September 7, 2018
Important Perspective for Insurance Agents
by Chris Burand
New legislation says that only "natural" persons must carry a license -- so, AIs can do whatever they and their creators want.
By pure chance, at a completely non-insurance event, I found myself seated next to a deputy commissioner of insurance for a prominent state. This deputy commissioner, when he learned through the pleasantries of exchanging minor personal information around the table that I consulted for insurance agencies, let me know in no uncertain terms that he thought agents were mostly scumbags.
It was a wonderful way to embark on a two-hour dinner with strangers. His perspective was that he saw so many cases of agents selling the wrong coverages, purposely selling inadequate coverage and leading clients to believe they had far more coverage than they had. Honestly, through all the E&O work I do, I cannot disagree. It happens every single day. I do not know that I agree agents do so from an unethical basis as much as an incompetency basis, based on my E&O audits, but the issue is real. And I understand from a department’s perspective that only sees the problems and never hears about the good outcomes (how many insureds call their department of insurance to exclaim how great their agents are?) that their perspective would be highly biased. I get that.
The examples are plentiful. An industry newsletter that often lists new E&O cases recently included cases for a multimillion-dollar coverage shortfall, failure to disclose a major exclusion, an agent arguably not providing realistic client expectations and an agent advising a client they didn’t need more than $x liability limits. A separate recent list of E&O claims followed a natural catastrophe, and, while the data I reviewed was limited, it suggested strongly that most of the situations were caused by agents not selling the right coverages or coverage limits. Some of the situations were truly massive incompetency on the part of the agent. An example might be something like advising someone flood was not necessary when the house was on the water or that the client had coverage for a business in the home when the policy specifically excludes such coverage unless the endorsement was purchased. I am not suggesting these are the claims, but these are the types of claims.
See also: Agents, Brokers Are Dead? Not So Fast!
I can understand the insurance department thinking agents are scumbags, although I truly prefer thinking these agents are just incompetent. Idiocy feels better to me than the connotations of a scumbag.
Insurance departments have a role in this because, as one Michigan judge ruled not long ago, the licensing requirements for an agent are less than that of a beautician. Insurance departments could always raise the licensing standards.
Insurance associations and their members are at fault, too. I have heard for decades how agents want to lower the standards of care, so they are less likely to be sued and, if sued, more likely to win. I have heard E&O attorneys and instructors pound into agents’ heads to not increase their standards of care. This is truly the epitome of cutting off one’s nose to spite their face. If agents want licensing standards far less stringent than someone who paints nails (I am not saying painting nails is not a difficult profession that requires considerable training to avoid injuring a client’s fingers or toes) and if agents and their associations want standards of care so low the agent is basically not responsible for much of anything, then in reality who needs a licensed insurance agent? My conclusion is: Absolutely no one.
Which brings me to two new legal developments. The first is legislation whereby only “natural” persons will be required to carry a license but non-natural persons, i.e., artificial intelligence computers selling insurance, will not be required to carry a license. This is real and likely to pass. Think about this just for a moment or more. The computer will have no standard of care because it won’t be licensed, and, with no offense, though it may be offensive, an incompetent but licensed human cannot compete with an unlicensed supercomputer that actually probably is fairly competent.
Another development is a recently passed law that requires insureds to “understand” their insurance. How any reasonable person could vote for a law that requires a consumer to “understand” their insurance is beyond me. That is an impossible standard, but it negates a standard of care for agents and companies. In fact, it makes agents mostly irrelevant because companies can then sell whatever to consumers, and the consumer loses the middleman agent, the good ones of which are fantastic protectors of clients from insurance companies and incompetent and scumbag agents.
That law might be applauded by agents who want no responsibility for selling clients the coverages they truly need. It probably is being applauded by certain companies, especially those that like to cut corners. (As an aside, I wanted to ask the deputy commissioner about his department’s efforts to prohibit some companies’ filings of policies that actually provide almost no coverage, but that seemed pointless.)
I hate it that insurance commissioners and others think of agents as scumbags. These perspectives make it so hard to create trust for those who do their job well and with pride. Someone else at the table asked me if all agents are scumbags, and I explained that in my interactions with thousands of agents over 30 years a large percentage of agents are absolutely the best. They take to heart their clients’ coverage needs. They are extremely well-educated in the coverages clients need. They work hard to protect clients from companies, especially when a company is not interpreting coverage correctly after a claim. These are good, hard-working, ethical people who make a positive difference in people’s lives.
The high road is always the hardest road. By definition, the high road means climbing, working against gravity and working hard. The low road goes downhill. You know what rolls downhill. With the new laws being passed and promulgated, with many companies working to push aside agents, with the “scumbag” perspective many important people have of agents and the industry, with how insurtech and AI are working to replace agents in some venues, understand all these forces are aimed at eliminating incompetent agents. Incompetent agencies are paid too much, and their extinction creates a cost savings. The low road leads nowhere good.
The high road is the ethical, positive legacy and financially beneficial road. If you want to learn more about the high road and if you do not already know where that road is and how to counter all the negatives, let me know. I have created a special path for those wanting to develop a high road that makes their clients’ lives better and ultimately rewards them financially and in their hearts.