Ethical Dilemma #2
The Case of the Questionable Insurance Company
"The safety of the people shall be the highest order." -- Cicero (B.C. 106-43), Roman statesman and orator
You are an independent agent that has over 800 accounts with a fairly small regional carrier. The A.M. Best Company has just lowered their rating from an "A-" to a "B+" following a drop from an "A" the prior year. Being a rural agent, you've had trouble obtaining viable markets and have worked diligently in placing quality business with this company. You don't think it would be possible to roll this book of business to another company; in fact, you don't even have a market for many of your insureds if they individually wanted to move their business to another company you represent...but your competitors do. The company in question, despite rumors to the contrary and mounting circumstantial evidence, assures you that "all is well."
Should you notify your insureds of this rating downgrade?
The following are unedited responses to the ethical question above.
Grand Prize Winner...Jacquelin J. Lawrence, HDL Insurance, Inc., Foley, AL:
Yes, I would notify my clients on a one to one basis. Our agency is less than 5 years old, located in a rural area of south Alabama. We do have problems placing coverage with carriers for property due to our location. If I have that much business with one carrier, that is the first mistake that I made. The second mistake would be not telling the client of the carriers downgrading. After reviewing everything from A.M. Best, and if I felt that the carrier was unstable I would start calling and seeing my clients. I would rather them know about potential problems as I do, versus knowing after they have some sort of catastrophic loss. I would explain to the clients that they have two options: Cancel their current policy and place their business elsewhere or preferably, keep the current policy in force until expiration. I would find other markets for the coverages. The book of business our agency currently has is spread through many carriers due to the fact that carriers like to "pull out" of our area on a regular basis. My clients would respect me more for being honest, and if I did lose the business, they would be back when I am able to place the business with a better carrier.
Other responses:
The agent has a responsibility to notify the insureds of the downgrade. The insurer's rating may have a bearing on loan agreements that require a minimum rating to be acceptable insurance for a mortgage. If the agent does not notify his clients he could be jeopardizing their loans, if applicable, and cause his clients to have insurance forced placed by their mortgagor at greatly increased premiums to satisfy loan requirements. Another reason the agent/broker needs to inform the insureds is so that they can make an informed decisions to stay with the company or find another carrier. The consequences could be sever if they went under and the insureds were with out coverage while the agent tried to find new coverage to replace the failed insurer. If the business is that difficult to place, much lead time will be needed to find financially strong replacement coverage to avoid a lapse in coverage or for the client to go to another agent/broker. The interest of the insureds eclipses the agents desire to retain his book of business.
Yes, you owe it to your customers to let them know. Your loss of business now is little in comparison to the loss of your credibility.
You must notify the clients when a company continues to be downgraded. If you don't, you leave yourself open to E&O which is an even greater expense than not having the clients. If it is a good book of business, you must find another carrier to place it with.
You are playing with fire here. Who is doing the rating? If it is Weiss, I would not be too concerned with a B+. Best, I would inform insureds if there is no "inside information" you have that it is a temporary downgrade as a result of an extraordinary circumstances that really don't warrant the notice to insureds. Do you, as the agent, have your own business with this downgraded carrier?
Did we tell them the prior year that the company's AM Best rating dropped form an A to an A- ???
Yes, I think he should notify his insureds. He also needs to put that company on a weekly watch, because of E&O carrier provisions like-no coverage for markets below a certain rating.
First going from a A- to a B+ is not that drastic of a change. Maybe their was a major CAT loss. Or the stock market took a dive and has caused the insurance companies assets to drop significantly. Who knows. I believe that by notifying your clients it will cause some panic and confusion and may cause your clients to lose confidence in your agency and begin to shop.
Notify insureds and tell them options.
The agent should communicate to the client that the company rating has dropped to less than an "A". At the same time the agent can inform them that they will be monitoring the carrier's stability. The agent can also assure them that the state Department of Insurance is aware of the carrier's rating drop. In addition, the agent can tell his client about the state guaranty fund.
Yes.
DEFINITELY notify the customer about the rating of the company being downgraded. I would imagine that you would leave the agency open for an E&O claim if you do not notify the customer. Regardless of whether or not you have another market, you have a duty to the customer to advise them of the rating drop.
Obviously in today's market, we have had that happen too many times over the past year and have always notified our customers.
Our agency is only suppose to represent A- or better companies. In the event of an insured either requesting a lesser rated company or such in the scenario, we use a form letter which notifies the insured of our standards and the company at hand in regards to their ratings. I think it is the duty of the agent to inform their insureds of this rate decrease- they may appreciate it in the long run. It may also keep you from an E&O.
Of course...pointing out that AM Best says the following about B+ ratings..."B++ and B+ (Very Good) - Assigned to companies which have, on balance, very good balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have a good ability to meet their ongoing obligations to policyholders." Also advising the customer that we will monitor the company on a regular basis during the upcoming year.
"It is our standard procedure to inform our clients of pertinent changes in the carriers we use and important for you as a valued client to understand issues that pertain to your coverage. The Best rating on your carrier has moved from an A to A- and now to a B+. This still is within the range acceptable to our Errors and Omissions Carrier and as an admitted carrier in this state, there is protection at the state level. The Carrier has assured us that "all is well" concerning their financial condition. Please call if you have any questions or concerns."
Yes, the agent should do a bulk mailing and explain the change of rating and mention that if any insured has any questions or concerns to please call the office and make an appointment to sit with the agent. The letter should also state that a B+ is still a good rating. In the mean time the agent should begin an aggressive search for a new company with a higher rating.
First, I would pull the financials and see what's going on behind the ratings change. Based on what is discovered in that review, a more accurate analysis can be done of the companies financial strength and the probable strength going forward. If the company was truly in decline, the customers should be notified. Hopefully by then a new carrier would have been secured who will take a book roll but the customer notification should be done regardless of the agent's ability to re-write.
I would notify the insured's of the Best Rating change, and begin the search for a replacement carrier. While many carriers do well as a B+, it would be foolish not to look to replacing this carrier with A rated paper. Also I would be sure that my E&O Carrier has no restrictions on what the rating of carriers needs to be to be covered.
The agent should advise his clients immediately and give his view of the company. At the same time he should negotiate with the company for possible "cut through" endorsements from their reinsurer if it is A rated. He also, should be negotiating with other markets to replace coverage on as much of the book as possible.
You should definitely notify your insureds of any downgrades by the A.M. Best Company. As independent agents we work for our insureds and it is our duty to do everything that is in their best interests. Most lenders require a minimum rating of A- or better...If you do not notify your insureds of this drop in rating their mortgage companies (if any) probably will. It would be hard to retain your clients if they feel you are not looking out for them. Just because the company in question assures you "all is well" we all know from experience that is not necessarily the case. One option, although the scenario stated that the agent did not have another market, is to approach an insurer with the entire book. Since it is over 800 clients and they are quality clients, there should be a company that would be interested. Another alternative is to form a partnership with another agency that does have a market for the business. This will result in reduced income to the agent; however, you would still retain your clients and most importantly, you would be acting in their best interests.
Yes, I would notify my insureds of the downgrade in the rating of the insurance company.
The agent should tell the client what is going on and, if it is an admitted carrier, he can advise the insureds that he/she will check with the ins dept to see if they have any comments about the financial situation.
Despite the drop in rating from A- to B+ following a previous drop from A to A-, I would not panic. There are many companies operating in the industry (and have been for many years) who have a B+ rating. Many standard carriers even consider this an acceptable enough company rating to include policies written with a B+ carrier as underlying for an Umbrella or Excess policy. I would however, notify the insiders with that company of the rating change and let them make the decision as to whether they think their coverage should be moved to another carrier. In the meantime, I would be investigating a replacement carrier in the event that the rating went lower or if insolvency occurred.
There's a trend developing here. I would sit tight for another year and if it drops again I would get the letters out. If it stabilizes I would watch it for another year. Sales and accusations can effect companies financial ratings and may need a little nourishing to regain their strength. You would be setting yourself up for disaster to watch the rating continue to fall with you as a "professional" knowing what this means and not alerting your insureds, explaining what this could mean. With 800 clients with this company you would most definitely go over your E&O limit!
This is a tough one. Since they already went from an A the year before and have fallen again the next year, I believe a general letter to the insured would be advisable. Tell them the situation, what they stand to lose and that you have no other market to place them with. You could even tell them a competitor (one you'd trust to do business with) could rewrite them should they choose to take that route. It might mean losing some business, but they'll remember that you guided them right and will come back or refer you to others for your honesty.
The agent has an ethical responsibility to explain to the insured the impact of Best's ratings and possible consequences if a company goes insolvent. End result may be a Guaranty Association problem. The insured may not be covered for the entire loss since many Guaranty Associations have limited liability. The insured may find out from another source that company has financial problems. Better to get the true facts and possible impact from the agent of record.
The agent should contact the clients regarding the B+ rating and explain what it means. These clients do not just represent a premium payment, they are also investing their futures with this agent.
Yes, notify the insureds regardless. Let them know that no matter if you are able to move them into another company from the lower rated company they should be explain how this could effect them in claims situations, etc for the poor financial stability of the insurer. This is your job as a good ethical agent.
I would notify the your clients, as they have a right to know. Also I would begin the job of looking for other carriers that are willing to look at your book. now a days if your book is good, they will send people in to your agency to help roll over the book. Also those markets that you can't place I would talk with another agent an partner to move those, but you need to let your insured's know of your actions.
You must notify your insured's of the rating change.
Obviously, the you need to stay on top of what the cause is of this rating drop. Many of your customers will not be concerned with the company rating. If the cause of the rating drop is going to impact your customers, then you do have a responsibility to discuss with them.
I would let the insured know of the drop and let them know we are monitoring the situation and that their stability deteriorates any further then changes will have to be made. If your open and honest up front them customers are more likely to stay with you even if your have to go to the E&S market.
The agent should investigate the rating change beyond looking at the A.M. Best guide. Determine the financial condition of the carrier and review the carrier's current reinsurance situation. The letter rating is based on management not financials. There may be a change in ownership or some other logical explanation for a short term rating reduction. Once the agent has good detail, the insured should be fully informed so that the insured can make a truly informed decision.
I would make sure my clients were aware of the change in rating and invite them to meet with me to discuss this if they wanted to. In the mean time I would be doing some research myself to find out the reasons for the downgrade and if the company did have a viable plan to turn itself around, if not I would start looking for another company myself. My actual meetings with my clients would be based on the results of my research.
Agent should believe the regional carrier and procedure with business as usual. The agent should watch reports and "Best" to review report on this carrier for performance results.
Notify the clients, look for another outlet in case the worse comes true.
As the agent, I would explain to my customer what these ratings mean and give them the option of choosing. While this may mean sending business to the competitor down the street, I have been honest and shown that I am an agent with integrity. It beats having to explain a "surprise" later, while I am wiping egg off my face!
Yes, send a letter to all affected insureds, advising them of changes in the marketplace, and more specifically, changes to company ratings. It might not be necessary to specifically indicate that there is one particular company (their company) who causes the concern. Advise the clients that you will be keeping a watch for further developments, and will contact them if you feel future action is warranted. However, should any of them have concerns at this time, feel free to contact the agency to discuss the matter.
If the company knew that the agent was trying to land the account, they weren't being very ethical. However, if the agent was being asked questions about the prospective client, that should have been a red flag and maybe the agent should have presented his offer before the other company had a chance. Even though the other company may have the account now, keep making contact with the prospective client - someday the tables may change. Maybe the other company will not be ethical in the areas that are most important.
The company in question obviously has something going on if they have been downgraded twice - It sounds like an agency decision needs to be made whether to continue writing business with the A.M. Best "B" rated company. I wouldn't want to see my insured's have a catastrophic loss and receive notification from the A.M. Best "B" rated company, they don't have enough money to pay for the losses. The agency needs to FIND another company to roll the business over to, If the agency doesn't have another one. Also, what is the reason for not having another market to place some of the business in? What kind of risks are these that can't be insured easily and do you really want to retain them?
The Agent should advise his insured's of the drop in Best's rating, letting them know their options. Even if it means losing some accounts, it is better to know that the insured is taken care of properly. The first Canon of CPCU Code of Professional Ethics is to "Endeavor at all times to place the public interest above their own." It is better to have the account written by someone else on a temporary basis, than to have to explain why the company writing the account has been placed in receivership and the insured has lost all premium paid and that their losses may not be paid. At least, if lost due to advising of the drop in Bests rating, the Agent has the possibility of getting the account back in the future. If he says nothing and loses the account because the company goes under, he'll never get the account back.
It is understandable that the agent in this case does not wish to lose his book of commercial business. However, he does have an obligation to inform his insured's of the state of the company their insurance is written with. He should first do some research to gain an understanding of the reason for the downgrading of the company. He may be able to get some help from the company on this. Obviously, if he has been careful to place good business, the company will not want to lose their book either. Then the agent can contact his insured's in the manner of his choice. It would be my opinion that this should probably be done on renewal. He could incorporate this information in with renewal information along with literature about the company. Then the insured can make a decision regarding whether or not to renew with the company. If the company has handled claims, renewals, etc...well and the agent has taken care of his clients, there are probably not many who will change because of a company rating. Especially if they are small accounts. But the agent can rest assured that he has done the right thing for his clients.
The agent, no question, MUST notify his or her clients about the rating downgrade. He must also advise that he does not have an additional market, if that is the truth. This is a tough situation. The agent should have been looking for an alternative when the company was downgraded the first time! If the agent cannot secure another market, perhaps working out some type of broker situation as a last alternative. The alternative to not notifying the clients is such an E&O nightmare, potentially, it just isn't worth the risk.
Yes, because the sharp ones will catch it, and once they do, I will catch it! Again, better to be upfront, try to place that which I can, and hope for the best. Good clients stick with us for our up front honesty. If they are just price shoppers, we probably wouldn't have them long anyway.
We would feel obligated to pass this info on to our insureds. We would probably do this at renewals along with our renewal letters.
This change in rating is not so dramatic as to necessitate a "warning" letter to the insureds. Agent needs to aggressively pursue another market immediately to renew accounts to, and needs to frequently watch for potential additional rating degradation. If it goes to a "B" rating, a noticing letter to clients would be advisable.
I would absolutely notify them. I’ve gone through two E&O lawsuits in my 28 years as an agent and there are few things worse...except for being deposed by my ex-wife’s lawyer.
I would notify my clients and explain that the rating can change for companies from time to time and then what the grades have been historically and that they can be back at an A rating in the near future. This then gives the opportunity to check another company IF needed and can advise on individual basis if there is an alternative through my agency.
There is really no decision here. The agent must disclose this information to the client for his decision. First, it is the honest thing to do. Secondly, should the info not be disclosed to the client and the company subsequently goes under, the agent has left himself open for a gigantic law suit. Past court decisions have held that agents cannot be held responsible for the failure of an insurer if the agent did not have prior information of financial instability and had no reasonable opportunity to get such information. In this case, the agent fails both tests!
More ethical dilemmas....
Copyright 1998-2002 by William C. Wilson, Jr. Used with permission.