Without a doubt, the most important duty that an insurance professional has is to look out for the welfare of his/her clients. Even though an insurance agent technically is an agent of the insurance company, serving the best interests of the policy-owner does go hand-in-hand. These interests are not in conflict. By recommending the various products offered by the insurance company along with the promotion of the various needs-based selling, the policy-owner is best served by both parties, the agent and the insurance company.
Before an individual becomes a policy-owner, he/she is a prospect. To convert the prospect to a policy-owner and then to a client entails three basic steps. First, the client must be sold to his/her needs, and not what the agent or insurance company desires to sell. Second, the agent must approach his/her profession as one of being more than a job, thus additional education is needed for the agent to be a true professional. Third, the agent must provide quality service after the sale in order to convert the policy-owner into a client.
Most people start out in any occupation by considering their duties as a job. Being a professional, however, means much more than simply working at a job. There are a few characteristics of being a professional that stand out among the rest.
One. Being a professional means that the individual has progressed upon the entry level stages of his/her job and has distanced him/herself from the rest. Probably the single greatest attribute of a professional is obtaining more education through making a commitment to the insurance profession. This is achieved by seeking a mastery of the insurance industry through the use of the various academic study curriculums available. Life Underwriting Training Council Courses, American College offerings, the College of Financial Planning, and the Insurance Institute of America courses are a good start for an aspiring insurance profession.
Two. Being a professional also means that the individual is ethical. Because of the importance of this work to society as a whole, the insurance professional must follow high ethical standards. In short, the insurance professional must always work toward the best interest of the community, even if it means sacrificing his/her own self-interests.
Third. Being a professional also means working a demanding schedule. Gone are the usual normal business hours. Being a professional is demanding and time consuming. Society values those individuals that have achieved some level of competency. Doctors must spend countless hours in classrooms and residence programs before establishing a practice. Attorneys and accountants also must receive intense education and training before advancing to higher levels. If the insurance agent desires professional status, he/she must be willing to "pay the price" to become an important member of the community.
Being a professional brings many rewards. Probably the most important reward is that the individual distinguished himself/herself from the other insurance population. Instead of clients regarding one as just being an agent placing policies (like countless others) the insurance professional, with the various industry designations, is viewed differently. Clients view insurance professionals as those who made a commitment to their profession. The added recognition will help the insurance professional expand his/her business. Another reward with being a professional would be the status and stature that one enjoys within the community. People tend to look at professionals as community leaders. All of us would rather speak with an accountant or with a CPA, about possible tax implications on our income, than a bookkeeper who has a basic high school degree. Insurance professionals are treated the same way. Why ask for advice about important insurance coverages from an insurance agent when a Chartered Life Underwriter or Chartered Financial Consultant lives in the same community? Yes, status and stature are very important.
Another advantage of being a professional is the lucrative benefits to be gained. Countless studies have been done indicating the income spread between the higher echelon insurance professional and the rank and file agent. We are not speaking of agents who attain the "million dollar table" or "top of the table" distinction. These members earn more because they sell more. The point being emphasized is that insurance professionals, with some type of designation, historically have earned more. Why? Simply put, those individuals made a time commitment to their business and have been rewarded for doing so.
Another reward for being a professional is the intangible benefit knowing that the advice given could help others reach their personal and financial goals. Just as a doctor is rewarded with the knowledge that he/she can heal a sick person, the insurance professional, armed with academic and technical knowledge, realizes that he/she can be instrumental in helping people plan for premature deaths, disability and emergencies. Also, the insurance professional will play a major role in preparing clients for wonderful retirements.
Yes, being a professional has many awards. It is demanding and requires many hours beyond the normal hours of business. It also requires a strong code of ethics and higher academic standards. However, it offers those individuals an opportunity to build lucrative practices, achieve independence through extensive prospecting techniques and leads to public recognition that cannot be emphasized enough.
As the insurance professionals practice grows he/she will realize the importance of service. Frequently such service will involve advice on a broad spectrum of topics. In some cases, technical subject matters will arise. Obviously, in order to answer such questions, the insurance professional must always be upgrading educational levels. With the insurance industry changing almost daily, the professional must also work at "keeping current. For example, many insurance professionals find themselves working in the complex world of estate planning. In order to competently render sound advice, as to how life insurance should be owned, the insurance professional must be proficient about tax codes, trusts and probate laws. One can see the importance of education in the servicing area.
The insurance professional should realize that service, during and after the sale, is a critical step in building a clientele.
The term service means many things to many people but for our purposes we will focus on the following five broad areas of service as they relate to the insurance industry:
1. Educating the client, not only after the sale but also before and during it. Our goal is to have the client understand the application and underwriting process, along with the policy and any riders.
2. Confidentiality, always treating the client's financial and personal affairs with utmost confidentiality.
3. Disclosure, always disclosing all information needed by the policy-owner or applicant so that he/she can make an informed decision.
4. Notifying the client of any rejection, exclusions, or cancellations.
5. Loyalty to the client is of utmost concern. Part of this area would be providing a full range of services in order to assist the client in financial planning activities.
With the intense emphasis on production, today's insurance agents sometimes fail to realize the importance of the application process. The insurance professional must always be sure that the applicant provides accurate information to the questions on the application. The insurance professional has an ethical responsibility to educate prospective insureds to be sure that the applicant fully understands the nature of the application: why the information is required, how it will be evaluated, and the need for accuracy and honesty in answering all questions and the meaning of various terms such as "Waiver of Premium, "Non-Forfeiture Options, and "Conditional Receipt.
Since this area is mostly overlooked and misunderstood, it should be covered.
A conditional receipt is given in exchange for the initial premium at the time of application.
It provides that the applicant is covered immediately from the date of application as long as he/she passes the insurer's underwriting requirements. If a medical examination or blood profile is required, the date of coverage begins when the applicant passes the medical examination.
This information about the conditional receipt should be made clear to the applicant. Many applicants are accustomed to homeowners or automobile insurance where the coverage begins immediately upon the issuance of the binding receipt. One can understand the confusion when life insurance is being purchased. It is the insurance professionals ethical responsibility to explain that the applicant is covered on the condition that he/she meets the required underwriting requirements of the insurance company.
Even though many insurance policies are issued on the basis of the application alone, it is still sound business to explain the underwriting process. The explanation of the underwriting process should include three "checks and balances .
1. Medical Information Bureau. The MIB serves as a huge clearinghouse of medical information concerning applicants and helps to disclose cases where an applicant conceals or submits misleading medical information.
2. Inspection Report. This report provides details on an applicant's lifestyle, finances, and exposure to abnormal hazards. These reports are usually ordered on applicants who apply for large amounts of insurance. Friends neighbors and/or employers may be contacted.
3. The Credit Report. This report is ordered when there is reason to question the applicant's ability to pay the premiums and to determine whether or not the applicant may be a poor credit risk.
In summary, the application process is important to all three parties involved; the applicant, the agent and the insurer.
All of the information on an insurance application has a direct bearing on whether the policy will be issued as requested, rejected, or amended. An agent who knowingly fails to provide all the necessary information about a prospect is nor serving anyone's best interests.
Consider, for example, the agent who "forgets" to disclose that the applicant is a dedicated bungi jumper. The agent figures that if this information is submitted to the insurer, the company would rate the case making it unaffordable to the applicant. A lost sale means lost commissions. Thus, the information is not revealed and the coverage is issued as standard. However, six months later, the insured dies while attempting another jump. The insurer probably will contest or deny the claim, citing concealment. Rather, than receiving the death benefit, the family receives a return of premium. How ethical was the agent? What service did he/she provide?
Precision and accuracy in completing the application are always needed. This will protect both the applicant and the insurer, and protect the agent from any possible liability claim.
In attempting to qualifying a prospect completing a financial questionnaire, analyzing needs, etc., insurance agents are privy to an applicant's personal and financial information. Personal information about a client should never be released without the prior approval from the client.
The agent not only has the responsibility of full disclosure to the insurer but also to the prospect or client.
In this situation, full disclosure means informing the prospect or client of all facts involving a specific policy so an informed decision may be made. This also accomplishes other goals as it helps clients:
Evaluate the relative costs of similar plans offered by a competitor.
Understand the basic features of insurance.
Select the most appropriate policy to meet the needs of the prospect/client.
There are two guides that are used by agents to help them comply with full disclosure:
1. NAIC Buyer's Guide which was developed by the National Association of Insurance Commissioners as an aid to consumers who are thinking about the purchase of life insurance. It explains the basic types of life insurance and provides the consumer with suggestions to aid in its purchase. Included in the Buyer's Guide is an explanation of the surrender cost indexes used in the Policy Summary.
2. The Policy Summary includes two types of cost indexes; the life insurance surrender cost index and the life insurance net payment cost index. The surrender cost index is useful to applicants who wish to compare cash values of policies. The net payment index is helpful when a person compares the death benefits of policies. Both guides are helpful to agents who wish to explain the features and benefits of the life insurance policy they are presenting.
The underwriting process for an insurance application can take time. Most companies try to complete their underwriting process in 21 days, however, delays may occur. Delays such as request for more information from the applicant, doctor reports, etc. An agent should keep the applicant informed as to the process of the application. For this reason, it is imperative that the agent be prompt in sending the application, after a thorough review, to the insurer. Many underwriting delays occur simply because the application is not complete.
Policy delivery. When an application is accepted, the agent should deliver the policy promptly. At delivery the agent should review the policy's features and benefits. This will help solidify the sale and also convert the policy-owner into a client.
Rated policy delivery. When an applicant is rated or declined, the agent is responsible to find out the reasons for such action. Was it medical? Was it something that was overlooked by the underwriter? Should additional information be provided? In any event, the agent should be prepared to explain the rating or rejection to the client.
Assuming the rating or rejection is valid, the agent has the ethical responsibility to notify the client promptly.
In most cases, common sense should rule when rendering advice to clients. When an applicant becomes a policy-owner and client, service becomes extremely important. From time to time, questions will arise which will test the insurance professionals technical knowledge when rendering service to clients. There are three general guidelines when asked to render opinions or advice that might be a bit out of the realm of insurance:
1. If the insurance professional is asked for technical advice, keep it as general as possible.
2. If the insurance professional must give specific advice it would be best to cite sources of common knowledge. It would best to stay in areas that already have definitive answers. An example would be life insurance is not deductible as an expense on an individuals 1040 tax return. If the law is still "up in the air, inform the client and move on.
3. Whenever possible, work as a member of a professional team. This aspect of the business has in the past, been overlooked by insurance agents. By becoming part of a team with other financial professionals, the insurance professional will be able to draw from a "think tank" that comprises of the financial disciples. Needless to say, this type of partnership will also add credibility to the insurance professionals practice.
As on the Life and Health side of the business, the application process is an important first step in the selling of property and casualty insurance. All of the information submitted on an insurance application has a direct bearing on whether the policy will be issued as requested, whether the application will be rejected or whether another policy will be offered by the insurer.
Consider for example, a situation in which an agent does not disclose that the applicant for a homeowners policy is a retired bear trainer who kept a bear as a pet. The agent knows that if this information were revealed, the insurer would surely decline to issue the policy, leaving the prospect uninsured. Believing that it is in the prospect’s best interest to have the insurance, the agent completes the application without noting the bear’s existence. The agent explains to the prospect that omitting this “small detail” will keep the premium down and the applicant gratefully signs the application. Coverage is issued as a standard homeowner policy.
Six months later, a neighbor is attacked and injured by the bear. In all probability, the insurer will deny the claim, citing concealment. Rather than receiving protection under the policy, the homeowner is likely to receive a cancellation notice. What benefit did the policy provide? What service did the agent render?
This example illustrates the need for precision and accuracy in completing the application. It is vital that an agent understands this, and explains the need for full disclosure to a prospective insured.
An agent who has been given binding authority may immediately bind the insurer on the risk. A binder is a written or oral acknowledgement that immediate coverage is temporarily in effect pending insurance of the policy. It has the full force and effect of the policy.
The binder will contain a time limit, the name of the insurer, the amount of insurance, the perils insured against, the type of insurance, a list of exclusions and so on. A copy of the binder should be sent to the insurance company immediately so there is no misunderstanding by either the insurer or the insured as to when coverage takes effect.
Every agent or broker needs to engage in some type of field underwriting, the process of screening, the process of screening out unacceptable risks.
Some agents have the authority to issue policies for the risks they have underwritten. Copies of the application, binder of insurance and the policy are sent to the insurer. Even though a policy has been issued, the insurance company underwriter may send a notice of cancellation if he/she finds that the risk was poorly underwritten and does not meet company guidelines.
Agents can build a higher quality book of business and establish sound relationships with insurers by engaging in responsible field underwriting. This involves analyzing risks and exposures, taking steps to avoid or reduce risks, considering loss control efforts and submitting risks to the proper markets. However, the agent cannot perform all the needed underwriting services. The insurer is in a better position to check financial information and driving records of applicants, for example.
As stated earlier, when a risk is submitted to an insurance company underwriter, he/she makes a final decision whether to accept or reject the risk. In order to do this, a number of factors must be evaluated. One of the most basic and important factors is whether the applicant has an insurable interest in the property to be insured. Insurable interest exists only when a person or an institution can suffer a financial loss if that property is damaged or destroyed.
There must be a greater interest in preserving the property then destroying it. If there is not an insurable interest, buying insurance is similar to gambling, and the contract of insurance becomes unenforceable in the courts.
Once insurable interest has been established, company underwriters consider a number of factors when evaluating a risk. They examine the nature of risk; what hazards are present? What outside factors might affect the risk and what past losses have occurred?
Some risks are class rated, which means that the loss history of a class of risk have similar characteristics (i.e., female drivers, age 23, jointed masonry building in a particular urban area, etc.) was used to develop the premium rate. Class rates may readily be applied to most dwelling and some mercantile establishments because of their similarity of construction and use. Underwriters usually have the option of applying rate modifications, based on the loss history or special characteristics of a risk. For example, risks may be experienced rated, which means the insured’s actual past loss experience plays a major role in the development of the rate. When an underwriter is familiar with a certain type of risk, he/she may use judgement rates, based largely on the underwriters knowledge and experience.
Unlike homeowners risks which are class rated, commercial risks, whether mercantile, manufacturing or mining, and institutional risks generally do not share similar characteristics. Because of this, specific rates are applied to business, establishments, and public buildings by using schedules to determine the relative risk involved. The individual risk is inspected and measured against a theoretical average, receiving credits for factors that exceed the average and surcharges for factors that fall below the average. Various items that contribute to risk of loss from fire or other perils are weighed by an established standard to determine a rate of premium. These items include the building:
• Type of construction
• Location
• Occupancy or use
• Amount and types of fire protection; and
• Exposure or hazards from surrounding buildings
For example, it is logical that occupancy as a cabinet making enterprise in an unprotected frame (wood) building would represent a different degree of risk that occupancy as a metal file cabinet manufacturer in a non combustible building and would, therefore, generate a different rate.
An insurance professional has one reason for calling on a prospect; to offer a needed product or service that will benefit the prospect. The obstacle that the agent faces is to find the need and then offer a solution. No one ever profits if the prospect is "bullied" or coerced into a buying decision. Misleading a prospect not only creates bad impressions but can also lead to legal problems. Chances are these types of prospects will lapse their policies and be sure to recommend to associates and friend not to do business with the agent.
Fortunately, most agents recognize that selling to fit needs is the best approach to offering valuable services and products to prospective clients. They know that specific types of insurance policies are designed to meet specific needs. Matching these policies to individual needs is the cornerstone of any successful insurance practice. Needs selling also involve the skills of problem analysis, action planning, and product recommendations and plan implementation.
The first step (after the prospecting phase) in needs selling is to use a thorough fact finder that will help determine the client's risk tolerance. Naturally, some clients will accept more risk in planning for their insurance coverages than others. By determining needs, goals and risk tolerance the insurance professional is provided with the valuable information necessary to make a recommendation. The insurance professional must remember one critical precept: not all clients will need the same product or service.
The bottom line in selling to the client's needs is to find
out what those needs might be. Once again, the importance of a thorough fact finder cannot be emphasized enough.
In addition, it would be wise to back up the fact finder with a series of checklists. These checklists will help to uncover information not divulged on the fact finder, but, information that is needed to assist the insurance professional to make accurate and precise recommendations.
Once the applicant becomes a policy-owner, the insurance professional must strive to convert the policy-owner into a long-lasting client. With superior service, increased educational and technical skills, and ethical business practices, there will be no reason for the client to become dissatisfied. All clients should receive periodic reviews to ensure that their insurance programs are keeping current with their needs, and objectives.
By "taking care" of clients in an ethical manner, the insurance professional will build a lucrative and rewarding practice with a fair measure of community visibility and stature.
CHAPTER 3 - PRACTICE QUESTIONS
1. The most important duty that an insurance professional has is:
A. Establish a large clientele
B. Look out for welfare of clients
C. Offer legal advice
D. Gain technical knowledge
2. All applicants should first be converted into:
A. Policy-owners
B. Partners
C. Clients
D. All of the above.
3. All of the following are basic steps to convert a prospect to a client except:
A. Client is sold according to needs
B. Client is serviced by an insurance professional
C. Client is serviced by an insurer attorney
D. All of the above.
4. To be successful, an insurance agent must:
A. Bully Prospects
B. Sell the same product to all prospects
C. Be a professional
D. Sell the products with the highest commission
5. The underwriter, for Commercial Property Coverage, will consider all of the following EXCEPT:
A. Type of construction
B. Occupancy or use
C. Amount & type of fire protection
D. Age of the insured
Unit 3 - Answers
1. B
2. A
3. C
4. C
5. D