By R. Ivy Riggs, CPCU, ASLI, AIS
Possibly the easiest request to anticipate from your underwriter is for the insured’s loss history. This is true no matter the line of business or the insured’s qualifications. The central reason for why this request is so common is because there are very few quality predictors of future claims. And though loss history provides no guarantee for or against such future results, they can be helpful and are certainly better than a roll of the dice. Plus, underwriters are required to obtain loss runs, so it’s a time-saver to have them handy.
However because loss runs are not always easy for a producer to obtain, there is a temptation to be so happy to get them that they are often forwarded to the underwriter without even a glance. This quick “Send” is a mistake. Not all loss runs are equally valuable, and some of them are downright useless. To maximize the utility of the loss runs you send, try using the “C.A.B.L.E.” acronym as a tool to help you remember the 5 key questions to ask and answer when assessing loss runs.
C is for “Current” – Are the loss runs currently valued (i.e., within 90 days of the effective date)?
The older loss runs grow, the less accurate they become. This is especially true for liability policies because of the long-tail nature of many casualty claims, but it is also true for property policies. If a prior carrier’s loss runs showed an open claim, continue to ask for current-valued loss runs for that carrier on each renewal until the claim is closed.
A is for “Accurate” – Are the amounts shown in the loss runs accurate?
Although the answer to this question may be difficult to assess, keep in mind that for open claims, many carriers use “placeholder” dollar amounts instead of the actual reserved figure. They might do this because it’s a recent claim that hasn’t been fully assessed yet. Or they might want to keep third parties (e.g., attorneys, claimants, competitors, etc.) from knowing the full extent of how much money has been set aside to indemnify or defend the insured. If a dollar figure seems suspicious—such as $1—it is probably not the correct figure but just an internal code. Gather additional loss details.
B is for “Break” – Is there a break or gap in coverage reflected in the loss runs?
Because losses could have occurred during those gaps, these won’t necessarily be reflected in the loss runs. As a result, a current No Known Loss letter from the insured may be required. Also, if you are asking a carrier to pick up a retroactive date, you will need to verify that claims-made coverage has been maintained by the insured without interruption since that prior date.
L is for “Line of Business” – Is the line of business the same as, or relevant to, the line you are proposing?
Some loss histories matter more than others, depending on what line of business you are offering. For example, GL loss history is relevant if you are offering Contractors Pollution to a client that has never carried it before. Auto loss history is relevant if you are providing Transportation Pollution, but might be irrelevant if you are providing Professional Liability to a consultant. Property loss history is relevant if you are quoting Site Pollution but might be less important if you are quoting Excess Liability.
Also keep in mind that “clean” loss runs on a different line of business may still be meaningful to your coverage. This is because pollution is excluded under most GL and Property policies, so a claim that closed without payment could be a red flag that it was pollution-related and therefore excluded by the prior policy, but your proposed policy could be triggered by a similar event. Consider asking for details.
E is for “Entity” – Does the entity shown on the loss runs match your Named Insured?
The underwriter wants to know about the loss experience of your insured. You also want to avoid any problems in the way the Named Insured might read: for example, should it be LLC or Inc, Corporation, or Association? Are there additional Named Insureds shown on the loss runs that you haven’t been told about? Or are there entities you’ve been asked to insure that haven’t been covered previously? Each of these answers can have legal ramifications in the event of a loss and, by extension, have an impact on your own E&O liability if they aren’t right.
Any little tool in your toolbox that helps you forge better relationships between your clients and your insurance carriers is invaluable. So even if you take a single extra minute to perform a quick 5-step C.A.B.L.E. analysis of loss runs before you send them out can save you hours of headaches. For other time-saving tips and strategies for success, feel free to reach out to us!