Legal Standard of Care

The legal standard of care requiring that insureds read and understand their insurance policy is absurd. The typical standard for written communications with the average consumer is to write at an 8^th-grade level or lower. Insurance policies, however, are legal contracts. To read and understand an insurance policy requires more than an 8^th-grade level of reading ability.

It is unreasonable to place the burden on the average consumer that they must read (i.e., have a duty to read) and understand (“a duty to understand” makes no sense in and of itself) their policies versus licensed agents who have no duty in most states (unless they create a special relationship to read the policies they sell), much less understand and advise on the policies they are selling. This makes zero sense.

Evidence suggests that the average person does not understand their policies. In 2018, Which?, a British firm, tested volunteers to specifically, not optionally, read the fine print of an insurance policy (as documented in The Economist, July 27, 2019). The volunteers incorrectly answered a series of questions regarding what they’d read between 25% to 33% of the time. In other words, on a scale of 100%, they scored between 67% and 75%, a D+ to a C. Only 1/6^th of the volunteers made an A. The Kaiser Family Foundation has documented similar difficulties specific to health insurance.

Furthermore, why require agents to take continuing education if they have no responsibility to know or advise on coverages? Requiring them to take CE at this standard of care is completely oxymoronic. If they have no responsibility to know, they have no need to know. They have a license to be true “Know-Nothings”! The existing standard benefits specific entities at a societal cost. Why stick to this oxymoronic situation? Who benefits?

Follow the money. State departments of insurance have high profit margins, partially subsidizing many other governmental entities that operate at a loss. Consider this: In most states, no standard of knowledge exists for insurance agents, and yet agents must spend (in theory) a lot of money and time getting educated.

Considering a person can get 24 hours of credit in less than eight hours today, all for $150. That must be awesome education! But state associations need money and the more revenue sources, the better.

E&O carriers and defense attorneys, in particular, appreciate this model because it is less likely to result in cases being lost with such a low standard.

Carriers win because they can appoint more agents, spend less on educating them, and they don’t really care if the result is the insured does not have appropriate coverage. That is not their issue (though it should be because the profit margin is better when clients have better coverage because premiums are higher, but the losses do not directly correlate).

This creates the impression of looking professional without having, or even attempting, to be professional. Heaven forbid, per the defense attorneys, any agent ever described themselves as a “professional”!

Who loses with this current model? Truly professional agents lose because consumers cannot easily distinguish between amateurs and professionals. Consumers lose because it requires too much effort on their part to shop for agents who take real educational courses and take the time to provide advice. Advising is expensive because amateurs and professionals get the same commission rate.

The environment punishes agents who care the most and work the hardest to get clients the coverages they need. What is a good agent to do?

First, purchase 24 hours of CE for $150 to be completed in less than 8 hours. That is a good deal. Then go get a real education elsewhere, even if it does not offer CE.

Second, stop selling insurance. You cannot win a race to the bottom when every other entity in the environment is rewarding your ignorant competitors. You must stand out by selling something other than insurance, with insurance being only one aspect of what you deliver. Whether it be risk management, coverage reviews, claims management, TCOR, something else, or some combination of these benefits, provide something above and beyond an insurance policy. Charge fees so your clients understand you’re not just selling insurance (fees are legal in all states if done correctly).

This success strategy requires more education, more effort, and a little bravery. If you do not know how to get started, contact me. You are at a fork in the road. One leads to benefiting yourself and your clients. The other is a dead end. Which fork will you take?

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NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.