claims service.
So what do you think? Are commercial insurance buyers too focused on cost?
Does the current market present a good opportunity to seek broadened coverage
terms? How can an insurance buyer assure that service levels remain high in
a soft market? [See
reader responses].
There is still time to sign up for our Miami or Dallas wrap-up, construction
defect, or contract risk management seminars.
Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Risk Tip: Don't Forget to Check the Address
Following the 2004-2005 storm seasons, catastrophe modelers recalibrated
their models. The new versions penalize poor data quality by increasing loss
estimates. Risk managers have worked hard to get accurate construction and protection
information. However, many do not consider the accuracy of a very important
piece of information—the address.
Insurers run addresses through a geo-coder, which takes that address and
turns it into a latitude and longitude. But isn't an address just an address?
After all, if the mailman can find the right building, can't a computer? Unlike
the mailman, the computer can't see the building. It has a complex process called
address standardization. It will try to get an exact match, but misspellings
or inaccuracies in the address (i.e., street versus avenue) could result in
an inaccurate geo-code. Worse yet, it may not find anything close to your address,
and so default to a lower resolution geo-code such as zip or city. Low resolution
matches produce more uncertainty (higher losses) in the modeled output. Experts
estimate that 40 percent of the addresses submitted for insurance purposes are
inaccurate. Foreign locations are especially problematic.
This level of inaccuracy may not seem meaningful considering the size of
a hurricane or earthquake, but modelers use location level data such as soil
conditions and topography in their damageability ratios. Also, an inaccurate
geo-code could put you in a flood zone or a different rating territory.
What to do? Risk managers should run their schedule of locations through
a geo-coder prior to submitting it to the insurance companies. They can correct
addresses that did not geo-code accurately or addresses that were changed by
the geo-coder. This is a time-consuming process, but it is done only once, and
the reduction in uncertainty has a compounding effect through the years.
By: Bob Medeiros
Lighthouse Consulting LLC
SUGGEST A RISK TIP: Send us a practical tip (less than 300 words) for identifying
and managing risks, buying insurance, managing claims, or filling gaps in insurance
coverages. Submit your
risk tips. We'll acknowledge your contribution as we did for Bob.
What's New in The Risk
Report
The March issue of The Risk Report,
by Ed Armstrong, "Professional Liability Insurance for Commercial Banks", examines
the evolution of errors and omissions and related insurance for full-service
banks, D&O liability, bankers professional Liability (BPL), and trust department
errors and omissions insurance.
For
IRMI Online subscribers
For
SilverPlume Sage subscribers
New Expert Commentary
There are over 1,000 risk management and insurance
articles on IRMI.com. Below you'll find summaries of some recent additions
with links to the articles.
IRMI Construction Seminars in Miami and Dallas
Wrap-ups, construction defect, and two new programs on construction contract
risk management will be held in Miami, and Dallas in April. Come join us for
an unmatched learning and networking opportunity at the IRMI Construction Risk
and Insurance Seminars. See the detailed agendas, speaker bios, dates, and reserve
your spot at the construction seminars.
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