Proper explanation and documentation of material facts is extremely important to avoid E&O claims - A practical experience

I was training new brokers at the time. One of them use to come in and sit beside me for learning. He was quoting a client for home insurance. Client was in a hurry as the closing for his home was the next day.?

He quoted the client and presented the price. It was about $1800 annually I can hear the conversation well. Client didn’t like it, the broker then revised the quote. I had to go somewhere for 30 mins, came back and he said to me that he got the client a much better deal and the deal is done.?

I asked the broker, how low did you get to? He said the price was $1000 annually. I was surprised to hear that. Thought to myself $1800 to $1000 is quite a difference. I asked the broker if he found a better deal with another carrier? The broker said no, it’s the same carrier who provided cheaper price.?

As the broker was a trainee I asked him to send me the signed application by the client to see how the policy was written. To my surprise I saw that there was no water damage coverage and the deductible was $10,000. I asked the broker if the client knowingly signed this application. The broker said yes, look at the remarks. The remarks on the application said that water damage coverage was declined and $10,000 deductible was requested.?

I was skeptical about this. I needed to know if the client actually understood and signed as client was in a hurry for closing his first bought home.?

I asked the broker to call the client and ask specifically if he understood what water damage coverage and a high deductible meant. The broker first got defensive. He wanted me to believe him. I said to him, "I totally believe you". "I just want to make sure that the client is inline with the coverage, cause if the client doesn't know what he is buying, and there is a claim than it will look bad on us, it can be an E&O claim at that point of time."?

After insisting few times the broker said to me, “I will lose the business, while he can go to a different broker and get the same deal.”?

I said to him, "no problem if you let me do the talking, may be I will convince him." Reluctantly the broker dialed the client and introduced me.?

I took the phone and after exchange of greetings asked the client if he fully understood his coverage. I still remember vividly to this day the client said to me, “what is water damage coverage, I thought any policy covers water damage, does it not”??

I Started explaining him what water protection is and how it’s relevant in this province and the fact that there are certain water damages are not covered under the standard policy wordings. And then I asked the client if he has full understanding of his deductible? The client said the same thing, “what is a deductible”? I went on explaining how deductible works, what is the standard deductible we offer through our office and also explained with the insurance carrier what optional coverages were also available like Bylaws coverage and Identity theft etc.?

After explaining everything and requoting the client with my recommendations, the price was $1800. Client said, “but that is expensive!". “The owner next door is paying $70 only per month."?

This is something most of the customers bring up, the "person next door" is paying low insurance, why is it high for them? For us we know each and every customer is different, no two profiles can be compared in terms of rating, but for the client, its like price matching in a local grocery chain.?

I asked the client a very important question at that point. “How much are you buying your house for?”?

He said "$1.3 Million". I asked him, "what if your basement gets flooded and the worst thing you hear from us is that there is no coverage?" $1.3 Million house can easily have a loss of $300K-$400K water damage. Also, think about would you be able to pay that out of pocket?"?

I said to him that I checked your price from all the insurance companies. This is best coverage compared with the best premium.?

Client was iffy and was not convinced entirely. I said to him, “If I were you, I would get all coverage available for my house, cause its a big investment in my life, I am pretty sure for you too its big." “The fact that water damage is costing you $600 (another $200 was for the deductible to be lowered and some additional coverage added) a year tells me that in your area there might have been previous water damage incidents and that is why you should have this coverage."?

Client said, “well I am not gonna claim anything but can I add it later”??

To this I told the client, “as a broker myself I am not comfortable in selling you a bare bone policy. I know people think they won't be claiming anything, but when you see the bill for repairs due to a damages from insured peril, you won't have a choice." ?

Finally client said, “Ok let’s do it and find me a better rate next year”.?

The broker I was training admitted to me that he was afraid of rejection, that is why he didn't want to get into this argument with the client. But I had to explain to him that as insurance professionals we cannot close a deal without proper coverage being provided. The client doesn't know what he/she had signed, and if there is a loss that would become a bad experience for them.?

We should always make sure that our clients fully understand the coverage before buying. Because there are people who blindly trust us as brokers, like in this case. They think that we are there to take care of them. It is our duty to give right advice and maintain proper documentations.??

Finally to sum up, as brokers, do not be afraid of rejection. Rejections are nature of this business. You have to be skilled with product knowledge, and negotiation power to overcome the rejections. Not facing them and deciding to put the client in hind sight is not a good idea. And document your conversation with the client. If you think the client might forget the discussion, send him/her a separate email confirming the discussion points in writing. Make sure the email is attached in the BMS as well.

#E&Oexposure #Insurance #Dealingwithclients #Negotiations