Automobile, home, boat, umbrella, and other personal policies, as they’re sold off the shelf, rarely, if ever, cover all your major property and liability risks. But they will cover most, if not all, of those major risks if they’re customized to your needs with proper coverage limits and appropriate coverage endorsements.
Customizing a policy requires a great deal of coverage expertise and care. And that’s why, for most people, locating and hiring the best possible insurance agent has to be the very highest priority when it comes to buying insurance.
Understanding how insurance agents get paid
In almost all states, agents selling personal insurance get paid the same commission as every other agent representing that particular insurance company — usually about 10 percent to 15 percent — regardless of the agent’s experience, the agent’s skill level, or the quality of the insurance plan that the agent designs. This payment structure is both good news and bad news for you.
The good news: Getting an expert for the price of a novice Although the flat commission compensation system is anti-consumer (rewarding quantity of sales rather than quality), you can really benefit from the system in one way: You can buy the very best talent for not a penny more than you would pay for the worst possible agent! Can you see how ridiculous it is to select your agent based on the warm body who gives you the quote? The vast majority of the time, the person you talk with the first time you call a company will not be one of that insurance company’s most skilled agents.
Almost all insurance buyers see an insurance premium as buying them one thing — an insurance policy. In reality, the premium pays for much more than that. The policy, the coverage, and the insurance company make up about 85 percent of the premium. Professional advice, policy service, and help from a professional agent when there is a problem make up the other 15 percent. Spend that 15 percent wisely! Get the best agent that you can find.
The more complex your lifestyle and the more of a lawsuit target you are, the more important it is to take the time to find an agent with the most expertise that you can.
The bad news: Finding a needle in a haystack The “everybody gets paid the same” rule for agent compensation has one big drawback: The marketplace pushes agents with greater skills away from small- er, personal insurance policies and their small commissions into business
insurance, where the premiums and commissions more appropriately compensate the best agents’ greater expertise. The current compensation arrangement makes finding agents with great personal insurance skills a difficult task.
Knowing what you want in an insurance agent
Okay, so you’re sold on the idea of finding the best insurance agent that you can for the commission dollars that you’re spending. Where do you look for candidates? And when you find two or more candidates, how can you select the one that’s best for you?
I suggest you build a checklist of what you want in your agent. Ask yourself the following questions:
- Do I want my life, health, disability, long-term-care, and other coverages with the same agent? You’ll have the best-designed program if you can find one agent with the expertise to oversee your whole program — expertise in every kind of personal policy. At the very least, it’s wise not to have more than two agents that you work with.
- Is a regular, yearly review important to me? If so, add this to your shopping list. I recommend regular reviews. A well-designed insurance plan starts to rust with coverage gaps if it’s not polished up every year or two.
- Do I have a home business? If so, you must find someone with small-business insurance expertise. Add that to your list.
- Are top claim skills important to me? Do you want the best possible claims coaching, to maximize your claim when you file it? Do you want an agent skilled enough to fight, successfully, for your rights if your claim is unjustly denied or underpaid?
Then use the answers to these questions to screen potential candidates.
How to find a good insurance agent
You’re looking for an agent to probe your needs, identify coverage gaps, solve problems, help you resolve claim disputes, do annual reviews, and, in short, provide greater expertise. Here are some possible sources for candidates. Try to get at least two to three prospects.
Word of mouth
Word of mouth is always one of the best sources when seeking a professional of any kind. But be careful not to fall into the price trap. Because so many people buy their insurance solely on price, when you ask for a referral for a good agent, you might get: “Call Bob. He’s a good guy. He saved me $200 a year. And he always remembers my birthday.” So you call Bob, get his quote, save your $200 or more, and end up with a good price for the wrong coverage (and an annual birthday card). And you’ve done nothing about your uninsured coverage gaps.
To avoid the price trap, be specific when asking for a referral. You don’t necessarily want the best salesman or the one you’d most like to go to a ballgame with. You want the person who will give you the best professional advice.
An insurance agent can earn a number of advanced insurance designations by completing a series of courses and passing the exams. Here are just a few:
- Chartered Property Casualty Underwriter (CPCU)
- Certified Insurance Counselor (CIC)
- Certified Life Underwriter (CLU)
- Accredited Advisor in Insurance (AAI)
Many others designations exist as well. Anyone earning any insurance designation has to spend 100 hours to 1,000 hours (for the CPCU) in the classroom and studying on her own, as well as pass national exams. These are people who have gained additional expertise in certain areas and who have a commitment to professionalism and ethical behavior. Don’t choose an agent
based solely on her professional designations, but weigh these designations (or the lack thereof) heavily in your decision.
If you want some good leads to an agent prospect with expertise in personal property and liability policies — auto, home, umbrella, and so on — contact
CPCU Society (phone: 800-932-2728, ext. 4; e-mail:[email protected]; Web: www.cpcusociety.org): From the home page, click on Agent & Broker Locator to find an agent in your area.
The Society of Certified Insurance Counselors (phone: 800-633-2165; email: [email protected]; Web: www.scic.com): Call and request a list of CIC agents who share your zip code.
Whatever names you get from these two societies will be good prospects for your agent search. (CPCU agents are more scarce, so you may need to request a state listing rather than asking for agents in your zip code.)
If you already know you want to be insured with a particular company, go directly to that company for agent referrals. You can also go to the insurance company for agent leads if you’ve shopped ahead for a certain type of insurance and found one or two insurers that are the lowest priced. (Remember: All you know at this point is that they’re the lowest priced for the coverage you shopped but not necessarily the coverage you need!)
What you need to find out from the insurer is who the company’s best, most knowledgeable agents are. The insurance company knows who these agents are, but the company is unlikely, for legal and other reasons, to give you their names. So here’s what I recommend: Call the local company office and ask them to fax or e-mail you a list of all their agents in your state who have a CPCU or CIC designation. They may not have a list at their fingertips, but they can get it for you. Whichever method you use, it should yield a small supply of quality prospects.
Making the choice
At this point, you’ve narrowed down your choice to one or two candidates for your “job opening” for an agent/advisor. You’re probably thinking, “How do I, with limited knowledge, make this choice? I don’t even know what to ask.”
Start by requesting a face-to-face meeting for the purpose of doing an insurance review for every policy that you have including your group coverage at work. You’ll be able to tell by your gut feel whether this is the person for you.
If you’ve narrowed your field to two candidates, I recommend that you have both of them do the insurance review for you. The agent with the greater expertise and greater care for your well-being will stand out.
The job of protecting you from financial ruin caused by property or liability claims is an important one. Approach it as seriously as you’d approach choosing a doctor, lawyer, or accountant.
Don’t get quotes at this stage yet. If you’re comfortable and she has the expertise you’re looking for, ask her to design a program for you with all the right coverages. Then have her quote what she recommends and meet with her a second time to review the quotes and get her help making choices. Once all those changes are implemented, you should have satisfied both the components of a great insurance program! How about that!
When you’ve completed the reviews, ask about the agent’s background, his educational and practical experience, and the kind of ongoing help you can expect — both in terms of regular fine-tuning of your program and in terms of the kind of assistance you’ll get in a serious claim or dispute. I wouldn’t consider any candidate who doesn’t offer you the big three:
- The expertise to help you design a great protection plan with the least possible gaps
- Ongoing reviews and regular contact about new developments so your plan stays current
- Outstanding assistance at claim time, both coaching you and being a strong advocate for your rights in a dispute
Choosing an Insurance Company
A good agent can advise you on both the financial strength and the quality of claim service of any insurance company that you’re considering. If, however, you’re buying direct without advice or you just want more information on a particular company, go to https://web.ambest.com/.
- M. Best analyzes and rates insurance companies based on their overall quality and financial strength. It gives insurers grades, much like school — A++, A+, A, A–, B+, B, and so on. (For more details on each of the grades, go to https://web.ambest.com/, click Ratings & Analysis, and select Ratings Definitions.)
The higher the rating, generally, the safer you are from the risk of the insurance company closing its doors and not being able to pay your claim.
Don’t buy insurance from any insurance company with an A. M. Best policyholder rating of less than A unless you have no other choice.
The larger your exposures and the greater your coverage limits, the stronger the insurance company rating you should seek. For example, if your income and/or assets make you a target for lawsuits, you’ll probably buy an umbrella policy. The A. M. Best rating for that umbrella policy should, ideally, be an A+ or A++. Picking an insurance company can be a gamble. Fortunately, organizations like A. M. Best help improve your odds.