Business owners expect one large claim to hurt at renewal. What surprises them is that three small claims usually hurt more.

Frequency scares underwriters more than severity

A single $180,000 fire is an event. Four $9,000 claims in three years is a pattern, and patterns are what underwriters price. One reads as bad luck. The other reads as something in how the business operates — training, supervision, maintenance, hiring — that is going to keep producing claims.

Which is why a client who says "but none of them were even big" is describing the exact thing that got them nonrenewed.

What the carrier is looking at

Underwriters pull loss runs going back three to five years and compare paid and reserved losses against the premium collected. If the account has been paying $14,000 a year and has produced $61,000 in losses over four years, that is a losing account no matter how pleasant the insured is. Open reserves count too — a claim still open with a $50,000 reserve is treated as a $50,000 loss until it closes for less.

What tends to happen, in order

  • The rate goes up at renewal
  • The deductible is raised, often specifically to push out the small frequent claims
  • Coverage gets restricted — an exclusion added, a sublimit imposed, a location dropped
  • The policy is nonrenewed
  • New carriers decline based on the loss runs alone, before quoting

How to have the surplus lines conversation

At some point the agent has to tell the client the standard market is done. Language that works:

"Based on your loss history, the standard carriers aren't going to quote this, and I don't want to waste your time pretending otherwise. What we do next is go to what's called the surplus lines market — you'll also hear them called specialty carriers. These are financially strong companies that specialize in accounts the standard market won't touch. They aren't bound by the filed rates and cookie-cutter forms the standard carriers use, so they have far more room to look at your actual situation and build something that fits. It usually costs more, and there are a few differences I'll walk you through. But they'll actually look at you, and that's the difference between having coverage and not."

Two things make that conversation land. Say it before the client finds out from a declination letter. And frame the specialty market as more options rather than fewer, because for a client with losses, that is exactly what it is.

What the client can actually do about it

  • Write a loss narrative. For each claim: what happened, what changed since. Underwriters read these and they matter. A client who fixed the loading dock, retrained the crew, or fired the driver has a real story and almost never tells it.
  • Raise the deductible on purpose. If the frequency is $3,000 slips and falls, a $10,000 deductible removes them from the loss runs going forward. Underwriters notice.
  • Close the open claims. Push the adjuster on stale reserves. An open reserve that is really worth $5,000 is being underwritten at $50,000.
  • Document a safety program. Written procedures, training logs, and a formal hiring standard change how a file reads.
  • Let time work. Loss runs generally look back five years. The oldest claim rolls off, and the account improves without anyone doing anything.

The number that changes everything

An account with five years of losses and one clean year in the middle is a different file than an account with losses in all five. Whatever the client can do to produce one clean year is worth more than any argument the agent makes on their behalf.

Related: Why does my business need a surplus lines quote?

Educational only — confirm against the actual policy form and each carrier's underwriting guidelines.