We are often asked what the price is for Homeowners Insurance. A more helpful question may be “For the requested coverage, what will the premium be?” Could you imagine buying 5 lbs of apples or 10 lbs of potatoes and not reviewing the product before checking out from your local Supermarket? Apples could be insect ridden, Potatoes may have ingrown worms; although, this is a simple example, it is common for homeowners to become angry with their current insurance carrier due to a slight rate increase from the prior year and without any further questions, they begin simply shopping for premium without attention to the coverage afforded.
It is correct that Home Insurance is standardized and issued on Government approved forms published by the Insurance Services Office (ISO); however, there are a variety of available endorsements, many optional limits of coverage and different deductibles available. Variations in each of the aforementioned would produce a different premium rate.
There is also a negative connotation that an Insurance Agent or an Insurance Representative is a salesman, thus will offer misleading information when he or she attempts to explain coverage; this leads clients to turn away from those who legitimately care to help. For years, the insurance industry has been trying to standardize even the quote process and as a result we have less ‘sales people’ involved in the process. Many companies have self service quote links and those that don’t are in the process of designing software to provide clients a quote with a minimized format focused on generating the lowest premium available.
Everything may look wonderful, the client cancels their present coverage, purchases an inferior product with a new carrier, and things could take a downturn very soon. If during the shopping process, all the details weren’t revealed, the insurance carrier will most probably find them during the mandatory underwriting period (usually 60 days in most States). It is during the underwriting process that an insurance company may cancel the policy for underwriting reasons which may subject the insurance carrier to adverse risk; after this process, the carrier may only cancel the policy for the nonpayment of premium due.
Insurance carriers hire actuarial firms to review risk statistics as they pertain to coverage forms; these statistics are broken down into areas based on a geographical class of results, these results are utilized in calculating the necessary premium charge to securely provide the funds to cover the perception of claims expenses presented, the issuance and servicing of the policies, the acquisition cost of the clientele, and the necessary savings to the required reserves to maintain the company’s financial rating. Collectively as clients, agents, processors and insurance carriers alike, it is of great importance to collect the necessary premium to provide the security provided in each written insurance contract.
If clients seek the lowest premium and are willing to reciprocate by minimizing risk to the insurance carrier; it is best for the same client to obtain a quote for the minimum necessary retail coverage to reconstruct their home selecting the highest available deductible by the carrier. For example, it is not often that a home is destroyed by Fire, although ‘Fire’ is the primary listed peril on a Homeowners Insurance Policy; 95% of claims presented to insurance companies are small claims most commonly with a total repair value of less than $5,000 if repaired on a retail basis. From this, we can deduct the fact that insurance carriers would be happy to offer a shockingly lower premium for the same insurance policy with a $5,000 deductible since their risk factor of being presented with a claim may be reduced by as much as 95%.
As in any other industry or topic in our technologically advanced lifetime, it is imperative for clients to spend some time understanding the associated industry, method of operation, principles of rate structure and then ask questions which may provide a better option for the application.
In summary, the insurance industry is well regulated, very standardized and increasingly we find less traditional ‘sales people’ who may be guilty of giving the industry a negative connotation and causing clients to avoid handling issues at hand. All good insurance carriers offer a readily available customer service staff who are hired and trained for the purpose of listening to client concerns and answering questions accordingly. We hope that this article will help those confronted with insurance issues understand the process and perhaps approach issues with a better understanding.