 |
 |
 |
 |
|
 |
When
Agents Low-Ball Personal Lines Competition for personal lines business is tough, even brutal, and everyone is looking for that little edge over the next agent or producer to win over and keep more customers. Perhaps you have lost customers to others for doing "it" and maybe you have looked the other way while your agents or producers have done the same thing. Maybe the insurers even realize "it" is going on and quietly acquiesce. Isn't everyone doing "it"? The "it" is low-balling personal lines premiums by undervaluing homes, using more advantageous mailing addresses and fire protection codes, and understating the business use of vehicles, to name a few common methods. Low-balling premiums can open the agency up to a whole host of liability risks to its clients, the insurers, and their own agents and producers. It can also have serious financial repercussions. Even where replacement cost coverage with inflation protection is in effect, understating home values to get reduced premiums for a client can boomerang. Most insurers have backed off from full guaranteed replacement cost coverage for dwellings, and instead, limit coverage to 120-130 percent of the stated policy limits. A major fire or other casualty loss that results in a total loss may leave the policyholder significantly underinsured. The lower premiums will be a distant memory and of no help to the agent when sued by its client or via cross claim by the insurer. Use of more favorable mailing addresses, fire protection codes, and understating business use of vehicles, only opens the door to attempts by the insurers to deny, or rescind coverage in the face of large losses based on allegations of material misrepresentation. The likely result will have the policyholder bringing in the agency as a party claiming it was the agent's fault or misrepresentation. If premium low-balling is determined to be a
common practice of the agency or if it results in a large loss
payment by the insurer, it could jeopardize the agent's standing
and contractual relationship with the insurer, causing long term
and perhaps irreparable economic harm to the agency. Whether or not these alleged claims and suits succeed, they are costly to the agency in time and money. Errors and Omissions policies may not cover some of these claims or coverage disputes may arise over coverage. E&O policies generally do not cover fee and premium disputes, employee and producer termination and discharge issues, or insurer contract termination disputes. Exclusions for willful or intentional acts could be raised as coverage defenses. Where claims are covered, deductibles or self-insured retentions are usually paid out by the agency and precious time spent on legal matters will take the agency's principals away from productive commission generating work. The dirty little secret practice of low-balling personal lines premiums is simply not worth the few additional clients and commissions it may generate. What should an agency do? The agency ought to have a clear policy against low-balling premiums and make it known to all of its agents and producers that such practices are prohibited and may be grounds for dismissal or termination. Employee agents, and especially non-employee producers should be monitored to make sure that this practice is not occurring. Randall E. Phillips and Marilyn A. Madorsky of Provizer & Phillips, P.C., in Bingham Farms, Michigan, have been representing insurance agencies and insurers for over 20 years. For more information, you can contact us at (800) 288-9080 or (248) 642-0444 or at info@p-ppc.com or visit our website at www.provizer-phillips.com. 12/06 |
|
