It is interesting to note that the homeowners line of business generates a significant number of E&O claims. In fact, in some years, it has been as high as 1 in every 5 E&O claims. In the vast majority of those E&O claims, valuation (or actually incorrect valuation) has been at the core of the E&O issue.
On the surface, this may be somewhat of a surprise to many. After all, the industry has some great tools to assist agents in calculating the proper ITV number on a replacement cost basis. In dissecting the E&O claims data, one of the root causes of problems at claim time is that the agent had not entered the correct “inputs” into the estimator system. As the adage goes, “garbage in, garbage out”. Without the correct square footage, construction type, quality of construction, etc., there is not a estimator system in existence that will be able to provide a quality output. So agents need to take the time to secure those correct inputs.
However, there is another issue. That other issue centers on the reliance, by the agents, on the carriers to determine / provide the correct information to perform a quality approximator. More than once, I have been asked “isn’t it the carriers responsibility when they perform an inspection to provide the correct information?”. Maybe yes, maybe no. There are a number of flaws to this line of thinking.
One of the key flaws is that it is rare to find carriers that perform an inspection on every homeowners risk they write. While they have the right to have an inspection done, economics makes this position unrealistic. It is just not feasible or cost effective for a carrier to do an inspection on every risk. I would have to believe that part of that logic centers on the premise that the agent has seen the risk (not simply a “drive by”) and knows the condition of the risk and the necessary valuation data. Like it or not but essentially many carriers are saying that this is the agents job.
One of the other flaws is that when carriers do perform an inspection, the inspection is basically a loss control inspection to determine the quality / condition of the premises and whether there are any hazards that raise the potential for a loss to occur. Oftentimes, they are not measuring the house, simply inspecting it. There are certainly some homeowners carriers that do both.
The key issue is that when the agency writes a homeowners risk and they are aware that the carrier will be “inspecting the risk”, the agent needs to clearly understand exactly what services the carrier will be performing. As the agent, if you are not sure (this certainly varies from carrier to carrier), then you need to ask.
Bottom line, the agency should make every effort to get the correct information at the time of the completion of the application and if the carrier is going to be inspecting, the agency should clearly know what that inspection” involves. Don’t assume because when one assumes, the potential for a problem to develop just got bigger.