Why did you get that account?
I was talking to an agency client (and quite a few clients have told me the same story, this was just the most recent) who had failed to gain a good-sized commercial account. He was frustrated because the insured went with an agent who offered a price that was 50% less than his price. He asked for a review of his competitor's proposal. The prospect was kind enough to give him the proposal. He went through it and after choking back his vomit because of how much necessary coverage the cheaper proposal lacked, he pointed out to his prospect all of the huge coverage gaps that existed in the policy.
The prospect considered the situation and asked if the competitor had offered the needed coverages, would his price been close to my client's price. The answer was "Yes." My client asked the prospect if he agreed the missing coverages were important. The prospect said, "Obviously!" My client then confirmed with the prospect that he agreed the coverages were not being recommended just so my client would make more money. The prospect then said, "So the only reason their price is low is because they aren't offering me the right coverages?" My client said, "Yes." The prospect then asked my client if he thought the competitor agent had professional liability insurance. My client said, "Probably, but you can ask them."
The insured then said, "I really appreciate you but I'm going with the incompetent agent." I can save 50% and still be covered by their E&O. Did the other agent think he/she was a genius? Probably so.
A good example of these geniuses are those producers who pull apart a client's insurance policy(ies) and spread them out among five or even ten carriers so they can achieve a lower rate but fail to address the gaps in coverage that are created in the process. The premium decreases not because the producer is a genius, but because there is less coverage!
Quite a bit of business flows to incompetent agents in this industry simply because they are incompetent. It happens to carriers too. Years ago I was discussing Florida workers' compensation with a Florida industry guru. We were talking specifically about a carrier that had entered the Florida market and was growing their book quickly. He told me, "They are just writing the same business that every new carrier writes when they come to Florida. They write it because the last company to write it discovers it is not good quality business, they raise rates and non-renew it, the next company comes in thinking they're smarter than everyone else, and seven years later they are raising rates and non-renewing it too." I have watched that book for 20 years. Was he ever right!
The Florida workers' compensation market provides many good examples of how a chump can write a lot of business. I have fielded many calls from agents and brokers wanting to write Florida business because the rates are so high there. They start dreaming of the dollars and see headlines of carriers, agents, and brokers growing quickly. It is as if they think money grows on trees in Florida.
I tell them the same anecdote. If you play poker and go to a table and look around that table and cannot identify the chump, you are the chump. Florida business gravitates toward the new player that thinks they are so smart but it turns out is really the chump.
The incompetent agent and often carrier, gets the business.
Are you getting accounts because you are incompetent? If this is the case then over time, you will probably learn if this is so and if you do, it will be a hard lesson. If you are winning accounts based upon steep price differences, it behooves you to figure out exactly why the price differences are so steep. Sometimes it may be because of the carrier's form that you are selling looks good but is actually full of coverage gaps. These gaps in coverage are happening in the cyber market today. Some carriers' rates really are too good to be true.
From that perspective, I heard an old insurance joke that I had not previously heard, perhaps because it was in an old corny television show. The question was, "Are you selling nude insurance policies?" "Nude insurance policies? What are those?" "You know, those are the policies that tell you everything they don't cover!" Kind of corny, but also kind of to the point.
I talked to a young, good-hearted producer who had landed one of his first larger, for him, commercial accounts. I asked him to tell me about the account. As he described the account, it was obviously a hairy account. He did not know enough to appreciate how hairy it was and therefore, he did not ask all the questions he should have asked. The insured understood his advantage working with a novice, so he gave this young producer the order. He got the account because he was incompetent.
Now, obviously, a large difference exists between a good-hearted but inadequately experienced/ educated producer and a producer who purposefully suggests coverages are adequate, when he knows or should know if he took the time, that the coverages are inadequate. From an E&O perspective though, I am not sure it matters.
The difference definitely does not matter to a quality agent who lost an account because the customer is smart enough to know that an agent's E&O policy probably covers the gap. How does a good agent combat incompetence?
One way might be to describe the time lag that ensues between a claim and an E&O settlement. How would that time lag affect the insured? Also, is the insured sure that the incompetent agent is failing to meet their standard of care? A famous federal E&O case involved a flood claim. I have some of the details wrong here but the gist of the case was this: The insured asked their agent if they should buy a flood policy. Their house was about 3' above sea level and they were maybe 100' from a large body of water known to flood. Their agent told them, "No. I don't suggest you buy a flood policy." Their house was devastated in the next flood, so they sued their agent. The judge ruled that their agent was obviously so incompetent (but the incompetent agent got the sale!) that in no way did the agent meet the standard of care required for insureds to expect competent coverage advice. They lost the case and their home.
Does your prospective client want to run this risk?
If the answer is yes, a good agent probably does not want that prospect as a client. Let two losers enjoy each other's company. Understanding why you get accounts rather than simply being overjoyed to get any account is important.
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.