The Missing Value Proposition of High Quality Agents

I was having dinner with a close friend who is retired, has no debt and has decent wealth. He asked me why I think he needs insurance. He was wondering if insurance at this stage of his life was a waste.

My heart sank. This is an incredibly smart person who has been buying insurance for 40-50 years and no one, not one single agent that he can remember, ever explained to him why he needs insurance. Evidently, he only purchased insurance from order takers instead of professionals. That is sad.

Here is an arrow aimed at the heart of the hypocrisy of so many agents, consultants, carriers and associations. Independent agents have an exquisite ability, in fact they are the only insurance distributors with the full ability, to provide high quality advice and education. Yet agents fail to fulfill this purpose, over and over and honestly, many do not even try.

I have been doing E&O audits and teaching insurance classes for 25-plus years. I have met and spoken to maybe 5,000 to 10,000 agents, so I do not know how all agencies operate, but that is probably a reasonable statistical universe. The majority of agencies do not give proper advice, and many are encouraged not to provide such advice, so they can avoid E&O claims based on the presumption they are professionals. I’ll start shooting there.

Arrow #1: My first arrow is aimed at the ludicrous advice to not be a “professional” because it increases one’s standard of care. The reality is that most E&O advisors and attorneys are chickens for not admitting the truth – that they have lost faith in most agents’ ability to be a professional. Therefore, they advise agents not to attempt to be professionals and not to advertise that they are professionals, unless they are really going to be a pro with all of their clients. I am being straight here rather than hide behind a spurious argument.

To put it differently; name anyone who needs an amateur agent. The best way to avoid an E&O claim is to be an amateur because you’ll run out of clients and without clients, it is difficult to incur an E&O claim.

Arrow #2: My second arrow is for those who argue that artificial intelligence (AI) can’t replace humans in offering quality advice. That argument assumes humans are offering quality advice. AI advice can’t, literally it would be impossible, offer worse insurance advice than many human agents.

After all, how much worse can it get than the court case where the agent advised the insured, directly advised the insured, to not purchase flood insurance. The insured’s house was around a foot above sea level and they were on the water. Guess what happened? Or, the agent who advertised he was an expert at insuring in-home businesses, but did not know anything about the endorsements required to insure in-home businesses? Or the agent who advised kids they should be insured on their parents’ auto policies even though their parents had no insurable interest in their vehicles and the kids were married and living in their own homes? Or, how about the dozens of agents who have asked, “I actually have to read the policy to know what is covered?” I’d vote for AI any day.

Arrow #3: To provide quality advice to clients, agents need to converse with clients. How does having a service center rather than you service an account achieve this necessity? How does following consultants’ advice to lower your cost by not talking to clients at renewal enable you to provide quality advice? Remember, no one needs to pay a 13% commission on renewals for an agent to do nothing. That is a waste to the carrier and the insured.

Arrow #4: A huge distinction exists between different kinds of distributors. I asked this friend about what kind of agent he had. I explained certain kinds of agents are true agents of the insurance carrier. Other than fraud and complete misrepresentation, in most states, these agents do not owe good advice to the insured. If something goes wrong and one tries to sue the agent, they are really trying to sue the carrier, so the insured’s options are rather limited.

One of the best-selling points for independent agents is that independent agents can be sued. They can be sued more easily because they work, at times under the legal theory of duality, for the insured. They owe the insured a duty of care. Now, if one hides behind the blanket of not having much of a standard of care, this value proposition is wasted. But the opportunity to separate one’s self from the masses exists.

Hiding behind the “I don’t really have a duty to advise” defense is a lemming defense.

Arrow #5: Agents who do not provide quality advice and service to all their clients are grossly overpaid, and insurtechs know this. You are their target. They are not aiming at the high quality agents.

Arrow #6: Insurance education as it is typically obtained today is inadequate. CE ruined quality education by turning the focus to hours rather than quality. This is made worse by the CE classes that are available, whereby you can click a button every so often while doing other work.

I explained to my friend how a good agent would have first had a conversation with him regarding his situation. Since he did not remember his agent and whether the agent was an independent agent, it was obvious no such conversation had occurred and therefore, the agent was likely worthless.

I then explained how his issue was not relative to whether his home burned down. First, the odds of a home burning down are almost nothing. Second, he had no mortgage and has the money to rebuild if he wants to do so. Insuring the property was a moot point but that was the only point of insurance anyone had ever explained to him.

I explained his real reason for purchasing insurance is for fraudulent liability claims and the defense costs associated with such claims. I explained he needs more coverage than he has. I gave him many examples of such claims. He was astounded and had never thought people like him were sued for such ridiculous events. I also talked him into finding a quality agent. Quality agents can and do make life changing positive differences in people’s lives.