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Inaccurate Conclusions

Just because an independent agency places more business with one company rather than another does not mean anything nefarious is occurring such as unethically steering business. Even if the insurance company benefiting the most pays the most, this does not mean anyone is doing anything wrong. But to people willing to jump to conclusions, it could appear that way.

Many years ago, scientists discovered "canals" on Mars and some scientists then concluded life must have once existed there. Appearances though are often deceiving.

It is quite possible the insurance company currently has the best rates, the best product, or the best service. The latter is the one we risk losing sight of most often and the one that is most difficult to track. Several proposed regulations have effectively charged agencies with the duty to place insureds with the best possible insurer, all things considered. This is obviously a judgement call. Here are just a few things to consider:

1. Could the best company for a client be one that charges more? Absolutely. What good is a low price if:

a. The company with the low price has poor claims service?
b. Is a "B" rated carrier versus an "A" rated carrier?
c. Has worse coverage?

2. Could the best company for a client provide less coverage? Absolutely. What good is "better" coverage if:

a. The "better" coverage is superficial, rarely used, and comes with a high price?
b. The "better" coverage is provided by a low rated carrier?
c. The "better" coverage is provided by a company that fights tooth and nail on all but the most obvious claims?
d. If the "better" coverage is provided by a highly rated but non-admitted carrier?

3. Could the best company for a client be one that is not rated any higher than the competitor, have a higher price, and comparable but not better coverages? Absolutely! There are many situations when a higher price makes sense even if no other tangible advantages exist. For example:

a. If the agency has a much better relationship with the higher priced company, they have a better chance of helping the client in tough situations. Personally, I would never want my policies to be placed with a carrier with whom my agent does not have strong relationships.

b. Better claims service is key. Even if I pay 10% more for ten years, one difficult claim paid by a company with good claim service and I will get all my money back and more. Unfortunately, our industry does not have a "J.D. Powers" claims service survey but every agent knows which of their companies have good claims service and which have poor claims service.

4. Could it be in the customer's best interest to pay a higher price even if everything else is equal? Absolutely!

a. Insurance company rates are very fluid relative to one another. There are approximately 900 P&C carriers so even if they all only changed rates one time per year, every working day would see approximately four or five new sets of rates take effect. So it is unlikely any single company is going to have the best rates every year. Therefore, to get the best rate every year means a customer would likely have to change companies every year.

A customer’s best interest is not well served changing companies every year unless they never expect to have a claim. If they think they might eventually have a claim, it pays to have a history with the insurance company paying the claim. Having a good history with one company can result in getting insurance renewed, better claims service, and even better pricing (particularly in commercial lines).

b. Companies sometimes charge customers too little, especially in a soft market and especially in commercial lines. Why is too little a problem? Because then the loss ratio is going to be too high and insurance companies too often place the blame on the client when in reality, they should have initially charged a higher price.

c. Weak companies and new companies (which have a much higher statistical rate of failure) often offer very low introductory prices just to get business. Once the business is written, rates may increase very significantly the following year. At that point, depending on current market conditions, it may not always be possible, or it may be very difficult, to move the account.

While many people would say the industry has proven consumers should not trust it, most insurance agents are professionals that work hard for their clients. As cited in a wonderful article regarding agency responsibilities (Douglas Richmond, "Insurance Agent and Broker Liability," Tort Trial & Insurance Practice Law Journal, Fall 2004), in Weisblatt v. Minnesota Mutual Life Insurance Company, the court explained:

"As in every other business, an insurance agent’s primary enterprise is to sell insurance, a vocation no adult consumer would confuse with a religious order. Concomitantly, a reasonable buyer of insurance (or any other product) must, at peril of caveat emptor, act as a reasonable consumer, e.g., research her needs from multiple sources and price-shop for policies. While a good insurance agent will pay careful attention to the insured’s needs in structuring a proposed policy, he does so not out of a special duty to act for the consumer’s exclusive benefit, but rather out of a duty to his employer-and to his own self-interest-to sell its products as successfully as possible."

Maybe life really does exist on Mars. But now that methane has been discovered there, does that definitely mean it has an organic source? Things are not often as they may appear. Similarly, just because an insured does not always get the lowest price, does not mean an agent has taken advantage of the insured.