The way you position yourself with your clients impacts your E&O exposure.
Fast Phil sells cheap, hassle-free insurance. He says, “Just write out the check and I’ll do the rest.” He’ll say that an agent’s job is to make sales, and he’s willing to do whatever is necessary to make that sale. Phil doesn’t worry about making mistakes; he just makes certain that the premium on his E&O policy is paid on time.
Across the hall sits Kelvin Scholar, CPCU, CIC, ARM, who has developed a risk-management approach to writing an account. He attends the advanced-coverage seminars, studies insurance contracts, and keeps abreast of the market. He believes that a client should be able to rely on an agent’s expertise. Kelvin can’t imagine ever being sued, since he does such a comprehensive job.
Paula Perfect, CIC is an average agent writing average accounts. She tries to target market to keep her companies happy. Paula works hard at renewals, improving coverages, and shaving prices. She’ll never write as much new business as Fast Phil, but Paula makes up for it in retention. She lacks the technical expertise of Kelvin, but her clients trust her; some consider her a friend.
Which of these three agents has the greater errors and omissions (E&O) exposure? Which is more likely to be sued for mishandling an account? In today’s legal environment every agent has a significant professional liability exposure, but each agent’s exposure differs. A claim filed against Fast Phil is likely to be different from the one Kelvin might face, and a claim on Paula will be different from either one. Each agent’s claims are determined by their relationship with clients.
Positioning
Positioning is the act of defining one’s responsibilities in a given role. Individuals adopt a position relative to each role they have assumed in their lives. This definition influences attitudes and actions.
Try this experiment: Approach three people who have children and ask them, “What do you believe is a parent’s primary responsibility?” The answers they provide will likely diverge from each other. Parents define their roles differently and take different approaches to raising a child. It’s a tribute to positioning that many people look to parenting experts and adjust their position based on what they hear.
Positioning and the Professional
In the 1950s, doctors would diagnose terminal cancer and send the patient home to die without ever informing them of the diagnosis. That physician of that era often made life-and-death decisions without consulting the patient. The doctor was positioned as the expert.
Faced with similar circumstances, today’s doctor will inform the patient of the diagnosis, discuss treatment options, describe side effects, and recommend a second opinion. This doctor will inform, discuss, describe, and recommend, but leave any decision to the patient. This physician is positioned as a resource.
During the past 20 years, we have seen a significant shift in positioning in the medical field. Increasingly, doctors are projecting the image of a resource, rather than that of an expert. Do you think this shift occurred because someone convinced physicians they were not omnipotent? Or do you think it was a calculated move to reduce the frequency and severity of Medical Malpractice claims, a loss-control measure to stem the tide of rising insurance premiums?
Positioning and the Agent
The insurance industry can learn a lot from the medical profession. The roles of agents also determine their legal responsibilities. Positioning tells the consumer what they can expect from the insurance transaction. It also helps inform clients which responsibilities, if any, remain on their shoulders.
Let’s look at an industry example to clarify the importance of positioning and expectations. Whenever Paula writes Property coverage, she becomes involved in setting the insurance amount. Recently, she reevaluated her involvement and was troubled by several questions: How should she determine the insurance amount on a building? Are the replacement cost surveys provided by the companies accurate? What’s the best way to present the figures to the client? Who bears the primary responsibility for having the dwelling adequately insured?
Agents take differing positions on these issues. Fast Phil writes Property coverage on the house without ever seeing it, fudging on the estimator, and feeling no obligation to discuss the insurance amount with the insured. He thinks, “After all, what are the chances of having a total loss?”
Kelvin, the expert, uses all the resources available, determines the replacement cost, and tells the insured the proper insurance amount. All his years of experience calculating the amount have made him confident that his clients are adequately insured.
Paula isn’t so sure of herself. She has read the Marshall Swift press release, which claims that two-thirds of 20,000 homes surveyed were underinsured by an average of 35%. She believes that the underwriter’s replacement cost estimator is an excellent tool for maintaining the integrity of the rating structure. However, she questions its accuracy in determining the amount necessary to place the insured back in a comparable dwelling. She’s been talking to area contractors who specialize in reconstruction, and has visited the local building inspector. Paula is concerned about the law or ordinance exclusion, debris removal, increased costs following a catastrophe, and the figures that show reconstruction costs to be much costlier than new construction.
Paula has changed her approach with new Homeowners clients. She now tells them, “I’m not an appraiser, and I can’t tell you the amount of coverage you need on your home. I can tell you the amount of coverage the company requires to issue the policy. And I can tell you the additional issues that you would want to consider. I can give you information, but I can’t tell you the correct insurance amount to cover a total loss. Think of me as a resource, not an expert.”
Fast Phil doesn’t discuss building values with clients; Kelvin chooses the correct amount; and Paula discusses issues and leaves the decision to the insured. Each has positioned himself differently in his relationship with his clients. Their clients have different expectations of each agent. Each has a different E&O exposure, which is influenced by their positioning.
Four Steps to Take
Agents get sued when their clients feel that they’ve received less than they deserve and that their expectations weren’t met. Past legal decisions can inform clients of the level of service they can expect from their agents. Client expectations might also be determined by their agent’s image, which was based on their positioning. Proper positioning is important to the agent who’s interested in reducing the severity and frequency of E&O claims. To establish a position, an agent should take these four basic steps:
- Determine current position. Whether you’re looking at a particular issue in the industry, such as dwelling limits, or your overall position as an agent, the first step is to analyze what you’re currently doing. Determine how your current actions position you. Are your actions congruent with your goals and values? Or have you simply developed habits that dictate how you approach an issue? You should also analyze your support staff. Are they projecting your position accurately? Are their actions reflecting the philosophy of the agency?
- Question its validity. During the past decade, the relationship between insurance company and agent has changed dramatically. Have you adjusted your actions accordingly? Or are you operating the same way as you did 10 years ago? Litigation has increased in our society over the past 20 years. Consumers expect more now than ever before. Have you adjusted your business to reflect the changing climate.
- Revise where necessary.. Review your philosophy of doing business, and you might rewrite your mission statement. Define the responsibilities and adjust your positioning. Make the necessary adjustments in the way you and your staff do business.
- Revisit regularly. The rapid rate of change makes modern life quite challenging. Anything we learn today might not hold true tomorrow. To keep up with the latest changes, agents must frequently adjust their positions.
Fast Phil will never take the time to analyze his positioning, because he’s too busy in the field making another sale. Kelvin, the expert, knows he’s positioned properly and can quote authorities to support his position. Meanwhile, Paula is committed to reviewing and revising her position regularly. This is the only way she can do right by her companies, clients, and agency.