I like insurance agents. Without them and the products they sell, where would I be? While the vast majority of insurance agents are honest people I would be proud to associate with, some cause problems because of unethical and fraudulent conduct. Concerns regarding two situations were forwarded to our office recently.

The first concerned fraudulent and deceptive advertising by a competitor. Here is an edited version of the agent’s concern:

I have been hammered with calls last night and this morning after a major [advertising] mailing [by another insurance agent] hit the area. This morning I called the toll free number and they said based on where I lived they were recommending placement with Lloyd’s. Only when I pushed did they admit it had NO HURRICANE (wind) coverage at all.

The mailing piece calls it an A rated company but nowhere does it spell out that it is an unadmitted carrier. People are going to call this thinking it is a great deal and not at all be aware of the major risk. I am also afraid of what lenders will do when they find out….

The advertisement showed a savings of over $150. Obviously, the ad is a classic bait and switch because the product advertised is not what the agent intends to sell. Investigators with the Department of Financial Services should get involved.

The other matter involves the ethics of an insurer offering incentives to agents to sell policies with large deductibles. According to an email that was forwarded to us, People’s Trust agents receive higher commissions if they sell policies with higher wind deductibles. The email, which was sent to People’s Trust agencies, stated:

I am pleased to present an Agency Commission Incentive Plan for you to earn both extra commission and cash. This commission and compensation bonus is a win-win for both you and Peoples Trust.

The details of the program are as follows

Program Overview:

This program is intended to provide an incentive for the writing of Wind Coverage with a higher deductible than the base 2%. This commission and compensation program applies to all new business written in the following counties:
– Palm Beach
– Broward
– Miami-Dade
– Martin
– St Lucie
– Indian River
– Brevard
– Collier
– Lee
– Charlotte
– Sarasota

Effective date:

Applicable on all new business policies with an effective date of July 31, 2012 and after

Additional commission compensation:

All new business policies written with a 3% Hurricane deductible will earn +1% commission plus $25 per policy

All new business policies written with a 5% Hurricane deductible will earn +2% commission plus $100 per policy

All new business policies written with a 10% Hurricane deductible will earn +4% commission plus $250 per policy

Bonus Calculations:

All bonus commission and other cash compensation will be calculated on the following basis:

First accounting period – all policies effective from July 31, 2012 through September 30, 2012

Second accounting period – all new policies effective from October 1, 2012 through December 31, 2012

Third accounting period – all new policies effective from January 1, 2013 through March 31, 2013

Fourth accounting period – all new policies effective from April 1, 2013 through June 30, 2013

Any new business policy written in any of the accounting periods and not active and in-force in any subsequent period, an accounting “charge back” will be debited to the current accounting period calculation.

The writing of higher hurricane deductibles has a significant positive impact on PTIC’s costs of reinsurance. And, because of this, we are offering you the opportunity to share in the savings.

All agencies are immediately enrolled in this positive program. Please let me know if there are any questions.

The Department of Financial Services should investigate this practice. It encourages agents to leave policyholders underinsured as a consequence of choosing higher deductibles, in contravention of public policy. Agents should carefully suggest the possibility of higher deductibles only if policyholders can afford them. From my experience, few can. This incentive program pits agents against their clients. Insurers know that higher deductibles can cause significant financial damage at the time of loss. Agents and insurers acting under this performance plan better disclose the consequences of a high deductible or expect class lawsuits when losses happen. This program clearly incents agents to act unethically.