First, what is an underwriter?
Underwriters determine how much you pay for your insurance. They review your application, discuss it with your broker, analyze your firm, and then decide how risky you are for them and how much you need to pay. Good underwriters do that. Other underwriters just rely on algorithms.
Have you ever met your underwriters?
The answer should be YES. It is critical for AE firms to meet their underwriters and develop long term relationships with them. As market conditions get worse or as firms have losses, underwriters will typically offer more favorable renewal terms to clients they have met and have come to know well over time. Firms that are merely names on an application will not enjoy considerations that come from long term client-underwriter relationships.
Why do long term relationships matter?
Think about how you work with employees and clients in your business. Are you more likely to work out small issues and negotiate accommodations with long time partners or with brand new relationships? You do business with people you like and feel comfortable with, and that comes with time and consistent interaction. Whether it is during dinner, a Zoom meeting, or a round of golf, each setting provides an opportunity to discover who people are and what they are like.
The underwriter who knows you well has had time to learn your firm’s history. That makes the renewal faster as the underwriter only needs relevant updates and the changes in revenues, losses, and a few other numbers. That underwriter wants to make you happy at renewal and give you renewal numbers they prepared you to receive.
When you select an insurance company do you select the company or the underwriter?
Talk to your broker about this very important decision because it can shape your insurance program for years. AM Best and Moody’s rate insurance companies based on financial strength, ability to pay claims, etc. Those are important considerations but does the underwriter understand your business? Does the underwriter know the coverages you need? Do they have a good relationship with your broker?
Insurance underwriting is a binary exercise. Your underwriter should consider the following YES or NO questions: Do I like the risk? Do I want to write the risk? Can I write the limits the broker requests? Can I do it at that deductible? Can I modify the policy form? Can I underwrite to the risk?
What level of authority does your underwriter have?
Underwriting is different from rating. Rating is a mathematical calculation – it is plugging data into a computer system where algorithms created by actuaries decide what the insurance premium should be. Underwriting, on the other hand, is an art – it is all about listening to the story the broker tells, asking all of those yes or no questions, discussing the risk with the broker, and negotiating a premium the broker can sell and the underwriter can live with for the risk. To properly underwrite, the underwriter needs to have authority.
Insurance companies grant underwriters various levels of authority based on experience, seniority, and other internal criteria. Some insurance companies prefer layers of management, grant low levels of authority, and their underwriters are unable negotiate without input from their manager. For a smooth and productive negotiation, it is critical to connect with underwriters that are able to make decisions on the spot with the broker regarding how high the limits are, how low the deductibles are, what the loss history is, what endorsements specific to your needs they can add, etc.
When the underwriter does not have the right authority, the negotiation is disrupted by the continual back and forth with the head of the underwriting group. Your broker needs to know that person and be able to go to them to get things done. Such layers of bureaucracy may undermine the relationship between broker and underwriter, and that takes us back to the importance of the underwriter having the right level of authority.
Should you follow your underwriters when they switch insurance companies?
It all comes down to the questions we raised earlier about relationships, knowledge, and authority. It is the first question you should ask your broker when your underwriters switch companies.
One last question: Why haven’t you met your underwriters?
Has your broker not taken the time and effort to connect you with the person that is making key decisions about your insurance program? Or is your broker worried about being cut out of the relationship because they don’t add value? I have seen brokers first-hand who are more concerned with maintaining the mystery of what they do than insuring their client is in the best position to get favorable decisions.
I’ve also seen issues from the other side. Does your underwriter think the premium is “too small” to make a visit or zoom or call? Another common mistake. Do you switch insurers so often that it is not worth building a relationship? How does that work out when you report a claim?
Secret #1 Summary: You can reduce your premiums, get better service just by taking the time to get to know your underwriters. Do it by phone, by Zoom, over a pint of beer, during dinner, or on the golf course but spend time with them. Ask your broker to meet them.
In the next Lesson from the Underwriting World we will talk about claims managers and why you need to meet them.
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