The Changing Landscape Of Personal Risk

But with those gains came added personal exposures, which are now magnified in these times of economic uncertainty.

This new risk environment presents opportunities for insurers, agents and brokers.

For insurers, it provides the impetus to develop or re-market insurance products and services that further distance them from direct writers and other competitors.

For independent agents and brokers, the new environment enables them to provide customers with value-added advice and to cross-sell the new products and services. Perhaps, even more important, it allows them to lure away customers from the direct writers, which control two-thirds of the personal lines marketplace despite their commodity-like offerings.

To better understand the potential, lets consider forces that are shaping our lives.

In the current bear market, many Americans continue to invest more in tangible assets that generally appreciate in value but are less volatile than stocks. Buyers are leveraging the lowest interest rates in decades, refinancing their current residences or trading up. Many others are opting to expand or renovate their homes or purchase vacation homes. To round out their investment portfolios, as well as their lifestyles, many people also are purchasing jewelry and investing in art, antiques and other collectibles.

As real estate prices rise, so do the costs of replacing a home in the event of a fire or other loss. Yet, only a few insurers still automatically include guaranteed replacement cost coverage in their homeowners policies.

This coverage is especially important for owners of upscale, custom or historic homes built with materials and craftsmanship that increase in cost at a faster pace than their standard counterparts.

Hence, the independent agent or broker who has a relationship with an insurer that offers the coverage has a significant advantage over many direct writers and others that do not offer it or sell a rider capped at 125 or 150 percent of the policy limit.

The higher and unpredictable cost of difficult-to-replace materials and labor– as well as the renovation trend–also means that insurance appraisals should be conducted in more homes. These appraisals help the insured to purchase an appropriate level of coverage. Again, this is an opportunity for agents and brokers with access to insurers that offer this service.

Many customers who in the booming 90s or more recently purchased jewelry, art, antiques or other fine possessions have a greater need than ever for valuable articles coverage, as opposed to endorsements that extend standard homeowners contents coverage to these items. Particularly in the current economic environment, the lack of appropriate coverage makes it difficult to replace an item in the event of a loss.

Research shows that many consumers are not aware of the limited amount of coverage they have for valuables under their standard homeowners forms. Theres an opportunity for agents and brokers to educate their customers about the benefits of valuable articles coverage, including coverage for replacement costs, pairs and sets, breakage and mysterious disappearance.

An unlocked pool gate, a dog that bites an unexpected visitor or even an impossible-to-spot patch of black ice on a driveway, can mean major litigation. Even what you or your child writes online can prompt a lawsuit.

The risk of being sued continues to escalate, as do the financial consequences.

According to Jury Verdict Research, the average court award of more than $1.004 million in 1999 was 240 percent higher than in 1994, when it was $418,478. Fourteen percent of awards were in excess of $1 million. Win or lose, legal defense costs may run into the hundreds of thousands dollars.

Especially in these harder times, liability protection is paramount. Limits beyond a typical homeowners policy or even the standard $1-million umbrella often are in order, especially for the more affluent. Limits of $2 million to $5 million, and considerably more for the ultra-rich, may be more appropriate.

Yet 25 percent of the affluent respondents to a recent Chubb-sponsored survey did not purchase excess coverage. They thought their homeowners insurance adequately covered their exposures. Another 30 percent carried less than $1 million in liability coverage. Nearly two-thirds did not increase their umbrella limits as their assets grew.

This situation offers yet another opportunity to agents and brokers to educate their customers and to provide products from insurers that can provide higher limits. Some of these insurers also are offering products that address certain emerging household-related liability exposures not covered under standard homeowners or umbrella policies, for example, lawsuits filed by a nanny, housekeeper or other domestic worker alleging wrongful termination, sexual harassment or discrimination.

Thanks to globalization and fierce airline competition, Americans are traveling abroad more for business and pleasure. International departures from the United States grew 58 percent during the 1990s, according to the Bureau of Transportation Statistics. Despite a 13 percent drop in flights among the top 10 airlines from August 2001 to August 2002, air-travel volume remains far higher than 10 years ago.

Terrorism is hardly the only worry. Adventure vacation packages invite injury or illness in a strange land. Even the average American tourist on a less exotic adventure is a target for hotel-room or street thieves and kidnappers.

A few insurers are offering personal insurance products to help protect families from many significant financial costs resulting from a kidnapping or child abduction around the world. Some of these products also respond to the costs associated with the psychological trauma, security issues and temporary relocation resulting from burglary at home, in a hotel room or even student dormitory.

Credit cards, combined with online shopping, have put many individuals at heightened risk of identity theft and fraud. With 528 million credit cards in circulation in the United States, and a recent 34 percent increase in online purchases, according to the U.S. Census Bureau, identity theft may be the ultimate crime.

The U.S. Justice Department estimates that as many as 700,000 identities are swiped annually. And while financial institutions usually cover the bogus charges, victims must endure the costs and time to right their credit history.

Some insurers have responded by adding identity fraud coverage to homeowners policies to help cover such costs as credit reports, attorneys fees, lost wages and loan reapplication fees.

Increased reliance on computers in the home also has created the potential for the loss of electronic data due to power surges or other perils. Some homeowners forms now include coverage for electronic data restoration.

No doubt, the risk environment will continue to evolve. Globalization, technology, litigation and unforeseen forces will bring other new exposures to our society, creating additional challenges and opportunities for the insurance industry. Insurers, agents and brokers have not only a profit motive but also a social responsibility to respond accordingly.

Mary Ann Avnet is vice president of Chubb & Son and marketing manager for Chubb Personal Insurance in Whitehouse Station, NJ. She can be reached by e-mail at mavnet@chubb.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 20, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.