Not All Insurance Agents Are Created Equal

Agents have fiduciary duties to their clients requiring the agent to collect all relevant details of the risk to be insured. That involves asking several questions as to the characteristics of the risk which the insured wants to place insurance against. All the collected information needs to be translated to the underwriter of the carrier which the agent wishes to quote/place the policy so the underwriter can appropriately approve and bind coverage.

If an insured withholds material information, asked of him from the agent and the underwriter, who then proceeds to place the policy enforce, the burden falls on the insured in the event of any uncovered claims arising from the omitted information. If it is the agent that withholds material information or does not ask appropriate questions, the burden falls squarely on the agent’s shoulders. The agent should have asked the right questions, collected the insured’s response and submitted those answers, via the application, to the underwriter and/or carrier. This is where all agents are not created equally.

Insureds seek out an agent that they feel comfortable in handling their insurance needs, whether it be personal insurance or business insurance. Insureds that receive a warm fuzzy feeling from an agent the first year are less likely to change from year-to-year unless the agent makes an egregious error in his fiduciary duties, such as placing a policy that does not match the needed coverage (usually not discovered until a claim is filed and not paid). That is Marketing 101: spend 90% of marketing money attracting a client and 10% keeping the client. Unfortunately, some agents use all means necessary to attract and retain their clients even if that means acting in the agents best interest instead of the insureds interest.

I encounter this problem more often than I like to recall. I am no different than any other agent when it comes to soliciting new business from my community. I shake hands, kiss babies, attend social functions, and join networking clubs for the sole purpose of obtaining new clients. That means I have to impress someone greater than their current agent is doing. The difficulty is when the current relationship has been well established over a several year period and the incumbent agent has been doing business as usual. Business as usual means the agent has established a rapport with his client well enough where the agent completes the application for the client assuming he knows exactly what the client needs and the specific characteristics of the risk. “Oh sure, Mr. Client, this new property purchase is just like the other 3 we insured for you last month. I’ll get that taken care of for you.” No other questions. No other information requested or supplied. The client is thinking how great it is that all he has to do is call his “great” agent, tell the agent he just purchased something similar to past purchases, and BAM, all done. Covered. No more time wasted on silly details.

Let us continue with that same client and say I meet him at one of the many functions I described earlier. He and I go through the usual introductions, getting to know what our respective professions are and how business is currently going. He gets one of those warm fuzzy feelings about me based on how I conduct myself and how I answer his inevitable insurance questions. He says, “Can you take a look at my policies for me?” I obligingly say yes. When I receive his current policies, I go through my usual due diligence asking what is the use of the property, what are the primary operations of his business, etc. Once I feel I have a market that can compete against his current carrier, I email the needed applications over to his email and ask him to complete and sign them.

Here is where I find out what kind of relationship he has with his current insurance agent. If he shoots back a reply like: “My agent fills these applications out for me and just submits them.” I realize I have an uphill battle with this prospective client. He has been groomed to have the agent handle everything for him without having to lift a finger. I appease the prospective client by allowing him not to complete the application but I proceed by asking the needed questions in order to properly quote and, hopefully, place the policy. If I get a reply like: “Why do I need to answer all these questions? My agent just does all this for me.” Depending on how I feel about the prospects attitude, at this time, I may just tell him that he is better off staying put with his current agent and carrier. If I feel there is an opportunity to interject some reason to win over a more rationale mentality, I proceed.

More times than not, in those circumstances, I find that the prospect’s agent has not performed his fiduciary duties of gathering proper information and making, what could be, an expensive recommendation, a recommendation that may not sit well with the client. The agent feels that if he comes back with a price more expensive than the client is accustom to, the client may not take the policy. Therefore, the agent not only looses the policy commission but possibly the client, also. The agent may feel the client will “shop” his rate for a lower price. Conversely, what a good agent will do is “groom” his clients from the beginning by having prospective clients self complete ALL applications making sure not leave any section answered or at least addressed no matter how minor or trivial.

In this situation, I also find that the incumbent agent has not forwarded to the carrier all relevant facts about the risk so as to keep the premium down. The agent thinks he doing the client and himself a favor by “saving money” for his client. What clients do not understand is when premium is paid for an insurance policy the contract is bound between the insured and the carrier. If a claim arises in the policy period that is not covered due to erroneous information on the application, the carrier has the right to deny coverage for the claimed loss. The client is then out-of-pocket attorney fees and replacement cost of the lost property. My calculations usually come back where the loss is much greater than what the correct premium should have been. The phrase, “you can pay me now or you can pay me later” seems true when it comes to misplaced insurance policies.

As an ethical insurance agent who likes to sleep uninterrupted at night, I hate “competing” against agents who do not understand the harm they are doing not only for their clients but for the industry as a whole. Once I explain to a prospective client why I need the information I am requesting, which his current agent has never asked for, it makes me appear, in the eyes of the prospective client, to be incompetent or unaware of what is needed by the prospect. The prospect feels I am throwing him a curve ball to confuse him by attempting to make the other agent look incompetent. He is right in that I am attempting to make the other agent look incompetent but not by confusing the prospect.

As you request quotes from your current insurance agent or a prospective new insurance agent, make sure he asks you a lot of questions regarding the insured risk. If you feel he does not ask enough or appropriate questions, feel free to volunteer any information you feel relevant to properly secure the insurance policy. Remember, once the carrier has accepted your risk and you agreed to pay the premium, you gave all control over to the carrier. If you have a claim, the carrier has the right to investigate, accept, deny and adjust coverage as they see fit. It’s your money, protect it.