As an auto insurance sales and/or service agent, it seemed like once a day, someone would want to discuss liability and what it meant. In the beginning it was easy to give the licensing textbook answer of, ‘it’s a third party coverage’. After a while, it was clear that really doesn’t even cover it all.
The best example of liability
Auto insurance is the best place to look at liability coverages, it is there the simplest to understand. Additionally, these policies break it out into the different types of possible liability situations. Auto policies provide coverage for the ‘third person’ or the other guy and for ‘the insured’ when the other guy does not have enough coverage or has none at all. You will see this on all insurance policies; however, in auto you see the most basic form.
The big picture in Property/Casualty insurance focuses on liability – the rest is gravy. All of the states (except New Hampshire) require liability insurance to register/drive a vehicle. The reason for most declinations and/or placement into high risk category (i.e.: non-standard auto policy) centers around liability.
What you need to know
First, any agent should know that the bodily injury and property damage section of liability, or coverage A, will be the same amount all vehicles 99% of the time. There is no need to look at all the pages of the declarations page to confirm the liability limits on all vehicles.
In the industry there are bare bones policies and standard auto policies. Standard auto policies are the basic full coverage insurance; whereas, the bare bones policy offers only bodily injury and a limited amount of medical payment/no-fault coverage. For instance, Florida allows a policyholder to eek by with minimum limits of 10,000 per person, 20,000 per accident and no property damage.
When it comes to the other part of liability, uninsured/underinsured motorist, some, not all, states require these limits to match the bodily injury/property damage limits. Further, the balance of states want uninsured/underinsured limits to be equal to or lower than the bodily injury/property damage. In states like Wisconsin, they will allow non-matching limits and the uninsured/underinsured can be higher than the bodily injury/property damage limits.
There are also states, like Pennsylvania, that will allow the insured to ‘reject’ uninsured/underinsured motorist coverage entirely and states that will not, like New Jersey. Also states like California, offer a choice between collision coverage and uninsured motorist property damage; whereas, others, like Tennessee, allow both uninsured motorist property damage and collision.
When looking at uninsured/underinsured motorist, some states, like New Mexico, have stacked and non-stacked coverage. Although you can have either/or on policies with one or numerous vehicles, why should the insured pay for stacked coverage if they only have one vehicle?
States like Georgia and Connecticut have interesting approaches to uninsured and underinsured motorist coverages which mean additional ways for the insured to save bucks. It is best to check with carriers on guidelines as well, in all states, they may have been able to negotiate something different whilst getting approved.
The much needed extras
All of the states will allow a liability only policy. The physical damage portion (i.e.: Comprehensive or Other than Collision and Collision) of the policy only covers the tangible item insured on the declarations page, i.e.: the auto, the motorcycle, etc.
On stated value and agreed value policies you cannot have liability only. Those policies are in place to cover the actual item on the declarations page and allow the operator to register/drive the vehicle; therefore you need full coverage to do both.
An agent also has the option of placing the liability on to a personal automobile policy and the physical damage on the stated value or agreed value policy. Perhaps the umbrella carrier has a high deductible requirement that the stated value or agreed value carrier cannot meet, but the personal auto can. If you do this, make sure you walk the insured through understanding why they have one car on two policies.
Please note, combined single limits are not just for commercial any longer. The types of limits whether it be split limits or combined single limits can add or subtract premium. Try to play with it in your rating/quotation system.
A final word
Finally, all the policies in the household should have matching limits. Try to place married couples on one policy, not two. Pay attention and get copies of declarations pages for folks that have numerous cars in their name and more than two auto insurance policies. Most companies underwrite for the entire household, not just your insured.
Remember, liability is one of the key reasons for insurance. When servicing older policies or getting new policies started, this should be a major talking point with the insured and agents should know all their options.