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Coverage Enhancement Trends with the Hardening Market

By: Catherine L. Sevret, Underwriting, Investors Underwriting Managers

Waiver of subrogation, primary non-contributory, per project aggregate…. do contractors realize what they are agreeing to when they sign a contract including the basket of coverage enhancements insurers won’t just throw in anymore? How many insured’s understand what they are agreeing to when they name a customer as an additional insured, primary and non-contributory and waive their insurance carrier’s rights?

1. Primary non-contributory: The insured just made their policy primary for the additional insured, making the additional insured’s policy excess.

2. Waiver: The insured just gave up their insurance companies rights to subrogate and bring the additional insured’s carrier in.

3. Does the insured understand the contract they just signed can erode their policy aggregate for this one job??

As the hardening market continues agents should be educating insured’s what these coverage enhancements mean so their insured’s understand what they are agreeing to and weigh their options. It is always prudent to try to negotiate these requests out of their bids. The insured has paid hard earned money for their insurance program, why do they want to expose their limits as such? These enhancements can turn into losses not anticipated. For certain contracts like government work coverage enhancements are necessary. Agents can determine if coverage should be offered on a per project basis or blanket versions are more cost effective.

Reinsurance terms and conditions have tightened without sign of change. This will drive costs for higher capacity limits up, tighter terms and conditions will follow and less commission will be granted. In a hard market reinsurance is the driver of terms and conditions. Agents should be educating their clients to understand the costs of having these enhancements in their insurance program. Making clients aware that there are options like negotiating or buying enhancements on a project basis as needed. Having client’s understand will not only save them money, they will also be protecting their business interest that they spent their time and energy to build.

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