Co-insurance has been the hot topic since the 2020 Hurricane barrage.

It seems to be the conversation of everyday as claims are being settled.

It has been the cause of irritation and confusion from policy inception to claims resolutions.

Before I spiral into the depth being too ambiguous, the insurance industry and the insurance customer have been at odds since (what feels like the beginning of time). The industry has done a mediocre to poor job of setting up customer expectations from the beginning.

I mean really, who wants to be told what to do. Especially when having to fork out loads of money that appears to do rise up into thin air (in the client’s mind). Insurance is so passive that customers feel it is forced upon them. It’s not like buying produce, eating the produce, and experiencing the sensation of your recent purchase.

Pardon…I realize I titled this, simply put.

Alrighty, simply put: Co-insurance is the customer’s participation in the cost of insurance. Co-insurance means the customer agrees to insure the property for a specified percentage stated in the application (customarily 80%, 90%, 100%).

The percentage means that the customer will insure their property for that percentage (insurance to value equation) of the Replacement Construction or Actual Cash Value (also stated in the app as the settlement condition).

The less the percentage of insurance to value carried the higher that premium charged; but also the greater margin of error in the insured’s favor. This means the insured can be off a little on their guesstimate of the property contraction cost. This is nice. It cost a little more, but it works in the customers favor, as we are all laymen in the construction industry and the cost of materials and contractors may constantly fluctuate.

On the flip side, the higher the percentage of insurance to value, the less premium paid, but the greater responsibility on the customer to keep up with updating the insurance to value closer to the full replacement value or actual cash value loss settlement chosen on the application. This is a nice strategy to save premium, but it does lead to being more active in the monitoring insurance policy and renewals.

When it comes time to settle a loss…remember those terms loss settlement (Replacement value [RC] or Actual Cash Value [ACV]). Well, this is when they come into play. At the time of loss, the insurance carrier will determine what percentage of insurance to value the customer has carried. If the insured has matched or exceeded the required percentage agreed upon at the time of application (for specified term), then the contract has been satisfied between both parties (insured and insurance carrier), and the claims will settle for the settlement value selected (RC or ACV). In the other hand, if the insured falls short of the agreed upon percentage of insurance to value, then the claim will settle on the agreed upon loss settlement with an extra percentage withheld from settlement. The percentage withheld is determined by the difference between insurance carried over insurance should have carried. If the calculation determines the insured carried, let’s say 10%, less than should have carried, then the settlement will be reduced by 10%. Really, it’s as simple as that.

The idea is that straight forward.

Now granted, the calculations can get complex and wrapping out heads around the concept may take a few minutes of even years; but the simple fact is there is an agreement before any policy (contract) is ever issued. The insurance carrier will uphold that agreement, if the insured has upheld their participation. Unfortunaly, this is often the part forgotten or often left out of the fast paced conversation between the agent and customer at the time of sell.

So, we ask, how can we all have a greater symbiotic relationship with the insurance industry? Simply put, from the get go, we should get better at getting to know the customer’s expectations, and lay out the groundwork and expectations laid on the client by the insurance industry. Set the customer up for success in the insurance processes, and not frustration, confusion and complexity a claim filing (when the client actually gets to sensualize what they’ve relinquished their money towards purchasing).

The insurance industry is not out to cause havoc, but we as agents have done a poor job to create relationships with clients from the start over competing “Give the client what they want. Don’t ask to many questions, or you’ll drive them away. Don’t make it too difficult for them to buy” attitude.

I do think we should give customers what they want, but we are tasked to give it to them with full disclosure.

We are here to help, not hinder…hopefully!

+ beau