E&O Insights: When Should You Offer an Umbrella?

If one were to ask an agency how many of its personal and commercial accounts have an umbrella, most agencies should be able to determine that number without much difficulty. After all, many agency management systems have the ability to generate reports based on certain scenarios such as “how many personal lines accounts have an auto and homeowners, but no umbrella?”

If agencies have not run that number in some time, it would be interesting to calculate the number for personal lines customers and commercial accounts, and determine whether that number is rising.

A key question agencies need to answer about accounts that don’t have an umbrella is “Why?” Why don’t more accounts have this extra level of protection?

There may be a variety of reasons, including the following:

The customer’s underlying limits are not at the necessary level.Every writer of umbrella coverage has certain minimum requirements for the underlying coverages. Why are the underlying limits not higher? It is possible that the customer does not have the financial resources to afford higher limits. Is there the possibility that the customer believes because he or she doesn’t have a greater amount of assets that his or her financial position would limit the amount for which the client could be sued?

The customer may not believe he or she could cause an accident where the underlying limits would not be sufficient. Most personal lines umbrella carriers require underlying limits of 250/500/250. For many customers, this may seem like a significant amount. Unfortunately, probably every day, one could review the newspaper and read of accidents that occurred where it is doubtful that the underlying limits will be sufficient for the damages caused.

The customer never asked the agency to provide an umbrella quote. No doubt, there are agencies that just duplicate the current coverage when looking to take over an account from another agency. If the customer did not have an umbrella, the new agency did not address the issue.

Is the agency staff making the decision? This may be of surprise to many agencies, but there are circumstances where the agency sales person, such as the account executive or producer, did not even address the issue of an umbrella because he or she believed the customer could not afford it or did not have sufficient assets to worry about.

When a customer comes into your agency, he or she may not present themselves as individuals or businesses of high worth. Who knows better the net worth of your customers: your agency or that individual? The individual, of course. Agency sales staff must be extremely careful not to have perceptions of current or prospective customers.

Let’s presume for the sake of argument that the personal lines customer is heavily in debt. Maybe the client is a recent college student with $200,000 of college loans to pay off. What is this person’s net worth? Probably a negative number.

Some agency staff may not address the issue of an umbrella under the belief that the customer cannot afford it. But is that really the key issue? Does someone’s net worth determine how good of a driver he or she is?

While some personal lines carriers may contend that it does due to credit scores and predictive analytics, it would be easy to argue that the individual of lower net worth still has the ability to cause a serious accident. In fact, statistics may show he or she is more likely to cause a serious car accident.

Suppose, then, a serious car accident occurs and your customer is sued. If you don’t believe the courts could garnish your customer’s wages, just ask an attorney.

The above scenario, with the college graduate who is heavily in debt, recently happened.

When the graduate caused a serious car accident and was sued, the courts garnished his wages to the tune of $500,000. If only there had been an umbrella.

So which agency clients need an umbrella?

Asking the question in a somewhat different manner, which client has the potential to cause an accident where the underlying auto or homeowners limits will not be sufficient? They most likely all do!

Commercial Clients

In commercial lines, contrast the customer with multiple vehicles and a storefront operation with a one-person operation, such as a contractor or salesperson. Does one of these exposures offer a greater likelihood there will be a sufficient claim?

While the customer with multiple vehicles probably presents a greater exposure, it does not mean the customer with one vehicle has no exposure.

In addition, accounts such as contractors have other exposures that present tremendous potential for a sizeable general liability loss.

Sell More Umbrellas

Oftentimes, during the sales process, customers may need to be reminded how easy it is for them to cause an accident in which the underlying limits are not sufficient and what additional liabilities could result.

“Painting the claim picture” and then asking the customer “could this happen to you?” helps every customer realize that while he or she has never been involved in a serious car accident, it could happen. This falls under the “educating your customer” category.

At minimum, agencies should offer a variety of limits for the various underlying coverages and then add an umbrella to the options to consider.

When presented with options, the customer is prompted to make a decision: which option to choose, if any, and which to not choose. Therefore, the customer is ultimately making the decision.

Bottom line, make sure you are not making the decision for them.