Hiring an insurance broker should mean ease, speed and extra security. But not everything about putting a middle man in the process of buying insurance is great. Mistakes and mishaps are bound to happen at some point.
Misunderstandings between homeowners and insurance brokers aren’t uncommon. The insurance industry has become a lot more chaotic. More clients are finding it hard to trust agents and brokers, who do sometimes use unethical tactics to earn a living.
Let’s take a look at some of the most common misunderstandings.
1. Conflict of interest
Insurance brokers get remunerated through a fee or commission for their services. They can get paid by the insurer for bringing a large volume of business to the company. They can also get a commission from their clients by finding the best deal and insurance for them.
The risk of conflict arises when the insurance broker favors his personal gains over his duty to his client. This can result in the client agreeing to higher prices or extra coverage he doesn’t really need.
See also: A Wakeup Call for Benefits Brokers
2. Nondisclosure and negligence
Before a client signs up for insurance, it is his responsibility to divulge all pertinent information, including his income, medical history, home values and details of his home security.
Failure to disclose all this information can render him uninsured when he files a claim.
There are cases, however, where even forthright and honest men can forget pieces of information. Having an insurance broker handling all the processing can make it more likely to happen. And negligence by a broker can result in a costly misunderstanding.
3. Failure to understand exclusion
Clients mostly shop around for price and reputation without realizing the other important factors that can affect their coverage.
Insurers are slowly cutting back on coverage and increasing their deductibles in an attempt to increase profits. While insurance brokers can give their best when discussing the exclusion clauses buried in lengthy policies, they can still miss critical details, and one word or phrase can mean thousands of dollars when it’s time to make a claim.
A carport, for example, does not technically fall into the category of a building, which means that a client should not expect his insurance to cover a collapse.
When doing an assessment, a typical insurance broker would need the help of real estate appraisers or an online program to know how much coverage a homeowner can get. If the broker is fairly new and untrained, he may even obtain figures by directly asking the homeowner how much exactly he is expecting to get.
This lack of knowledge can mean that homeowners are greatly underinsured. Yet they will have a false sense of assurance and only realize their problem in the wake of a disaster, such as a tornado or flash flood.
Another common misunderstanding between homeowners and insurance brokers involves replacement cost and market value. Most homeowners expect to receive a coverage that will equate to their home’s market value. Replacement cost, on the other hand, is generally higher than the amount a buyer is willing to pay for a house. It’s based on a lot of factors, including the materials used, cost of labor for the demolition and repair, etc. An agent or a broker needs to be very thorough in discussing these details so that he and his client can determine the right insurance and coverage.
See also: A ‘Perfect Storm’ of Opportunity (Part 3)
5. Change of policies
It’s the insurer’s obligation to notify its clients about any changes in their insurance coverage. It’s also a part of the broker’s responsibilities to let his client know the terms of renewal, cancellation and expiration of the insurance he’s offering and to make sure the client understands.
But sometimes clients don't get the message and are underinsured or even uninsured when they file a claim. In cases like this, a client can take legal action against the broker. He may also file a case against the insurer, if it changes the insurance without its client’s consent.