Resist Temptation To Lower Standards
Maintain your underwriting rules in the face of economic pressure.
Economic pressures have affected our industry significantly—policy volume is down, pricing is soft and competition is fierce—while insurance coverages have increased in complexity. Sales forces feel heightened pressure to do whatever necessary to make the sale and keep customers happy.
Should this include bending the rules? Skimping on procedures, necessary coverages, or misrepresenting policy information may seem like quick ways to close the deal, but these tactics put the execution of a policy at risk. Nevertheless, we see these incidences frequently.
Recently, an agent submitted an application for coverage on a small restaurant. Although the facility was actually 4,500 square feet, the agent listed it as 1,000 square feet. The difference was discovered during subsequent inspection, resulting in dramatic price increases. But more importantly, the relationships between insured, insurer and agent were strained.
Other typically reported problems include:
- Failure to properly inspect, leading to underinsured value.
- Under-reporting income for business interruption coverage, resulting in reduced recovery.
- Quick-sell procedures, resulting in poor understanding of coverage needs and underinsured or uninsured perils.
- Agents omitting critical information, such as prior-loss history, vacant property, changes in condition, etc. to create a price advantage that often results in withdrawal of the quote during underwriter review and serious issues in the event of a claim.
Competition is tougher, staffs leaner and there may be less oversight, but shortcutting or bending the rules may have unforeseen repercussions. A firm may see lower commissions or profit-sharing due to loss increases, along with unhappy policyholders, denied claims, dissatisfied carriers and, most importantly, a damaged reputation.
The effective agent or broker realizes that short-term fixes can result in terminated agency/carrier agreements, lost customers, exposure to lawsuits and worse, the loss of licenses. The impact on the industry is just as far-reaching.
Here’s how to ensure strong, ethical underwriting standards:
- Set the tone at the top for standards of excellence and integrity to which your agency adheres. Be specific and create “best practices” for producers and customer-service reps. Establish a culture that’s committed to doing things right the first time.
- Ensure producers understand coverage specifics—what can be covered and how. Provide training.
- Communicate with carriers to understand their underwriting standards.
- Manage your reputation through trustworthiness and credibility.
- Make sure inspections under your control are performed with the same standards of excellence you expect.
- Look for value-added services when clients’ needs change, so you can sell increased coverages. Be sure to document your efforts.
- Maintain excellent customer service by training staffers to deal with stressed customers and show empathy while upholding standards.
- Educate your customers to understand the consequences of under-insuring or obtaining wrong coverages.
An agency offering proactive solutions and coverage options, while sincerely caring about its customers, will stay ahead of the competition in the long run.
In this economy, insurance is more vital than ever.
Best's Review columnist Dianne Batistoni is a partner in the insurance services group at EisnerAmper LLP, of Bridgewater, N.J.