Tag Archives: insurance agents

Many Agents Expose Themselves to Dangers

Many insurance agents are confused about their role, which brings about misplaced loyalties and greater E&O exposures.

Let’s start with a question: Does the agent owe the policyholder the common law duty of good faith and fair dealing? Most insurance agents would respond with a resounding “yes” – but they’re wrong.

The duty of good faith and fair dealing is a non-delegable duty that applies only between the parties to the contract, and the parties are the insurance company and the insured – not the agent. Put simply, the agent is not the agent of the policyholder. The duties of good faith and fair dealing belong to the insurance company, not the agent.

So what duties does an insurance agent owe to the policyholder/applicant? Under common law, there are really but two:

  • Use reasonable diligence in attempting to place the requested insurance.
  • Inform the client promptly if unable to do so.

That’s it!

Some states may provide for a “special relationship” to have been created, which may provide for some additional duties. However, such a relationship is state-specific, requires some acts of commission to create and is beyond the parameters of this article.

Under statutes, there is really only one duty: Refrain from deceptive trade practices.

Every agent knows that the insurance code has a lot of pages devoted to prohibited practices. However, a careful review of the NAIC model law (upon which all states base their deceptive trade practices code) finds that all deceptive trade practices applicable to an insurance agent involve commission of an act, not the omission of an act. Under the model law, doing something incorrect is worse than not doing anything. Insurance agents may assume some duties that are not imposed upon them by law, thinking that they have such duties. If duties are “assumed,” even through ignorance, the law will hold agents to a professional standard for those assumed duties. If you make yourself out to be a coverage expert, the law will hold you to that expert standard.

Some 90% of E&O suits against agencies could be prevented through careful attention to practices and procedures.

By contrast, the duties owed by the agent to the insurance company are many. As a fiduciary of the principal, the agent owes the company:

  • Loyalty
  • Utmost good faith
  • Candor/full disclosure
  • Refraining from self-dealing
  • Integrity, skill and care
  • Fair and honest dealing
  • Duty to follow instructions

Something many insurance agents may not have considered: Your responsibility to not breach your fiduciary duties to the insurance company are the largest part of your professional/ethical responsibilities as an agent.

(It is not a two-way street. The insurance company is NOT a fiduciary of the agent. In other words, an agent acts on behalf of the insurance company, but the insurance company does not act on behalf of the agent. Under common law, the insurance company only owes the agent: indemnification, payment of compensation and fair dealing.)

Some confusion may occur about agents’ responsibilities because of two issues: vicarious liability, which holds that a principal may be held liable for actions by its agent, and the legal maxim that a wrongdoer is ultimately responsible for his own wrongdoing. If an insurance company is held liable for the wrongdoing of its agent (vicarious liability), the insurance company can seek recovery from the agent, (holding the wrongdoer ultimately responsible).

If the insurance company is held vicariously liable for the agent’s wrongdoing, a decision to seek recovery from the agent may depend on:

  • What did the agent do wrong?
  • What recovery did the insured get?
  • What recovery is available to the principal (the insurance company)?
  • What was the agent’s thinking?

A common misconception is that all one has to do to avoid personal liability is to establish a corporation or limited liability entity. That is incorrect because:

  • Professional liability is personal liability.
  • Fiduciary liability is personal liability.

Summary

Insurance agents may assume many duties not imposed upon them by law. Assuming those duties holds the insurance agent to a professional standard not otherwise imposed.

The majority of an agent’s duties are owed to the insurance company, and it is the company’s vicarious liability for the actions of the agent that may ultimately get the agent sued. In other words, the biggest E&O exposure an agent may face is ultimately an action brought by the insurance company because of a wrong action or breach of fiduciary duties. Knowing this makes it all the more important that the agent fully understand and trust the insurance company before assuming the responsibilities and duties imposed upon agents.

Future Is Bright for P&C Agents

The experts guaranteed that the Baylor and Alabama football teams would win their bowl games after the 2013 season. Both lost. Baylor was favored by a whopping 17 points over Central Florida but lost by 10, while Alabama was favored by 15 over Oklahoma but got crunched by 14. 

Likewise, for decades, the “experts” have been betting against independent insurance agents, yet agents keep winning. Why? The consultants, finance guys and others who populate the skyscrapers on Wall Street discount the power of the local trusted insurance agent who does business on Main Street.

That’s not to say that the recent report from McKinsey on the future of property/casualty insurance agents should be discounted. It raises some very good points about how insurance agents need to evolve to continue to be the distribution channel of choice in the insurance industry.

McKinsey got some things right, some wrong. Let’s start with the latter.

What McKinsey got wrong

— The agent’s role hasn’t changed.

Automation has reduced independent agents' role in underwriting and processing, so insurance companies perceive agents are doing less and should get less commission. But the agent’s role has not changed. The client still needs a local, trusted adviser to explain and recommend the proper insurance coverage. Today, that role is valued even more, with trust in big corporations and the government at all-time lows. Cost-cutting is the easy way to increase short-term profits, and the biggest cost for most insurers is commissions. The McKinsey report gives a short-sighted insurance company executive a reason to lower commissions, but companies that reduce commissions will be following a “fool’s gold” strategy producing short-term gains at the expense of the long-term viability of their agent-based distribution.

— Brand awareness doesn’t translate into customer loyalty.

A talking gecko, the discount double-check, Flo, Mayhem or Farmers University don’t build customer loyalty. They do build customer awareness, so the big insurance companies spend hundreds of millions of dollars on ad campaigns. But being top of mind doesn’t mean the customer will have any loyalty to the company. You can’t create a relationship with a person through advertising. People create relationships–for example, with someone whose son or daughter plays on the same soccer team and attends the same school as the agent's children. The opportunity to establish a relationship is unique to the agency distribution channel. It takes time and effort, but once established the relationship creates strong customer loyalty. That’s why you never see any studies from big consulting firms that ask people whom they trust more – their local agent or the insurance company We all know the answer.

— Independent agents will gain market share as auto insurance becomes commoditized.

I agree with McKinsey that some parts of the auto insurance market are becoming commoditized but disagree with the conclusion that this will hurt independent agents. Because they can offer multiple carriers, independents will still get the sale. They will just place the business with the best-priced carrier. The big losers will be the captive distribution companies, which will be unable to offer their clients choice.

–A multi-channel distribution strategy ends up cannibalizing agent-based distribution. McKinsey argues that insurance companies must balance their investments among multiple distribution platforms. It sounds reasonable, but in reality it means a company must reduce the amount of money it commits to its agency distribution channel to reallocate its resources to contact centers, web portals, advertising and other costs of building a direct consumer platform. Companies that follow this strategy will discover that they traded valuable multi-line customers for single-product consumers with no company loyalty.

Where McKinsey got it right

— Agents must evolve in the way they attract and retain their customers.

Absolutely! The cost of technology is dropping so fast that small and mid-sized agencies can now use tools like social media and data analytics that only large companies could afford a few years ago. Local agents need to be able to engage with their customers in real time. That requires they have a digital media and mobile-compatible platform as well as a social media capability to engage with clients and prospects.

— Agents must be seen as able to handle all of a client’s insurance needs. Product peddlers won’t survive. Agents have to be able to demonstrate the value they add by virtue of their expertise and that their advice can be trusted.

— Agents must understand the customers they are targeting and stay focused on that segment. One size no longer fits all in today’s insurance market. Independent agents need to understand their target market, the attributes of profitable customers, and how to reach and serve them. Just like the big insurance companies use advertising to create a top-of-mind brand, agents today must become top of mind with their customer segment.

Today, we live in a world that is moving so fast and becoming so much more complicated that people need someone they can trust—and work with conveniently when and where they want. Current trends in the insurance marketplace bode well for the local, trusted, independent adviser who represents the interests of her clients. The McKinsey report supports that conclusion.

A Brave New World: Move Away From the Commodity Trap

A controversial McKinsey Report, “Agents of the Future: the Evolution of Property and Casualty Insurance Distribution,” compares the impact of the Internet on travel agents to the proliferation of online insurance websites and considers whether the local agent will disappear if he continues to do business as usual. The report says: “Local agents are not in danger of extinction, but the role they play will continue to evolve. Those who can adapt to a new set of circumstances will thrive.”

The report talks about the dangers of online commoditization to our industry. From the thousands of agents and brokers I’ve coached, I know that the enemy is not technology; it is the dominance of the insurance bid … a commodity force that must be removed as the focus of the customer experience. It must be replaced by the risk-management process — a consultative and diagnostic approach founded on risk evaluation and mitigation … strategies to protect a family and business properly with the goal of reducing claim frequency and severity.

What does this mean for the insurance industry in 2014?

Insurance producers are tired and frustrated with competing in the “commodity trap” — the 90-day insurance bidding process. They are beginning to lose confidence in themselves because they are playing a game in which they have little impact on the outcome.

Commoditization is a battle that insurance agents, brokers and carriers confront each day. It occurs when the consumer perceives little or no distinguishable difference between products, services and resources — and when price has become the primary differentiator.

Picture commoditization as a disease that is eating away at insurance producers’ knowledge, wisdom and professionalism. It is so cruel and debilitating that it is stripping away the value proposition of even the most seasoned producer by reducing professional purpose to a number.

Time for a Q&A

To determine if your agency is affected by commoditization, ask yourself these questions:

  1. Are you losing your passion and purpose for the insurance business?
  2. Are you able to change the consumer’s perception of you?
  3. Are you angry and frustrated with the 90-day bidding process?
  4. When you introduce yourself as an insurance agent at a social event, do people treat you with dignity and respect? Are you perceived as a professional, trusted adviser, like a CPA, attorney or physician, or do consumers perceive you as an order taker?
  5. Is the insurance transaction, the 90-day bid, getting in the way of your ability to learn the customer’s business and its issues?

Solutions to combat commoditization

You may ask, “How can I stop being caught in this vicious game?” First, I remind you that you sell an intangible product. The less tangible, the more powerfully and persistently the judgment about the product can be shaped by packaging. You must position the package in a way to enable the consumer to change his or her perception about it.

Second, I ask you to consider three questions:

  1. To what degree does the small- and middle-market consumer have the time and ability to identify exposures? (0, low, to 5, high)
  2. To what degree does the typical insurance agent or broker assist his or her client with exposure identification? (0, low, to 5, high)
  3. To what degree does the small- and middle-market consumer enjoy the traditional insurance bidding process? (0, low, to 5, high)

Unless you’ve scored a 15 overall, your score gives evidence that you must stand out in a crowded marketplace!

Third, you must have a means to differentiate yourself by applying a consultative process focused on the identification, measurement and mitigation of risk. My personal formula is I3 (i.e., issues, implications and interventions).

When agents or brokers apply the I3 system, they improve their professional image, income and work-life balance. They discover a renewed purpose and passion for the business.

Fourth, if you are commodity-driven and chasing the 90-day insurance bid, you are headed toward extinction. Every day, consumers come face-to-face with transactional websites or agents. The surviving insurance agents or brokers of the future will transform themselves into indispensable, remarkable, trusted risk strategists.

The industry’s evolution?

Another industry study, conducted by Forbes for Zurich in 2013, supports the importance of a consultative process. In the study, 414 U.S. executives were interviewed. The study found that the majority of executives admitted that they were worried that they lacked knowledge of how to best mitigate risk; understand the sources of risk; and develop a sufficient risk-management budget. These are the same responses I’ve heard from small- and middle-market clients for years. The only difference is that most Fortune 500 organizations have fulltime risk managers, and middle-market consumers do not.

You can fill this void and serve your clients in a new, more consultative and diagnostic way.

When you serve as a risk strategist for your clients, you offer solutions that they cannot obtain if they purchase coverage online. As a risk strategist, you advocate for your client with the goal of designing and developing enterprise risk-management strategies. In other words, you find out what keeps your clients awake at night and take these worries away.

Secrets to success

Below are seven secrets to you help you implement future success in your agency.

  1. Value proposition. Summarize the reasons why a potential customer should buy your particular product or service, how it exceeds that of the competition and why it is worthy of the price she pays. Your value proposition of the future should be concise and appeal to the client’s strongest decision-making drivers. It must be an irresistible offer, an invitation that is so compelling and attractive that a customer would be out of her mind to refuse.
  2. Confidence. Wherever you are in your career, display the knowledge, skill and attitude to serve as a risk strategist for your clients.
  3. Criteria filter. Screen out price shoppers. Determine quickly if your prospective client meets or falls below your standards. Rather than taking a random approach to prospect research and qualification, make your approach disciplined and strategic. You know what is at risk!
  4. Unique process based on I3 — issues, implications and interventions. Focus on deeply engaging the client. Develop emotional connections with your clients that transcend price and product.
  5. Relational capital. Build long-lasting relationships. Understand that relationships rarely are pursued and captured. Rather, relationships are rooted in rich soil, consisting of a blend of mutual trust, respect and shared values. These relationships produce bonds and connections that enhance both parties’ opportunity to succeed.
  6. Servant leadership. Connect with others and find ways to make them more successful. Make your approach about generosity, not greed. Always show credibility, integrity and authenticity. The degree by which you practice relational capital and servant leadership will be evidenced by higher hit ratios, retention, referrals and cross-sell opportunities.
  7. Purpose and passion. Rediscover your purpose and passion for our industry. Love what you do, and touch your clients’ hearts.

When you begin to serve clients as a trusted risk strategist, you will climb out of the commodity trap. Using the I3 process is your best, most powerful tool to escape commoditization and thrive.

This article first appeared in Professional Insurance Agents Magazine.

Dare to Be Different: It's the Only Approach That Works

In today’s dog-eat-dog business environment, it is essential that you develop a strategy to stand out in a crowded marketplace… to separate yourself from your competition.  Simply put, to be different! 

Theodore Levitt, the renowned economist, professor at Harvard Business School and editor of The Harvard Business Review, had the following to say in his 1991 book, Thinking About Management:

“Differentiation is one of the most important strategic and tactical activities in which individuals and companies must constantly engage.  It is not discretionary.  And, everything can be differentiated, even so-called commodities such as cement, copper, wheat, money, air cargo and insurance.” 

Price is the enemy of differentiation.  By definition, being different is worth something.  Consumers are willing to pay a premium, redefine the buyer/seller relationship, erect barriers to the seller’s competitors and establish the seller as a trusted adviser when a differentiated platform offers perceived value in the marketplace.

Research on Brand Differentiation

Even with all of the attention paid to branding these days, more and more companies are being commoditized.  In other words, fewer and fewer are able to differentiate themselves through the eyes of the customer.  Commoditization occurs when the focus of the consumer’s decision is on the offering rather than the quantifiable difference that you bring to the business.  You cannot see commoditization.  However, it can be felt with a negative impact on your confidence, reputation, time, money and relationships.  Brand Keys, a loyalty and engagement research consultancy, analyzed 1,847 products and services in 75 categories via its Customer Loyalty Engagement Index.  It found that only 21% of all the products and services examined had any points of differentiation that were meaningful to consumers.    

So what is missing?  A differentiated value proposition supported by a unique consumer experience.

Differentiated Value Proposition

Value proposition is the reason for your professional existence.  It describes how you create value for others.  It makes you stand out in a crowded marketplace.  Without a compelling value proposition, you are ordinary and disposable – a commodity.  With a distinguished value proposition, you are unique and indispensable. 

Your unique value proposition must summarize the reason why a potential customer should buy your particular product or service, how it exceeds that of your competition and why it is worthy of the price they must pay.  The ideal value proposition is concise and appeals to the customer’s strongest decision-making drivers.  It is an irresistible offer, an invitation that is so compelling and attractive that the customer would be out of his or her mind to refuse your offer. 

Customer Experience Journey

What is the Customer Experience Journey?  It is the sum of all experiences that the customer has with you and your organization … the actions and results that make the customer feel important, understood, heard and respected.  Each and every customer interaction molds and shapes the journey.  While you may take great pride in the “features and benefits” of your offerings, it is important that you assess the degree to which you are stimulating the emotions of those whom you serve.  To accomplish this, you must deeply engage your customer’s emotions in addition to, and even above, their intellect.  You will hit roadblocks unless you are able to form an emotional connection that transcends price and product. 

Emotional connections are essential components of the journey.  Research indicates that more than 50% of the customer experience is subconscious, or how a customer feels.  The self-conscious brain is a fertile garden in which to sow positive seeds.  The mind is highly selective, processing millions of pieces of information each second.  Whether you realize it or not, you are touching the subconscious in each step of the Customer Experience Journey. 

In designing and delivering a Customer Experience Journey, it is important that you have a plan to engage the consumer.  Emotional engagement is the foundation of the customer experience.  People rationalize personal decisions first but make decisions based on feelings.  A great experience transcends the rational attributes of a product or service (i.e., price). 

Cecil Beaton, the English Academy Award-winning costume designer, said: “Be daring, be different, be impractical, be anything that will assert integrity of purpose, emotion and imaginative vision against play-it-safers, the creatures of the commonplace, the slaves of ordinary.”

Dare to be different?  You bet! 

Call Reluctance: the Bane of Sales People

I remember my first day as a stockbroker like it was yesterday, I was sitting at my desk in my brand new, three-piece suit. I was fired up, ready to start my new career! As I waited for my license to clear over the next three days, I researched different stock ideas that I could recommend to potential investors.

On the third day, the owner of the firm came up to me and asked, “What are you doing?”

I said, “I'm waiting for the phone to ring.”

He looked at me with amazement and said, “That's not how this business works! You need to pick up the phone and start making calls.” He gave me a list of people to call and walked away.

I sat there for a couple of minutes thinking, “What have I gotten myself into?” This was not how it was supposed to work. Months earlier, I had walked through the skyways in downtown Minneapolis watching stockbrokers jumping up and down with excitement as they watched the tape from the New York Stock Exchange while talking on the phone. It looked like so much fun. Obstacles weren't even on the radar!

Sometimes, it is better to not know about the obstacles that lie ahead.  In the movie “The Wizard of Oz,” Glinda the good witch didn't tell Dorothy about all the obstacles she'd face: the poppy field, the spells, the guard. . .  well, you get where I am headed. Had Glinda told her about all of the obstacles, Dorothy might never have made it back to Kansas. She might not even have left Munchkin Land. To this day, I am grateful that I never realized all the obstacles I would encounter as a stockbroker.

My biggest obstacle? Myself. I was flat out afraid: of failure, of success, of the phone! I had severe call reluctance. What was I going to do? How was I going to overcome this? The telephone seemed to weigh a thousand pounds. I had a knot in my stomach the size of a basketball.

I remember the first call; I was terrified. The person I called hung up, and I was relieved, actually, I didn't have to say anything. The next person listened to my pitch but then hung up. I made several calls that day with no success, and I thought, “This is going to be a very tough road.” I finally made it to the weekend, went home and did everything I could to avoid thinking about Monday morning.

When it inevitably rolled around, I felt like I was going to the slaughter house. I reluctantly headed to the office to attend my first sales meeting. I still had a knot in my stomach as I sat down to listen to Tom Vanyo, the owner of the investment firm. I had never been to a sales meeting before, and I didn't know what to expect. Deep down, I was hoping it would last all morning so I wouldn't have to get back on the telephone.

For the next 60 minutes, Tom talked about the value of personal development. He repeated over and over again that we must work on sales skills. He shared examples of how to ask better questions to engage the prospect and how to ask for the order more than once. I locked on to every word he said, taking several pages of notes. The entire meeting was inspiring and full of great sales ideas.

Afterward, walking back to my desk, I observed the top producers in the company making outbound calls. I noticed how enthusiastic they were. It was almost like being at a revival. As I pondered my next move, I thought, “Why not model excellence!” I asked a couple of the top producers if I could sit with them to observe their phone presentations. They agreed. I wrote down word for word what they said. I observed the key to their success: They were enthusiastic about what they were selling. I thought: I can do that.

I was so inspired. I still had a knot in my stomach about making phone calls, but I was not going to let that hold me back. Enthusiasm overcame my nerves. In my first month, I opened up more than 35 accounts and earned more than $3,000 in commissions, plus a $250 bonus for opening so many new accounts. Within eight months, I opened up more than 180 accounts. I still knew very little about sales. I did learn, however, the secret to overcoming my call reluctance: enthusiasm! And when I was excited, my prospects and clients got excited, too.

My first full month was simply amazing. I noticed that, with every phone call, my skills were improving dramatically.  This sent my confidence soaring. The more calls I made, the more confident I became. Tom was right. The key to success in sales was personal development.

You, too, can develop yourself.  You have unique skills and abilities.  Add those to a positive attitude, continuing personal development through learning and applying what you learn, preparation, persistence and enthusiasm, and you have some of the keys to transform your own call reluctance.