Author: VU Faculty
An agent inquires: "We are going to be updating our auto clients in a new program to $500K if there has been no increase or a decrease in premium. We will then let them know that we have increased their limits. They can call us if they don’t want the increase. We will also give them other options to add. Can we increase their limits and then tell them we did it or do we have to have their permission first?"
"We are going to be updating our auto clients in a new program to $500K if there has been no increase or a decrease in premium. We will then let them know that we have increased their limits. They can call us if they don’t want the increase. We will also give them other options to add. Can we increase their limits and then tell them we did it or do we have to have their permission first? This has gone different ways in the past and we don’t want to screw this up."
This is a common question and it comes up most often during an increasingly soft market when policy limits can be increased at renewal time without an increase in premium to the insured due to falling or more competitive rates. This question was fielded by our E&O folks and the VU faculty. Their responses follow.
This is a really interesting question that I have quick thoughts about. While I love the idea of getting the customer more coverage, my concern is the standard of care this could create. I would hate for customer to think they can rely totally on the agent to get them increased limits. I assume they are talking about increasing limits without telling the client only in cases where it is the same carrier and policy terms. They could be in big trouble if coverage terms changes without permission.
Also, any lack of follow-up on policy changes and transactions in general can create gaps in coverage, so remind them to make sure staff follows up and management monitors this project. I realize this is kind of stating the obvious but it is a good reminder.
I would suggest that prior to increasing limits that they get permission from the client. I would also offer increased limits to all customers even if there is a charge and let them decline if they are not interested. Something like this:
Dear Client:
We have found that we can increase your current limits for (no additional cost/$XXX additional premium) over your current premium. These increased limits will provide even more protection from loss over the limits you originally requested. Please let us know by returning this form if you would like for us to increase your current limits on your existing policy. We highly encourage you to consider this option. We will assume that your declining to increase limits will apply to all future renewals unless you contact us about procuring them in the future.
It is our sincere pleasure to arrange this insurance on your behalf. If you should have any questions or concerns, please don’t hesitate to contact our office.
____ Please increase the current limits of my auto policy.
____ Leave the limit I currently requested in place.
Sincerely,
Your Agent
This practice of increasing coverage and/or limits has been done ever since I have been in the business which is 1960. In fact, my own insurance agent has done it to me. I do not see anything wrong with it. The insured may be better off this way. Waiting for insureds to consent first may take a long time, if ever.
I like the idea of “rolling on” increased limits or important coverages (e.g., Replacement Cost on Coverage C under a HO), even when there is a small charge. This has the advantage of putting the declination in the hands of the client, rather than asking permission.
Having said that, HOWEVER, be sure the agency is fully informed on the laws and regulations in their state. I have heard that there are some jurisdictions that have specifically prohibited this practice, since it was perceived as agents looking to pad their wallets, rather than protecting the client.
Establishing “agency standards” for new policies is still a good idea, to prevent this problem in the future.
I don't understand the first sentence, "We are going to be updating our auto clients in a new program to $500K if there has been no increase or a decrease in premium."
What's the "new program"? It sounds like the insurance company is automatically giving everybody $500,000 with no increase in premium. If that's how it works, I don't see a problem. Some states have rules about rolling on coverages, though. You might check to be sure the company has cleared this with your insurance department.
If you haven't offered higher limits to your other clients, this would be a good time to do it. Upgrading clients in one company to a minimum of $500,000 while leaving other clients with lower limits sounds like a breeding ground for E&O.
Isn't this called "sliding"? I know that our department of insurance frowns on this practice. If there truly were no additional premium, they might feel that is was simply an enhancement. I think it will vary by state as to its legality. The standard of care is elevated by it in my opinion.
I would agree with the letter approach up to a certain point. I think the letter is appropriate but I really don’t see any issues with standard of care. What I really see, if I read the policy correctly, is the only one who legally has the right to make changes to the policy is the INSURED! Doing so without the permission of the insured might easily be determined to be an Unfair Trade Practice, violating state insurance law and could cause the agent to be disciplined or have his/her license suspended or revoked.
You should not make a limits decision for an insured unless you have a relationship where these decisions are your responsibility. Are you making the same increases on their houses, boats, RV's, etc.? Contact your insured. Explain why they should consider increased limits. Tell them the amount of increase they can obtain at whatever price. Don't limit your recommendations to auto. Offer umbrella coverage at the same time.
Is the new program the same as the former one in every way except for an increase in limits, including being written with the same carrier? If so, I see nothing wrong with proceeding as you describe as long as you communicate clearly and quickly with all affected. If there are other changes, I would think your customers would need to be given complete information and choose a program proactively.
There are a couple of issues here that don't make this a good idea. The first is that if the agent selects the limit, they are holding themselves at risk when the limit is not high enough. Selecting an increase to $500,000 sounds good but when the loss occurs and it's not enough, the attorney who files suit will want to know why a higher limit was not selected. The other issue is selling the client coverage they did not specifically request.
There's a case involving a mobile home insurer whose agent wrote a homeowners type policy, Foremost Ins. Co. v. Parham, (Ala. SC 1997). The policy came with adjacent structures or Coverage B of which there were none to be insured. The client sued the agent citing that he was overcharged for coverage he did not request or need. The jury awarded $14 million dollars in that case which made it's way to the Alabama Supreme Court. The court ruled the award excessive and remanded it back to the state court for a reduction in award which was done. However, there is now precedence for this type of suit which makes increasing limits without your client's prior knowledge risky.
One consideration: I think this practice would be illegal in some states. It is an automatic roll-on. How would you feel if your phone company rolled on another service without talking to you first and sent you a little obscure notice that you could sign if you didn't want it? Best practice: Quote same limit as expiring and offer next highest limit. Get signed rejection of higher limit.
No. Get permission. You can’t change a policy without the consent of the insured. I can’t think of anyone who would refuse and it gives you a reason to contact them and review the rest of their insurance program.
I think the agent should get the customer's OK before making any change…even an increase.
Here is the bulletin that makes it illegal in Maine:
Bulletin 143
Roll-on coverages
March 25, 1985
The Maine Bureau of Insurance continues to be concerned that some agents and/or insurers may be engaged in the practice of automatically adding optional insurance benefits or coverages to their clients' policies without obtaining the prior consent or approval of the policyholders. This procedure is often referred to as "rolling-on" coverage.
The Bureau of Insurance deems "roll-on" coverage to be a deceptive and unfair trade practice in violation of Title 24-A M.R.S.A. Chapter 23. Appropriate enforcement action will be taken against any licensee who engages in this practice.
The following are not considered "roll-ons" by the Bureau:
1. Inflation guard or similar contractual coverages that have been pre-sold and contemplate periodic stated increases in benefits. This can include agreements acknowledged by a policyholder to provide increases on a prearranged schedule.
2. Increases in benefits implemented by an agent who has been pre-authorized by a policyholder to amend the policy as he or she determines is necessary for adequate protection of the insured.
3. Any changes mandated by statute.
4. Benefit liberalizations for which no additional premium is charged.
Agents and insurers should continue to evaluate a policyholder's requirements in light of such factors as inflation, new coverages
becoming available and changes in the insured's circumstances. Except as stated above, proposed changes in coverage shall not be effectuated without the prior approval of the insured.
Theodore T. Briggs
Superintendent of Insurance
NOTE: This bulletin is intended solely for informational purposes. It is not intended to set forth legal rights, duties or privileges nor is it intended to provide legal advice. Readers are encouraged to consult applicable statutes and regulations and to contact the Bureau of Insurance if additional information is needed.
I would consider several issues:
Statutory or Regulatory. Is this practice legal in the state?
Contractual. An insurance policy is a contract between insurer and insured. Does the agent have any contractual rights to modify the policy without the consent of the contracting parties?
E&O. My concern would be having a lawsuit involving failure to recommend or effect coverage. The plaintiff’s attorney finds out that it is agency SOP to automatically bump limits on some policies. The question would be, why didn’t the agency automatically add a coverage or increase a limit on the policy in question. I’d think you’d need a very specific, well-explained agency procedure in place.
Business Practices. While this can benefit an insured, we’ve always taken the position that an agent’s function is to lay out the options (coverages and limits) and let the insured choose. By choosing for them, you’re establishing a business practice that can come back to bite you (see E&O comment above) and it might look to an outsider or an insured who has had no losses that you’re trying to get more commission by “sneaking” something by an insured.
A better approach might be to establish an agency “minimum limits” policy as many have done. Here is a VU article that might be helpful: