In early October, Connecticut Attorney General Richard Blumenthal made headlines with his investigation into the reinsurance industry. Among other things, the AG criticized the practice of arranging reinsurance contracts in accordance with the "best available terms." Apparently that means best for reinsurers, not their customers. The AG charged that if one reinsurer taking part in a contract negotiates a higher price or more restrictive conditions, then all other reinsurers--including lower bidders--receive the same higher price and restrictive conditions.
This interesting twist on "best available terms" led me to consider the implications of superlatives in agency advertising and promotion. Certainly, when an agency uses a phrase like "best available terms" on its Web site or in its brochure, it unequivocally applies to the customer. but that doesn't mean it can't lead to trouble.
Often, misleading or overzealous advertising is the result of marketing carelessness or of simply not following up on good intentions, but there's one area where promises seem to diverge from performance from the start: small-business units. In theory, a small-business unit can process small commercial accounts more profitably than a regular commercial department can. The theory is fine, but implementation in most cases is poor, and the impact on the agency's advertised service standard is often overlooked.
To achieve profitability, most small-business units are designed not to provide the same standard of service as the regular commercial department's. That's the whole point. But if the agency's advertising doesn't distinguish between the care given to big commercial clients and that given to small clients, the small clients have every right to expect they'll receive all the services the agency advertises. If an agency advertises the "best combination of price and coverage" or the "best available terms," it needs to shop all those small commercial accounts every year so it actually can deliver what it promises.
Another way that agencies increase the profitability of small-business units is by staffing them with inexperienced or less-knowledgeable customer service representatives. That's a recipe for disaster. The servicing responsibilities of a small-business unit are greater than those of a larger commercial-lines department, because there are no producers to help. Relying on inexperienced, low-paid personnel and then pronouncing the small-business unit a success is bad math and bad management. Don't forget to budget for E&O claims, because they're coming sure as the sunrise.
Agencies with small-business units, therefore, have two options:
1) Provide different levels of service while making sure all public statements accurately reflect the agency's varying service standards.
2) Find a way to maintain the same service standard for all accounts without sacrificing the small-business unit's profitability.
If an agency doesn't have a small-business unit but still promotes a superior service standard, what implications are raised by its "renew as is" accounts? If an agency uses a blanket statement to describe its services, and commercial-lines clients can expect coverages recommended for their specific needs, personal-lines clients will expect equal service.
An advertised service standard also can affect an agency's E&O exposure. Although the case is always made that agents (unlike brokers) are not required to offer all coverages to all clients, this argument springs a leak when agencies advertise that they will "find the right coverages for you!" Whether or not the law requires an agency to offer such coverages, advertising may trump obligations. Hyperbole is not smart when advertising insurance. Only advertise what you actually intend to deliver.
Chris Burand is president of Burand & Associates LLC, an agency consulting firm. Readers may contact Chris at (719) 485-3868 or by e-mail at Chris@burand-associates.com.
This interesting twist on "best available terms" led me to consider the implications of superlatives in agency advertising and promotion. Certainly, when an agency uses a phrase like "best available terms" on its Web site or in its brochure, it unequivocally applies to the customer. but that doesn't mean it can't lead to trouble.
Often, misleading or overzealous advertising is the result of marketing carelessness or of simply not following up on good intentions, but there's one area where promises seem to diverge from performance from the start: small-business units. In theory, a small-business unit can process small commercial accounts more profitably than a regular commercial department can. The theory is fine, but implementation in most cases is poor, and the impact on the agency's advertised service standard is often overlooked.
To achieve profitability, most small-business units are designed not to provide the same standard of service as the regular commercial department's. That's the whole point. But if the agency's advertising doesn't distinguish between the care given to big commercial clients and that given to small clients, the small clients have every right to expect they'll receive all the services the agency advertises. If an agency advertises the "best combination of price and coverage" or the "best available terms," it needs to shop all those small commercial accounts every year so it actually can deliver what it promises.
Another way that agencies increase the profitability of small-business units is by staffing them with inexperienced or less-knowledgeable customer service representatives. That's a recipe for disaster. The servicing responsibilities of a small-business unit are greater than those of a larger commercial-lines department, because there are no producers to help. Relying on inexperienced, low-paid personnel and then pronouncing the small-business unit a success is bad math and bad management. Don't forget to budget for E&O claims, because they're coming sure as the sunrise.
Agencies with small-business units, therefore, have two options:
1) Provide different levels of service while making sure all public statements accurately reflect the agency's varying service standards.
2) Find a way to maintain the same service standard for all accounts without sacrificing the small-business unit's profitability.
If an agency doesn't have a small-business unit but still promotes a superior service standard, what implications are raised by its "renew as is" accounts? If an agency uses a blanket statement to describe its services, and commercial-lines clients can expect coverages recommended for their specific needs, personal-lines clients will expect equal service.
An advertised service standard also can affect an agency's E&O exposure. Although the case is always made that agents (unlike brokers) are not required to offer all coverages to all clients, this argument springs a leak when agencies advertise that they will "find the right coverages for you!" Whether or not the law requires an agency to offer such coverages, advertising may trump obligations. Hyperbole is not smart when advertising insurance. Only advertise what you actually intend to deliver.
Chris Burand is president of Burand & Associates LLC, an agency consulting firm. Readers may contact Chris at (719) 485-3868 or by e-mail at Chris@burand-associates.com.
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