Using Co-Insurance As SALES TOOL

[insurance1822]

Disclaimer - I'm transitioning into commercial insurance & I recognize that my knowledge level is low.

If I'm quoting apartment complexes & based off my carriers RCE the prospect is substantially under-insured...is there any reason NOT to have the conversation about how screwed they'd be in the event of a loss w/ the coinsurance penalty that would apply?

Do carriers apply coinsurance to all losses? Let's say there's water damage to a 15 unit building that damages 3 units. Will the claim rep run an RCE on the ENTIRE building to cross check if they're insured correctly & apply a penalty if they aren't?

Does this happen ALL THE TIME or only when people are WAY under-insured? How frequent are people getting hit w/ coinsurance penalties? This due is insured to 50% of what my RCE'S are saying & he's been w/ Farmers Fire Insurance Company for 10 years.

 

[jlanier]

I often use the coinsurance penalty as a demonstration on commercial and personal both (more often than not they're under insured). I give them a hypothetical situation and flip to the coinsurance clause in their current policy and give them the total out of pocket they COULD be subject to as well as the insurance carrier. They will usually get frustrated at their current agent for never bring this to their attention. While it's hard to tell EXACTLY what could result in a claim - when dealing with large property values - an insurance carrier would like to knock off paying out let's say $100,000 if the policy allows for it.

 

[hesse]

What I run into is carriers giving replacement cost at 200k that should be 400k and they are usually fine because how often is it a complete loss?

 

[jlanier]

In the event of a complete loss the carrier should pay the amount of the policy. The partial loss is when the insured is really penalized.

50,000 fire loss - the client is insured for 200,000 - replacement cost comes back at 400,000 which is obviously outside the standard realm of 80% coinsurance by 30%. The payout = $50,000 - $15,000 (coinsurance penalty) - the deductible ($1,000 standard) = $34,000 payout leaving the insured with a $16,000 gap to fill.

 

[RFMaurone]

I use the coinsurance tool as part of a conversation every time I meet a prospect. I talk about replacement costs, actual cash value and I say that should be called depreciated cost, and when is replacement cost not actually replacement cost, I give them for examples and at the end of these examples if they're not ready to have a conversation they're not ready.

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[AZDave]

Go in with the correct coverage amount -do not even quote the same limits. Show him the RC calculations. You are the professional and tell him what he needs and that he will be screwed if there is a loss, even a partial loss. If he doesn't care, time to move on.

Good Luck!

Dave