Despite the legal requirements in 49 states, drivers in the U.S. sometimes choose to go uninsured. In fact, in the first half of 2023, the number of households with at least one vehicle without auto insurance rose to 5.7% in the first half of 2023 up from 5.3% in the second half of 2022. Additionally, 12 states have seen a 30% or more increase in the share of uninsured drivers compared to prior year—two of those states, South Dakota and New Hampshire—have seen increases of more than 80%, according to a report by J.D. Power. 

So, what happens when a third party injures a client in an auto accident and either does not have proper coverage or no insurance at all?

“This is where excess uninsured/underinsured motorist (UM/UIM) coverage, typically endorsed to the umbrella policy, comes into play," says Daniel Husser, director of sales and marketing, RLI Corp. “The same reasons a client should purchase an umbrella policy can be applied to purchasing excess UM/UIM coverage."

In layman's terms, umbrella coverage with UM/UIM excess is insurance that pays for a client's injuries from an accident caused by the owner or operator of an uninsured or underinsured vehicle with the excess UM/UIM coverage from a personal umbrella policy kicking in after the auto policy's UM/UIM limits have been exhausted.

Given that automotive claim severity for bodily injury and property damage have increased by 35% since 2019, with collision claim severity increasing 40%, according to a 2023 LexisNexis Risk Solutions report, clients should consider protecting themselves with this coverage.

The problem lies in the fact that today “as auto insurance premiums continue to increase, going uninsured can be a tempting option for consumers who are already struggling with inflation and other economic factors," says April Pitz, director, personal umbrella program and RLI Programs director, Big I Advantage®. “Purchasing an umbrella with excess UM/UIM coverage is a good investment to protect ourselves even when an accident isn't our fault—even if it's a hit-and-run."

UM coverage will pay the insured's and passengers' medical bills if they are involved in an accident with an uninsured motorist who is at fault. In addition, UM insurance will reimburse lost wages and will also take effect if an insured is hit by an uninsured driver as a pedestrian, or the victim of a hit-and-run accident.

For instances when an at-fault driver has liability coverage which is not sufficient to cover the full extent of damage to a client's vehicle, UIM insurance will cover the shortfall for a client.

“We often have little control over the accidents that happen to us, and no control over how much, if any, insurance others carry," says Trina Meeks, assistant product manager, home product—specialty, Progressive. “UM/UIM umbrella coverage can help offset the personal financial burden should someone be involved in an accident where insufficient or no coverage exists. However, UM/UIM umbrella coverage is typically not a standard offering and availability can vary by state."

For agents, offering an umbrella that includes UM/UIM coverage is key to protecting not only their clients, but also their agency from potential errors & omission claims. 

“The easiest thing is to offer a personal umbrella policy to every single one of your clients," says Jamey Alwood, director, distribution and strategic partnerships, RLI Corp. “We have heard of some successful personal umbrella agents requiring their clients to sign a form stating they [the client] have been offered an umbrella policy but declined the coverage for the agents' own E&O purposes. These agents realize the importance of offering personal umbrella coverage to every one of their clients."

Many opportunities exist for agents to encourage clients to protect themselves with this coverage, while also protecting their own agency. “Personal umbrella is a vastly undersold line of business: less than 10% of personal insurance consumers have an umbrella policy," Alwood says. “However, that means opportunities abound, starting at the point-of-sale. Close rates for umbrella can range from 30% to over 50%, but the key is to simply start the conversation."
 
Further, agents who “regularly engage in lifestyle surveys to understand changes in client's financial positioning, vehicle usage or home inhabitants can help initiate conversations around sufficient insurance protection," Meeks says. Also, “many carriers offer bundling discounts or introduce new discounts, and helping your customers take advantage of these opportunities can help build those relationships."

Olivia Overman is IA content editor.