- June 15, 1994
- All Issuing Offices
- The Hidden Costs of Claim Losses
We are all aware that the payment of a claim creates an immediate loss of profits. What is not readily apparent is the cost of the claims in terms of increased work and assumed liability in order to replace the lost dollars of profit. Below is an example of the ripple effect of claim losses.
- A claim payment of $5,000 is made by an office.
- Assume the office has pre-tax income of 10% (after expenses, the office
earns a profit of 10 cents of each dollar earned).
- The office would have to generate $50,000 in gross premium income in order
to pay this loss. ($50,000 x 10% = $5,000).
a. Assume average policy premium $500.00
b. Needed income ($50,000) divided by average $100.00
premiums ($500) = number of orders
c. Assume average policy liability of $75,000 $75,000.00
d. Number of orders needed (100) X Average $7,500,000.00
Policy Liability ($75,000) = Total Policy
Liability Assumed to Pay Claim Loss
Of course, we are assuming that all abstracting, examining, and closing on the 100 orders would be done perfectly and no additional claims are created. If another claim or claims is/are created, then additional work, costs, orders, and liability would be incurred. Also, had the claim been $10,000.00, all figures would be doubled.
Claims are costly. As you can see, your company can spend the better part of a year playing "catch-up" on profits because of a small loss. We must all work to prevent claims and maximize profits.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.