Insurance agents usually promise a bunch of service and sell their trust to policyholders at the point of sale. Most of the time, there is no loss or the loss is less than the deductible so even if the agent blundered and did not obtain the best coverage for the price, the agent's errors and ommissions are never raised. Insurance experts often realize most agents are taught that their duties to service policyholders are far greater than what agents will admit to if the policy coverages fail to provide indemnity after a loss.
Some jurisdictions place almost no duties on insurance agents other than to procure what is requested. This is very questionable because insurance agents sell a product that is rarely understood outside the insurance industry. Current forms, endorsements and the manner policies can be crafted to fully protect the policyholder are rarely understood by the insurance consumer. This is one reason insurance agents generally advertise their service to determine the needs of the policyholder. Indeed, most agents are taught to encourage repoir and trust, then determine the policyholder's needs for coverage and then provide solutions for coverage at the best prices available. They are not taught to be a simple order taker which presupposes the policyholder understands the insurance product which is being requested.
I was thinking about this while reviewing some expert insurance agent disclosures in WestlawNext. An example of such a report is found in Residential Constructors v. Adams Insurance Service1:
Adams' duty to its client is fulfilled by arranging the agreed insurance, builders risk coverage in this case, using the requisite skill and experience. In my expert opinion based on my experience, what a broker would do in providing this service is as follows:
• Accept responsibility as broker to arrange builders risk coverage.
• Analyze insurable risks of project and prepare insurance specifications to cover those risks.
• Select the suitable insurance companies from the builders risk marketplace to contact and submit underwriting specifications/application, either directly or through Colemont. a Negotiate policy premium and coverage provisions as required in each insurer's case, through the surplus line broker if one is used.
• Compare premium and policy terms and conditions after quotes are received, with important differences shown, for client's consideration.
• Prepare proposal showing key differences so that alternatives can be presented for client's decision.
The work that Adams does, on its own or through Colemont, needs the insurance company underwriters to provide their part for a complete transaction, which includes:
• Review the underwriting submission and evaluate its desirability for a quotation of premium and coverage.
• Negotiate terms and conditions after quoting if asked to do so by the broker.
• Accept an order for coverage if an agreement is reached, and issue a binder.
• Issue a policy that sets forth the agreed terms and conditions.
In a simple project the steps above can be combined and perhaps streamlined, but none can be omitted. Some insurance companies have premium and policy provisions available online that are self-rating and pre-approved, if meeting certain guidelines (e.g., the construction of a residence). The Project in this case is at the opposite end of the spectrum requiring broker involvement in the negotiations to achieve the desired result. Since Adams used a surplus line broker to approach the insurers, close coordination with Colemont would be required to achieve this desired result. But considering that RC was building a $30 million complex, close, proactive attention to the marketing process would be required, not merely passive acceptance.
So, the process is:
• Broker prepares original underwriting specifications which will have coverage requirements for project
• Broker reviews proposed policy from a given insurer, usually provided with premium quote
• Broker requests desired policy changes, including deletion of negotiable exclusions and possibly other policy provisions
• Insurance company underwriter might offer requested changes subject to additional premium or other conditions to be agreed
• In the broker's presentation these coverage changes can be presented separately so that the client can see how coverage was negotiated from the starting policy form, and what additional premium applies for the broader coverage.
From the broker's viewpoint, the negotiable exclusions are steps that require the use of skill and experience in m. ...This role of negotiator is of great importance to the client and obviously directly affects the work product that the broker will deliver. The broker must have a clear idea of the coverage that the client needs and how to obtain it. The client is relying on the broker and has no other presence in the marketplace.
From my view, insurance agents have an important job to do. They get paid well and better understand what they are doing. Otherwise, their customers can suffer catastrophic uninsured loss.
1 No. 06CV00505, 2007 WL 5984044 (E.D. Mo. April 26, 2007).