Re: More Insurance Lies Clients Believe
This article is a very good read. I'v passed it on to the other three agents in our agency.
Overcoming objections is a skill required of any agent or broker working to be successful in insurance. Some of the objections that must be overcome are based on insurance myths, legends or lies the client has heard from someone else; and that someone else is not likely an insurance professional or even knowledgeable about insurance. Compound misinformation with a bit of mistrust (clients think we are just trying to sell them something even when we have their best interest in mind) and the agent's job of protecting the insured is that much harder.
General insurance myths was the focus of the prior post; this follow-up article deals more with coverage or legal lies to which clients attach themselves. As stated before, this is far from an all-inclusive list.
"It's better to pay small liability claims out-of-pocket rather than report them to the insurance carrier."
Who gives this advice; lawyers, insurance agents or the guy down the street who feels like he got away with an accident without it affecting his insurance premiums? I myself was a party to one of these situations on my way to visit a client.
Traffic was stop-and-go and the guy in the truck behind me neglected to do the first part - stop - rear-ending my vehicle. Pulling off the road into a parking lot to avoid holding traffic up even more, we exited our vehicles to inspect the damage. The driver apologized and admitted he just wasn't paying attention (first mistake); talking further he asked, "I wonder how much it'll cost to fix your bumper?" As it happened, we had pulled into the parking lot of an auto body shop, so I said, "Let's ask."
I found a service tech, he made a phone call and said it would be $565 parts and labor. The guy who hit me said, "Let me go to the bank, I'll get you the money." Now, I had him give me his driver's license to hold until he returned to assure he would come back (he offered me his son to hold, but I already have two kids and didn't want to risk adding a third). Fifteen minutes later he returned with cash in hand, I had the body shop order the bumper which they expertly replaced and he ended up with nothing on his insurance or driving record.
This worked to his benefit, but what if, after thinking about it for a day or two, I decided to make some money off this accident? Is there a chance I could have begun suffering from non-specific soft tissue injury and developed some pain that could have been cured only by a large cash settlement?
The answer is, yes. Once he received a letter from my attorney and tried to report the claim to his insurance carrier, could they have denied the claim? Based on personal and commercial auto policy provisions, yes the claim could be denied as prompt notice was not provided to the carrier as per the "Duties…" requirements.
Make sure your client notifies you. From there, it depends on the relationship between you as the agent and the insurance carrier. The business auto policy states that the insured must notify an "authorized representative;" an "agent" is the authorized representative of the insurance carrier, but a "broker" is not. Personal auto policies simple say "We must be notified." It is not clear if "we" includes the agent - that question is answered in the agency/company contract.
"Statute does not require me to have workers' compensation, thus you (a higher tier contractor) can't require it either."
Most states require an employer with one or more employees to purchase workers' compensation; but 13 don't require workers' compensation until the number of employees surpasses a certain threshold (three or more for example). But even if the insured is a corporation (and in some states an LLC), the owner/corporate office is considered an employee and as such the corporation must purchase a workers' compensation policy because the entity has one employee (provision is made in many states allowing the officer/manager to exclude himself, but that doesn't necessarily change the requirement to purchase coverage).
Regardless, statute is the minimum requirement in a particular jurisdiction. A contract can place requirements on the parties to a contract in excess of statute; contracts just cannot relieve parties of statutory duties (allow them to do less than is required by law). Thus, if a contract requires a subcontractor to provide workers' compensation coverage, then work comp must be provided even if the subcontractor has less than the minimum number of employees required by statute.
"I pay him with a 1099. He's an independent contractor, not an employee."
IRS and insurance rules differ greatly regarding the definition of an "employee." Paying someone with a 1099 might make the worker an independent contractor for tax purposes (it's not that simple with the IRS either) but there are far more stringent requirements within workers' compensation administrative procedures as to whether the person qualifies as an independent contractor or an employee. Anytime a client floats this potential lie (or misunderstanding), more questions are needed to ferret out the truth:
The level of control is the deciding factor when judging whether a worker is truly an independent contractor or a "de facto" employee (based on the totality of the control). Don't allow the insured's belief that a 1099 is sufficient to allow the employer/insured to avoid accepting responsibility for an injury to the worker.
(Information taken from, "The Insurance Professional's Practical Guide to Workers' Compensation: From History through Audit.")
"If a workers' compensation injury is less than a certain amount, I do not have to report it to the insurance company."
Well-meaning agents may have been the creator and perpetuator of this myth. First Report of Injury laws in some states do not require the state to be notified of an injury unless it surpasses a certain threshold. The labor department in the state of North Carolina, for example, does not have to be notified of an injury unless it exceeds $2,000 in medical costs or results in 1 or more days of lost work.
Based on those requirements, it sounds reasonable for an agent to tell an employer not to notify the insurance carrier of a small claim (the worker needed a few stitches and was back to work that afternoon). However, the law says only that the STATE does not need to be notified unless the injury surpasses that threshold; nowhere does it relieve the employer of its duty to notify the insurer. In fact, the workers' compensation policy specifically mandates that the employer will notify the insurance carrier of all work related injuries, not just those that must be reported to the state. The reporting requirements for North Carolina are those placed on the insurance company (or self-insured entity) not the employer. Employers must report all work related injuries "at once."
Not only is this belief fallacious because of a misreading of the statute, it is also dangerous should an injury be worse than originally thought. An example is the employee above that cut his finger and had to get stitches. Suppose he develops blood poisoning leading to major complications later; the insurance carrier may hold a hard line and deny coverage for failing to comply with the policy provisions found in Part Four of the Policy ("Your Duties If Injury Occurs"). Belief in this lie could be very expensive.
(First Report of Injury requirements for all 50 states can be found in Appendix "E" of "The Insurance Professional's Practical Guide to Workers' Compensation.")
"Flood insurance is only for those in 'flood zones.'"
Every structure located in one of the more than 20,400 NFIP-participating communities is in a "flood zone;" the insured's house or building just may not be in one of the more hazardous ones. The client is really trying to say, "I don't need flood insurance because I'm not in a special flood hazard area (SFHA)." They just don't know the correct terminology, but agents need and must know the correct terms when discussing flood coverage. Further, being located outside a SFHA does not guarantee safety from flood loss. See the flood insurance series for more detail.
Conclusion
Agents must be on the lookout for these and many other insurance myths, legends and lies. Remember, insureds should not be expected to be insurance experts are even proficient in insurance - that's the agent's role. But a result of this lack of knowledge is belief in wrong information. Be ready and able to combat these misplaced beliefs with facts. The client may hold fast (no one wants to admit they are wrong), but have them sign that they heard the truth (and follow it up with a letter) and sleep well in the knowledge that you did all you could to help your client.
© 2010 by Wells Publishing, Inc. All Rights Reserved. Privacy Policy | Terms and Conditions | Advertise with Us | Contact
