Lesson 6 - Personal Lines: Due Diligence & Account Management Introduction The role of the Customer Service Representative is extremely important in the day-today operations of an agency. An agency may find itself unable to retain business if the Customer Service Representatives are not properly trained in the following skills: Technical insurance knowledge; Underwriting requirements; Effective customer service practices; Good communication; The use of agency automation; Knowledge of agency procedures. The role of the Customer Service Representative can change and become even more specific based on the size of the agency. In a smaller agency, the Customer Service Representative may be the receptionist, service both personal lines and commercial lines, and also have clerical duties. In a mid-sized agency, the Customer Service Representatives usually handle personal lines or commercial lines, but not both. They may even have specialized functions, such as, new business quoting or marketing. In a large agency, the Customer Service Representatives become even more specialized. They can have specific responsibilities limited to certificate management or claims management. Other Customer Service Representatives in a large agency may be assigned to departments that focus on only personal lines, commercial lines, life insurance, or health insurance. The Customer Service Representatives become more efficient as they deal with just one area of insurance. In this topic of Due Diligence and Account Management we will look at: The role of underwriting guidelines The importance of effective documentation Systems for processing new business, renewals, and account servicing AO Rev. 09/10 Page 68
While there are many similarities between personal lines and commercial lines in these topics, they will be presented separately. Learning Objectives: Personal Lines 1. Explain the role of personal lines underwriting guidelines, including exceptions. 2. Explain the guidelines for effective documentation. 3. Explain the steps in account servicing for new business and existing policyholders. Forms to print from the Forms Library: None AO Rev. 09/10 Page 69
Lesson 6 Topic A - The Role of Personal Lines Underwriting Guidelines The standard of care that is owed to customers and insurance companies has been previously discussed. We will now see that it is also part of the due diligence an agency owes to its customers and insurance companies. Learning Objective: Explain the role of personal lines underwriting guidelines, including exceptions. Know the Coverage Differences Agency staff must know the coverage differences among the policies available in the agency before coverage can be placed on the best terms available for the customer. These coverage differences may include: perils insured against, special limits of coverage, limits of liability, or additional coverages. Of course, before the agency can determine which policy would be on the best terms available for the customer, it first has to determine the specific needs of that particular customer. Review Underwriting Guidelines Underwriting guidelines are established by each insurance company and are an indicator of the type of business the insurance company is interested in writing. Underwriting guidelines may also include the agency s binding authority. Review underwriting guidelines periodically to stay aware of any changes. In personal lines these guidelines tend to be more stable as compared to commercial lines. Know your binding authority with each insurance company. Failure to stay within your binding authority could result in an errors and omissions claim against the agency. The majority of the new business submitted should meet or exceed the company s underwriting guidelines. Most insurance companies keep track of an agency s new business submissions and pay very close attention to the quality of AO Rev. 09/10 Page 70
the submissions and monitor whether they meet or exceed their underwriting guidelines. Learning Objective: Explain the role of personal lines underwriting guidelines, including exceptions. The Importance of Underwriting Guidelines You may not always agree with a company s underwriting guidelines, but you need to abide by them. If an account doesn t meet a particular company s underwriting guidelines, check with other companies within your agency: Some guidelines are non-negotiable as the rate or rules filed with the insurance departments prohibit any deviation. As discussed earlier, reinsurance could also affect underwriting guidelines if the risk would fall outside of the parameters of the reinsurance treaty. Exceptions to Underwriting Guidelines What about asking for an exception to the guidelines? There are situations when it makes sense for the underwriter to make an exception and agree to provide coverage for a risk that falls outside of the acceptability guidelines. Example The underwriting guidelines require a clean driving record but the prospect has a speeding ticket that will be off the record in 30 days. In this case, requesting an exception would be an appropriate action and the underwriter may accommodate the request. Be sure to provide additional information to support the request, e.g., other policies to be written for the account, information relevant to the insured, etc. With that said, exceptions should be infrequent as statistics tell us that building a book of business based on exception business can produce an unprofitable book of business in the long run. AO Rev. 09/10 Page 71
Learning Objective: Explain the role of personal lines underwriting guidelines, including exceptions. Know the company s appetite (target business) and additional services available. Ask yourself a few of these questions: What classes or types of business is the company interested in writing? Is the company a specialist in any particular class (or classes) of business? Does the company have loss control services available? Does the company provide high valued home inspections? Credit Scoring Credit scoring is widely used as part of the underwriting process. Each state can individually regulate the use of credit scoring for pricing. Some states prohibit the use of a credit score as the sole reason for declining to write the insurance. It is important for insurance professionals to understand and follow their state s laws or rules regulating this issue. AO Rev. 09/10 Page 72
Lesson 6 Topic B - Account Servicing Learning Objective: Explain the steps in account servicing for new business and existing policyholders. Note: Always collect the initial premium unless it is the insurance company s policy to bill the insured or if the premium is being paid by a bank, mortgage company, or some other guaranteed payor. Standardized Internal Systems An agency must have standardized systems and procedures. A system is simply a way of doing things, more like a workflow. It is an orderly arrangement of tasks, facts, and rules that show a logical relationship between the various parts. Standardized systems ensure consistency. Well-planned systems also eliminate mistakes and may eliminate duplication. This is why it is important for an agency to develop a procedural manual and make it available to all employees. Efficient internal systems don t just happen, although many develop through trial and error. For the whole system to be efficient and integrated, proactive planning is necessary. Each function needs to be reviewed to eliminate unnecessary steps and ensure that all goals are being met in a timely fashion. The best practice is to first train a new employee on an existing procedure. If the new employee is not trained properly, he or she will work in the manner that seems logical but it may conflict with established agency procedures. New employees may later recommend new procedures that can be adopted by the agency. AO Rev. 09/10 Page 73
Learning Objective: Explain the steps in account servicing for new business and existing policyholders. Account Servicing - New Business Processing Application Applications should always be completed thoroughly, accurately and honestly; making sure the correct person (or persons) is shown as the named insured. In most instances, husband and wife should both be shown as named insureds. In domestic partner situations, both people should be shown as long as both have an insurable interest. Underwriting Questions These questions should be asked of and answered by the named insured(s). Don t rely on old information in the customer s records because things may have changed. If the information on the application is incorrect, there could be a problem with coverage at the time of loss. If there was fraud or material misrepresentation when completing the application, the consequences could be more serious. Customer Signature Have the named insured(s) sign the application even if a signature is not required. It is good practice to have the insured sign to the validity of the information contained on the application. Under no circumstances should the agency sign the insured s name. Documentation Document the customer s records with regard to any rejection of coverage, selection of reduced limits, etc. If the insured turns down your offer of higher auto liability limits be sure it is documented in case you have to later prove higher limits were offered. Document is an 8-letter word that can be either the agency s best ally or its worst enemy. Though documentation seems to consume our workday, the failure to properly document can be used against the agency in an errors and omissions claim. Effective documentation will also allow someone else in the agency to know and understand what is taking place with a particular client. AO Rev. 09/10 Page 74
Issuing Binders, etc. If coverage has been bound, issue necessary binders, certificates of insurance, evidence of property insurance, auto identification cards, receipts, etc. Most jurisdictions require a binder (containing all of the required information) to be promptly issued to the insured. (Binders, certificates of property insurance, and evidence of property insurance are covered in the next lesson.) Sending Application to Insurance Company Now the application needs to be sent to the insurance company. The application is uploaded to the insurance company within the time frame as allowed in the agency s policy and procedures manual (and/or the company-agency agreement) and a follow-up is set for the issuance of the policy. If the follow-up date arrives and the policy hasn t been received, be sure to confirm with the insurance company that the application was actually received before extending the follow-up date. Verifying the Policy Once the policy is issued, verify that the policy was issued correctly with the requested coverage forms, endorsements, limits, rating information, premium, etc. You don t want to wait until after a loss to find out that the policy was issued incorrectly. Learning Objective: Explain the steps in account servicing for new business and existing policyholders. Account Servicing - Existing Policy Holders Once the policy has been issued, the account servicing begins. Insureds will contact the agency to make changes to their policy; i.e., vehicle changes, driver changes, coverage changes, etc. Changes to a policy are called endorsements. 1. Verify that the named insured is making the change First, make sure the person requesting the change is the Named Insured. The Named Insured is the only person who has the authority to request changes. Then, ask for all the necessary information to make the requested change. Example: If adding a new vehicle to the auto policy, the insured will need to be asked how the vehicle will be used, who will be driving it, whether there is a loss payee, etc. You should also verify that the insured has an insurable interest. If property is being added, verify that the insured has an insurable interest. AO Rev. 09/10 Page 75
2. Communicate In Lesson 4, we discussed the importance of communicating with customers and letting insureds know when they should receive verification from the insurance company of any changes made to the policy. This is a part of an effective communication cycle. And, since you are already speaking with the customer, this would be a good time to cross-sell and further develop the account. 3. Request change/follow up with insurance company Request changes be made by the insurance company and set a follow-up date to make sure the requested changes are made. Now is also the time to update the customer's policy information in the agency management system and mail a policy change confirmation to the insured. 4. Verify change When the insurance company has processed the change request, verify it was issued correctly. Again, it is easier to correct errors before a loss occurs. Learning Objective: Explain the guidelines for effective documentation. Guidelines for effective documentation: Documentation should be made in the agency management system according to the agency s policies and procedures. It is more effective to use a free form note screen format rather than input areas that require exact information. Documentation should be completed while dealing with the customer or immediately afterwards so that the information will be correctly documented. Documentation should consist of facts; editorial or emotional comments should not be entered. AO Rev. 09/10 Page 76
Lesson 6 Topic C - Effective Documentation Learning Objective: Explain the guidelines for effective documentation. Guidelines for effective documentation: Documentation should be made in the agency management system according to the agency s policies and procedures. It is more effective to use a free form note screen format rather than input areas that require exact information. Documentation should be completed while dealing with the customer or immediately afterwards so that the information will be correctly documented. Documentation should consist of facts; editorial or emotional comments should not be entered. Please refer to the end of Lesson 6 Topic C to complete Self Quiz 6. AO Rev. 09/10 Page 77