Filed Under:Agent Broker, Agency Management

A Guide to Wrecking Balls

Clients to brokers to insurers who wreak havoc on your bottom line

Have you encountered a person who leaves a swath of devastation in his or her wake? The wrecking ball does so because others clean up the mess while the wrecking ball moves on, oblivious to the consequences. In business and professional settings, wrecking balls keep insurance brokers, claims representatives and lawyers productively occupied.

Nearly everyone in risk-related professions has at least one war story to tell about a claim generator, an errors and omissions recidivist or a tort system frequent flyer. I recall a series of more than 40 lawsuits filed against a single insurance broker who had placed coverage for commercial fishing vessels with a non-U.S. company. There are plenty of very reliable and honest insurers based outside the U.S., of course, but this particular one was a start-up, and a thinly capitalized one at that. The policy year in question for the local fishing community produced a bumper crop of claims, ranging from deaths and dismemberments to fires aboard vessels to collisions. As the claim notices poured in by fax, the neophyte insurer became strangely silent in response and finally disappeared, leaving only the disconnected fax machine behind in its office. 

And the broker? He left the business and moved far away to a resort community where his father owned property. 

Related: Read a previous column by Louie Castoria "Fiduciary: Underrated Risks?

I wish I could say that this was my only professional encounter with a wrecking ball, but it was not. Fortunately, most clients, like most brokers’ customers who incur claims, are good folks who happen to incur or cause a loss, or at least are alleged to have done so. Protecting people from honest mistakes, whether by insurance policies or legal briefs, is an honorable way to make a living. 

It’s easy to spot wrecking balls in hindsight. How can you spot one before it strikes the building? In my opinion there are some common characteristics, though there may be just as many exceptions as there are typical instances:

  1. Most wrecking balls have not been poor at any time in their lives. I have noted that several of the most claim-productive wrecking balls I’ve known do not know the value of money, and have never experienced the lack of it. They are not necessarily wealthy, but they have never gone wanting. Money doesn’t create character flaws, it only magnifies them. Some of the most careful, ethical and devoted professionals whom I’ve met were born wealthy. 
  2. Wrecking balls are never on time. This is also true of some other personality types, such as the congenitally disorganized, but wrecking balls have a unique ability to be late in a way that causes harm to someone else. A normal person will fail to show up on time—it happens—but a wrecking ball is late and a train derails.
  3. Wrecking balls are averse to procedures. Procedures were made for someone else to follow. This is because the wrecking ball has “gut feelings,” which dominate over his or her brain. There are a lucky few who are blessed with both a brain and a gut, and know when to use each. 
  4. Wrecking balls are often popular, attractive and outgoing people. I haven’t figured out why, but it rings true. Maybe it is because popular, attractive, outgoing people get cut more slack than others. I might chalk this one up to envy.
  5. Wrecking balls fail to accept responsibility. Responsibility requires putting others’ interests ahead of his own. Like actual wrecking balls, the human sort doesn’t discriminate to which building they hit. It might be the abandoned tenement or it might be the hospital across the street. 
  6. A wrecking ball knows actual regret in the same sense that a goldfish knows quantum physics.

Surprisingly, claims frequency does not necessarily make a person a wrecking ball. Sometimes a person is just in the wrong place at the wrong time. Some professionals enjoy years of spotless records, then have a year of claims. It’s hard to think of them as wrecking balls, although their claims frequency looks high for a while.

Frequency can be caused by outside influences unrelated to being a wrecking ball. Catastrophic losses—earthquakes, hurricanes, floods—generate spreading, concentric circles of claims that first hit the life and property insurers, then members of the brokerage community who (allegedly) did not procure or recommend sufficient coverage, and eventually the legal malpractice carriers whose insureds (allegedly) failed to pursue claims for clients until after the statute of limitations expired. 

Related: Read Louie Castoria's article "Passing the Buck."

I represented one broker whose client, an elderly widow, was in dire straits because her late husband had purchased life insurance with a very low limit. She had not worked outside the home throughout their long marriage and lacked the education or job skills to support herself. The broker suggested a high-return mortgage fund, one that had produced good rates of return, but was far from guaranteed. When the worst happened, she sued. The broker was distraught. His intentions had been honorable, but he knew that his customer could not understand the risk that she had taken. We scheduled a mediation before even filing an answer, settled the case, and the broker and client had a long, tearful hug. The mediation was needed so that anything said that day would not be admissible in court if the case did not settle.

That broker took responsibility for his actions. His main thought was for the customer’s needs, and his main goal was to make things right. Though he had made an honest error in judgment, he was as far from a wrecking ball as he could have been. My firm’s fee was minuscule compared with a case that goes through discovery and trial or arbitration.

Related: Read the article "NRAA Grows Up Fast" by Louie Castoria.

In a previous column in American Agent & Broker, I wrote that it is sometimes necessary to fire the client, a difficult process. Today’s column is about the proverbial stitch in time that saves nine—avoiding the wrecking ball as a customer. Some of the telltale signs discussed above won’t become obvious until you have worked with a customer for a while, but others are apparent before you have had the ritual handshake at the end of the first meeting.

All professionals have a “getting to know you” meeting with a prospective customer. It is an opportunity to listen and to ask: “Why are you looking for a new broker?” Don’t accept a vague answer such as, “She was unresponsive to my needs.” It’s OK to probe without turning off prospects. “Did she not address all your insurance needs, was she uncommunicative, or something else?” Such questions help you to better understand the new customer’s needs, and to avoid taking on a wrecking ball. If this had been a first date rather than a business meeting, you’d want to know what kind of person was sitting across the table from you.

There are other subtle “tells.” Make a follow-up appointment and ask the potential customer to provide basic documents about his or her business. Look at the customer’s website, LinkedIn page or Facebook profile. I won’t go so far as to suggest a thorough background search, but a minute or two on Google can reveal a lot about a person. 

What does one do when a wrecking ball strikes? That will be the topic of my next column. 

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