One problem: Agent-customer relationships

While a lack of technical acumen is a contributing factor in the underinsurance crisis, it is not the only one. The second factor is the agent-customer relationship. In an effort, perhaps, to close sales, producers typically follow direction from prospects and customers when they should be taking the lead. Here are just a few traps that agents fall into that reduce their influence over customer decision-making:

The myth of apples-to-apples comparisons. Often, a buyer will tell an agent they want the best price because they assume policies with the same coverage are identical. And yes, coverage limits can appear the same. But those comparisons are meaningless without understanding the coverage form, which dictates exactly what's covered and what's not. In worst cases, producers renew policies as-is without reviewing changes to the policyholder's business and assets in the preceding year as well as changes to the policy itself.
The E&O paradox. Agency errors and omissions (E&O) workshops may advise agents not to delve too much into the details of a policy, believing that this will minimize the possibility of misinterpretation. Yet, failing to identify an exposure and recommend a solution is also one of the most frequent sources of E&O claims. Producers need a more balanced approach to liability that empowers them to provide the context their clients need to make informed decisions.
Following the path of least resistance. Instead of following a policyholder's lead during sales or renewal, agents should be executing leadership. The problem is that policyholders rarely have a full grasp of the risks they face. If a policyholder hasn't had a loss in thirty years, then they assume they won't have a loss in the future. This assumption is simply not true. Insurance protects against events that are, by definition, rare but devastating. So, when a client says, "I'm only interested in the best price," it's likely because they are discounting the very real risks they are assuming.

The complexity issue

No question about it, insurance is complex, and policy forms and endorsements are a tangle of legal details that can obscure high levels of risk if not reviewed carefully. Neither the buyer nor the agent should make assumptions about exactly what a policy contains, lest they receive some very nasty surprises in the event of a claim

Special Reports /

What to do about the crisis of underinsurance

Related Stories

Recommended For You