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.

Chief Audit Executives and Risk Management Silos—Mark Layton explains how CAEs can play a vital role in bridging silos and improving their firms' risk intelligence capabilities.
CGL Exclusion for Expected or Intended Injury—Craig Stanovich highlights what is and what is not excluded by the commercial general liability (CGL) insurance policy's Exclusion a.
Insurance Industry Sings the Back Door Blues—Pete Polstein foresees a hard insurance market ahead and discusses the ominous factors that may lead to it.
Construction Risk Management: Avoiding the Incompetent Worker—Letting an incompetent person oversee work on your construction project is a recipe for disaster. TJ Lyons explains.
Valuation Insights: Health and Life Insurers—Jeff Balcombe provides insight into the valuation of life and health (L&H) insurers and the market's current pricing of these businesses.
Owners Protective Professional Indemnity Insurance—Jeff Slivka and Tony Polini discuss the OPPI policy as a more desirable option for owners than the alternatives currently available to them.
New York Awards Consequential Damages for Insurer's Bad Faith—Jay Levin relates a property case forcing insurers to fulfill their promise not only to pay for covered losses, but to do so in a timely fashion.
Reinsurancese—Time for a Change?—Larry Schiffer believes that when industry practices are couched in jargon, those investigating industry practices become suspicious.

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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IRMI Update—Issue #180

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