What is the definition of a Truly Professional Agent?
In some states, nail technologists (people who do manicures) must complete 600 hours of training and education prior to earning a license. P&C agents only need 40 hours give or take, depending on the state. For perspective, each fingernail gets the equivalent of more education than is required for agents in total!
I have lost fingernails in accidents, but so far, the value of a fingernail has never come close to the value of my home. However, agents with only 40 hours of education are selling legal contracts that buyers hope will protect their largest (most likely) personal asset. With context, this mismatch is ridiculous. I am not saying that nail technologists need less education either.
I read an E&O case today where the agency won. The agency won because the court ruled the agency was an order taker. Considerable E&O defense rests on this foundation. What is an order taker agent?
Depending on how E&O claims data is compiled, the failure to procure appropriate coverage is often the leading cause of E&O claims. The allegation is that the agent failed to procure the appropriate coverage relative to the insured's known (or should have known) exposures. Duty to advise is another form of this allegation.
According to my favorite insurance law book, Understanding Insurance Law, Sixth Edition by Robert H. Jerry, II and Douglas Richmond, there are at least 24 precedent setting cases that, "...absent special circumstances that might give rise to a broader duty, the default rule is that agents and brokers have no duty to advise insureds about the adequacy or appropriateness of the insurance coverage they purchase or about optional coverage that might be available."(1) In other words, an insurance agent is not an insurance advisor (unless of course they make that their title, advertise as an advisor or call themselves a risk manager, etc.). The book goes on to cite another case, "In short, in most situations, an intermediary satisfies his duty to the insured by procuring the coverage requested by the insured."(2)
A lot of agents depend on these legal precedents to sleep at night thinking they do not really have much of a duty to clients and being required to complete only 40 hours of education correlates well with having less duty to protect huge assets.
Agents are paid pretty well for having no obligation to advise. Mike Edwards, one of the best insurance educators I have ever known, used to joke about how those agents who advocated cross-selling insurance policies seemed to think cross-selling insurance was like offering drive-up window customers fries with their hamburgers.
Times have somewhat changed. Cross-selling insurance remains far more complex and if you are only cross-selling on an order-taker status, you have already lost. What has changed is that technology now allows insureds to order their insurance off a technological platform. Click here and click there for this limit and that coverage. Technological platforms are the epitome of order taking, just like a drive-up window. There is no future in being an agent taking orders without accepting minimum wage compensation, and minimum wage is fair because order takers are not worth much. Technology can take orders for about half the going commission rate.
Being an order taker means selling a product. This product is a complex legal contract. The legal contract, at the order taker level, is a generic product. It is a one-size fits all. Rather than being bespoke and fitting well, it will have more coverage than some people need. However, in my experience, it will have much less coverage than the majority of people need.
I have many friends who believe deeply in coverage knowledge, and they are consummate educators. But really, what difference does education make if all you are going to do is take orders? As one judge stated, "...[individuals] take an intellectual gamble when purchasing insurance as they weigh the expense of insurance versus the amount of coverage they purchase."(3) It is a much bigger gamble than that when an agent does not know what they are selling, has not really done much work to truly ascertain the coverages needed, and the insured has no idea of their real options or needs and never reads the policy. What a ludicrous situation. This makes the Keystone Cops look intelligent.
A real professional sells a service, not a product. That service entails putting the customer first. That service requires full engagement with the client, meaning deep conversations. I get the response all the time, "Customers won't give me the time for a deep conversation!" Certainly, that happens, but I have also tested this, and the results suggest the vast majority of time, the problem lies with the agent and not the client. In many cases, the client simply does not think enough of the agent to give them the required time. They see the agent as an order taker. Why spend time with an order taker? Do you really want to spend time with the teenager at the pick-up window?
Lots and lots of people are totally comfortable wearing ill-fitting clothes. Some really funny websites are dedicated to this fact. Lots and lots of people are completely comfortable buying the wrong insurance, until they need it. A true professional, no matter how good they are, will rarely get those people to see the light. This is why technological platform order taking agents can scale. This is why some of them have outrageously high valuations because it is easy to scale one size fits all insurance policies. Truly professional services are not scalable enough. The offset is a better profit margin.
A truly professional agent puts the client first and accepts the responsibility of providing professional advice. They are paid for professional advice too, not just for placing an insurance policy. To provide truly professional advice, one must complete far more than 40 hours of education classes. A truly professional agent will spend time learning exposures/coverages, and not just so they can explain a form either. One of the great advantages of education is you can identify exposures you would not have otherwise recognized. Another great advantage is you can identify creative solutions for your clients.
If you truly want to be a professional agent, assuming the risk but gaining the reward of better compensation, while knowing you are providing real value to people, contact me at email@example.com. I have a program for you.
(1) Robert H. Jerry, II and Douglas Richmond, Understanding Insurance Law (6th Ed.) (Durham, Carolina Academic Pr. 2018), 208.
(3) Jerry and Richmond, 209.
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.