This Article appeared in the May Issue Agent and Broker Magazine
If I were asked to describe the perfect client my answer would be that the client would view me as an insurance professional and not a comparison price shopper. My perfect client would have complete reliance on my team and our insurance skills. Because of this reliance Mr. or Mrs. Client would expect that we as insurance experts would be responsible for negotiating insurance coverage on his or her insurance portfolio. Sounds too good to be true. it was not always this way but unfortunately as insurance becomes more and more of a commodity and less and less an intangible product the perfect client is getting harder and harder to find. To put it another way the perfect client is one with whom you have a "special relationship".
The duty to advise insurance clients is at the center of a substantial portion of insurance litigation. Issues like inadequate coverage or no insurance coverage or it was the client's understandings that the missing peril was covered by the insurance contracts are common issues. Despite the tendency to commoditize insurance when trouble occurs clients do not want to regard the insurance producer as an order taker. I believe most people seek out insurance producers on whom they can rely because of their knowledge and skills when selecting insurance protection, but the subject as to why a prospective client selects an insurance organization is the subject of a future article
Despite this, litigation in many jurisdictions reject the concept that insurance producers have a duty to be expert advisors to their clients. This concept goes right along with the trend tending to make insurance a commodity. If we extend the commodity concept to its furthest extreme it will be reasonable in the future to ask your prospective clients how many pounds of insurance they would like. Wait; don't relax just yet everything that I have said up to this point is true unless there is something more.
The something more is a "special relationship" existing between the client and the agent. When a special relationship exists it creates a heightened duty on the insurance producer to advise and counsel their clients. There is no exact answer to the question how does the insurance professional know if a "special relationship" exists. There are however several important factors which go a long way in determining the actual duty of the insurance producer to advise and counsel their clients. They are:
1 The greater the involvement in the cost of his insurance matters and other matters bearing on insurance such as the customer's business, the greater the chance that courts will find a special or expanded producer and customer relationship.
2 The more the producer leaves the arena of insurance order taker or application conduit and begins to act as an insurance advisor or counselor, the greater the chance that a court will find a special or expanded relationship.
3 The more the customer actually relies on the producer's expertise and knowledge the more likely that a special or expanded relationship will be found.
4 The greater the complexity of the insurance account or coverage sought and the greater level of specialized producer knowledge required the greater the chance that a court would find the duty to advise on the part of the producer.[1]
In addition to the above factors other significant factors are the length of the relationship and whether the insurance professional portrays him or herself as an expert or an insurance consultant with specific knowledge relating to the insurance coverage being proposed.
Just in case you thought it's easy to determine whether a "special relationship" exists consider this matter that recently occurred in the state of Pennsylvania. The insured contacts an agent and informs the agent that he wants complete coverage for his property and premises. The agent agrees to provide the coverage but never inspects the property or premises and it turns out that there is a pond on the properly which overflows. The premises and property are damaged and of course there is no flood coverage.
The client sues and the lower court determines that there was no special relationship and therefore the agent had no duty to inspect the insured location, cased dismissed. The case is appealed by the insured to a Superior Court which finds that insurance agents always have a duty to inspect the premises to be insured. The defendant in the case then appeals to the Supreme Court of Pennsylvania who remands the case back to the Superior Court which then reverses its finding. Confusing to say the least!
Now back to perfect client. If the readers of this article are fortunate enough to have a perfect client or clients it is probable that these clients will also be one of your larger clients. Because of the development of recent court decisions another legal minefield has been created for members of the insurance industry. This is truly a good news/bad news situation. The good news is if you have clients who rely on your skills and not the lowest premium it will do wonders for your persistency statistics and your bottom line. The bad news is when something goes wrong you can count on your professional services being called into question.
Nothing in this article should be construed as a suggestion that certain clients deserve less than your best professional services. The purpose of this commentary is to make you fully aware that you have greater responsibility to certain clients which in turn creates a greater exposure to legal liability. Most agencies are aware of the 80-20 rule. Thus 20% of the clients get 80% of the service. It is probable that the 20% group contains the clients with whom you may have a "special relationship". Therefore the executives of an insurance organization must ascertain that the entire team realizes and acts upon their heightened responsibility to advise and counsel when working with this special group of clients.
I am a charter member of what I call the "no surprises" school of underwriting. What this means in actual practice is that I used applications and completed every question and ask many more questions that were not contained in the applications. In addition everything that was discussed at the sales meeting was documented. I did this for two reasons, the first is obvious I wanted to develop as much information and understand my prospective client's insurance requirements. The second is less obvious but my underwriting and interviewing methods usually developed additional insurance exposures. In my opinion if you adopt "the no surprises" underwriting process you will not have it to wonder about your relationship with your client and I believe you will be doing a lot more business.
[1] The Legal Environment of Insurance Karen K. Porter JD
Richard Mintzer Associates LLC
5551 Jewel Creek Court
Boulder, CO 80301
Telephone: 877-461-1656
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