Agents are required to gather all information about the insured risk in order to fulfill their fiduciary obligations to clients. This involves asking several questions about the characteristics of the risk against which the insured wishes to obtain insurance. The agent must translate all the information to the underwriter for the carrier to which they wish to place the policy.
In the event that an insured withholds any material information from his agent or the underwriter, and then proceeds to enforce the policy, the insured is responsible for any uncovered claims that result from the omitted information. The agent who withholds or fails to ask the right questions will bear the brunt of the responsibility. Agents should have asked the right questions and collected responses from the insured before submitting the application to the carrier and/or underwriter. This is the area where agents are not all created equal.
Insurance customers look for an agent who is comfortable with their insurance needs. If an agent gives you a warm fuzzy feeling the first year, your insurance needs will not change. Marketing 101: Spend 90% on attracting clients and 10% on keeping them. Some agents will use every means to retain and attract clients, even if it means that they act in the best interests of their client rather than the insureds.
This problem is something I am more familiar with than I care to admit. When it comes to securing new business in my local community, I’m no different from any other agent. I meet new people by meeting them at social events, kissing their babies and shaking hands. This means that I must impress someone more than the current agent. Problem is when the relationship has been established for several years and the incumbent agent is still doing business as usual. The agent is doing business as usual if he has established a good rapport with his client. “Oh sure, Mr. Client, this property purchase is exactly like the 3 that we insured last month. That will be taken care of. There are no other questions. There was no additional information required or provided. The client thinks how wonderful it is that he only has to call his agent and tell him that he just bought something similar to what he had purchased in the past. Covered. Don’t waste time on insignificant details.
Let’s continue our conversation with the same client by imagining that we meet at one of those functions I mentioned earlier. We have the standard introductions and get to know each other’s professions and current business trends. Based on my conduct and the way I answer his insurance questions, he has a warm feeling about me. He asks, “Can I have a look at my policies?” I oblige and say yes. I review his policies and do my due diligence to find out what the property is being used for, what his primary business operations are, etc. I send the necessary applications to him and ask him to sign them once I feel that I can compete with his current carrier.
This is where I can find out about his relationship with his current agent. He may reply, “My agent fills out these applications for me and then submits them.” It is clear that I am facing a difficult task with this potential client. The agent has been trained to take care of everything for him. I allow the prospect client to not complete the application, but then I ask the necessary questions to accurately quote and hopefully place the policy. I don’t need to answer every question if I get a response like “Why should I bother?” My agent does everything for me. Based on my feelings about the prospect’s attitude, I might tell him to stay with his current agent. If there is an opportunity for me to offer some reason to convince a rationaler mentality, I will proceed.
In those situations, more often than not, I feel that the prospect’s agent failed to perform his fiduciary duties and made an expensive recommendation. This recommendation may not be popular with the client. Agent feels that the client might not accept a policy if the agent returns with a higher price than the client is used to. The agent loses his commission and the client may also be affected. Agents may believe that clients will “shop” for lower rates. A good agent will “groom” clients from the start by asking prospective clients to complete all applications. This ensures that no section is left unanswered or neglected, regardless of how trivial or minor.
In this instance, I find that the incumbent agent failed to disclose to the carrier all pertinent facts regarding the risk in order to lower the premium. He believes he is doing his client and himself a favor in “saving money” for him. Clients don’t realize that when premium is paid, the contract is binding between the insured as well as the carrier. The carrier can deny coverage if a claim is made during the policy period. Client is responsible for all out-of-pocket legal fees and the replacement cost of any lost property. My calculations often show that the loss is greater than the premium. When it comes to misplaced policies, the saying “You can either pay me now” is true.
Being an ethical agent, who enjoys uninterrupted sleep at night, I don’t like “competing” against agents who don’t understand the damage they do to their clients and the industry. Prospective clients feel that I make it seem incompetent to explain to them why I require the information, which their current agent has not requested. He feels that I am trying to confuse him and make the other agent seem incompetent. The prospect is correct that I am trying to confuse the prospect by making the other agent appear incompetent.
Ask your agent for quotes on insurance. If you feel that he is not asking enough questions or the right questions, you can freely share any relevant information to help secure your insurance policy. Once the carrier accepts your risk and you agree to pay the premium you give up all control to them. The carrier can investigate, accept, deny, or adjust coverage as it sees fit. Protect your money.
