Article by Bill Pritchard, President of Beacon Hill Associates, Inc.
In today’s competitive insurance industry and struggling economy, agents are hard pressed to sell anything more than the bare coverage necessities. But while this challenge may seem daunting, it is not without significant rewards. Increased revenue, stronger client relationships, and peace of mind are just a few. Given the pressures many agencies are currently feeling, certain additional coverages are an opportunity to grow in this soft market.
Many insureds have exposures that are broader than the coverage they carry. While this is not the easiest thing for agents to talk with their clients about, it is a crucial discussion nonetheless. With all of the other difficulties a business faces, inadequate coverage is not acceptable in the face of a significant claim. No agent wants to be on the wrong side of that conversation should it happen to their client.
One such exposure is posed by the pollution exclusion in the CGL policy. Virtually every business has some degree of environmental exposure, given the very broad definition of a pollutant that is addressed by that exclusion. Most airborne irritants fit the definition, leading to a wide range of possible coverage gaps.
Clearly, this is a coverage every insured should know about. It is important for an agent to recognize the value of this product—in many respects, what makes this a good product for the agent also makes it a good choice for the insured.
Agents are presented with many ancillary exposures and coverages to consider with their clients. Typically they cannot all be addressed. Given this, an agent needs to choose which coverages to provide terms on, and which to briefly discuss and let go. For an agent, there are two key considerations when deciding this. The first is that there is an exposure that is not addressed by the insured’s current insurance program. The next is that coverage is available from quality carriers, is effective, and is affordable. A positive response to these questions means an agent should offer the coverage, as failing to do so would put an agency in an untenable position in the event of a loss.
Once the choice to focus on environmental coverage has been made, the attention can then turn to the advantages to offering it. Luckily there are many.
First and foremost, offering broader coverage to a client helps demonstrate an agency’s professionalism. A firm that understands the complex needs of their clients in relation to the structure of the policies they offer is clearly seen as a more professional, experienced, and valuable agency partner. Knowing the coverage and having the tough conversations about it is what distinguishes agencies from each other. Environmental insurance is an excellent opportunity to do just that.
Similarly, insureds who carry environmental coverage are in a position to use that to differentiate themselves from their competitors. Advising potential clients of the scope of this coverage, and the added security it provides, gives them a competitive edge. Contracts calling for pollution coverage are easily met, allowing insureds to present themselves as prepared and professional.
In addition to the advantages gained through enhanced stature, pollution coverage gives both parties peace of mind. For the agent this comes from knowing that a client’s significant coverage gap has been addressed. Regardless of how thorough an agent has been in having the client disclaim coverage offered, it is always better to have the coverage in force than to have to worry about a potential problem down the road. In a world where coverage that is missing from an insured’s policy is found in the agency’s errors and omissions policy, having a client purchase the proper insurance is more than just a good idea.
For an insured, a similar peace of mind exists. As every business owner knows, walking the tightrope of coverage versus exposure can be stressful. Insurance is a powerful risk management tool and is a key component of every insured’s management plan. Deciding which risks to retain, and which to transfer, has to be based on a complete knowledge and understanding of the actual risk. Once the environmental exposures are explained to the insured, the decision to purchase coverage becomes a clear choice between retention and transfer. Deciding to purchase broader coverage and transfer the risk puts yet another business threat in the category of transferred, and allows the insured to focus their concerns elsewhere.
There are financial incentives for both the agent and insured in the purchase of environmental coverage as well. As with the exposures, having a clear picture of the benefits to both parties is crucial to the decision-making process. For an agent, there is of course an actual cost to generate this class of business. Marketing to carriers, brokers, MGAs and other market sources can be time consuming and difficult. Many carriers require separate appointments for environmental coverage, and require their own unique application as well.
Luckily, there are several ways to access the market in an efficient way that also increases the likelihood of receiving a high quality program designed specifically for the insured. There are a few highly skilled, experienced specialty brokers that can give a retail agent access to the top carriers in the business, offering very broad coverages. Many of these brokers are well known for their product knowledge, and give the agent the tools needed to explain both the exposures and the coverages to the client. The right specialty broker can add significant value to the agent’s process, increasing the odds of writing the account at the lowest possible cost in a reasonable timeframe for the agency.
Once effective coverage from a quality carrier has been found, the revenue it provides to the agency is a welcome addition in a difficult year. Commissions range from modest to excellent, depending on the source accessed. Regardless, the agent needs to keep in mind the value of linking another policy to the chain for that client. The more coverage they have in force for an insured, the harder it will be for a competitor to replicate the program or threaten the relationship at renewal.
As with the coverage considerations, the cost benefit analysis for the insured is a positive one as well. While the additional premium may not be something they initially plan on, given the softening market, it is unlikely that adding the coverage this year would push them above their expiring costs. Balanced against this is the additional business they can attract with the coverage, as well as the protection against unplanned environmental loss. Many insureds highlight this specific coverage in their marketing and SOQ materials. By recognizing the reasons why coverage is beneficial to the insured, agents are able to take this higher standard of security—for themselves and their clients—and turn it into revenue-generating opportunities.
Given the challenges of the economic climate in which businesses are currently functioning, there are many reasons why agents and their insureds should carefully consider environmental coverages. The downside of cost and effort is certainly offset by the opportunity to bring in more business. These benefits are shared equally between the agent and client, which create a unique and valuable synergy.
