An accommodation line is a form of underwriting where an insurance company provides coverage to a client who does not meet their established standards, in order to preserve a lucrative relationship with a broker or agent. This arrangement can allow individuals and businesses to get the insurance coverage they need, but is not guaranteed.
An accommodation line is a form of underwriting that is sometimes provided by an insurance company at the request of a broker or that sells coverage on the company’s behalf. This approach typically involves providing coverage to a company or other entity that does not meet the company’s established standards for the type of coverage requested. An accommodation of this type is generally made as a means to preserve a lucrative relationship with the broker or agent seeking coverage on your client’s behalf.
The use of a line of accommodation can occur with almost any type of insurance coverage, including life insurance. For example, a broker who has provided a substantial client base to the insurance company may wish to write a policy on a new client who does not meet the criteria established by the insurer. Rather than deny the request and possibly ask the broker to move his account to a competitor, the provider will weigh the risk of approving the request against the financial loss that would occur if the broker decided to end the business relationship. If the risk associated with writing the coverage is considered less than the risk of losing the income generated from the profitable relationship with the broker, the insurance company approves the application and therefore accepts the broker.
Depending on the agreement between the broker and the insurance provider, the broker may receive a slightly higher commission on the policy. At the same time, the insured may pay a slightly higher premium for accommodation. This arrangement can sometimes allow individuals and businesses to get the insurance coverage they need, but are unable to get under typical circumstances. As a result, the extension of the lodging line provides the consumer with what is needed, the broker with a new customer, and the insurance provider with an additional source of income.
There are situations where an insurance provider will not extend a hosting line. This can occur when the insurance company is convinced that the risk of approving the application is greater than the risk associated with denying the application for coverage and possibly alienating the broker. For this reason, the granting of a line of accommodation is not a guarantee just because the broker has a good working relationship with the provider. Unless the insurance company has reason to believe that writing the coverage is in the best long-term interests of the provider, the application will most likely be denied.
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