I’ve written extensively about how the use of coverage checklists benefits an agency. The benefits include significantly reduced errors and omission (E&O) exposures, enhanced reputations, better sales, and last but certainly not least, customers getting the coverage they truly need. For some reason, the vast majority of agencies have not been convinced yet. So I thought about how an agency can benefit by not using checklists:
1. Sales and renewals go faster. Without question, completing coverage checklists requires more time. Doing anything right takes time. Airlines could decrease the turnaround time on flights if the pilots did not have to conduct a checklist prior to each flight, too. Producers will have more time if they do not offer clients all the coverages they need. If the producers actually use that time to make more sales, then maybe they could make enough additional sales to offset the extra risk. If they don’t increase sales, well then they have more time to play golf.
2. Smaller accounts will multiply. A benefit of using coverage checklists correctly is the average account size increases, which increases efficiency and profits. Therefore, by foregoing coverage checklists, agencies will write smaller accounts. Smaller accounts generally care less about coverage than price, at least until they have an uncovered claim. Quoting price is much faster than discussing coverage. So by not using checklists, agencies have time to write more small accounts that focus mostly on price and will shop the agency every year. Nonstandard auto agencies have done well with this model.
3. The opportunity to meet more people will increase because retention will decline. Some people just get tired of relationships quickly and want to constantly meet new people. It is well accepted that price shoppers have lower retention rates, which means more customer turnover. Focusing on price rather than the coverages clients need leads to writing more price shoppers and, hence, worse retention, and in turn, the opportunity to meet more new clients.
4. Reputation will grow as a peddler rather than a professional. This may be the greatest benefit because in many courts, a peddler of insurance is held to a much lower standard of care than a professional. By not discussing the coverages, it is clear to everyone that the agency is a peddler, a company that does not care about its customers. Thus when the plaintiff’s attorney suggests the agency owed the client a coverage review, the agency can honestly plead incompetence. The result is that a peddler’s E&O exposure is materially less than the exposure of an insurance professional, all else being equal.
The problem arises when the agency advertises professionalism by stating it is a trusted advisor, that it reviews its clients’ coverages and price, and so forth. Not only does advertising one thing while doing another create an E&O exposure, but it also might be advertising fraud. If an agency advertises something, it better actually do it. So if you want to take advantage of the benefits of not using coverage checklists, do not advertise that you’ll do anything for your clients, and this includes business cards, letterhead, proposals and brochures.
5. Producers do not have to know as much. Learning is tough. As Thomas Szasz reminds us, “Every act of conscious learning requires the willingness to suffer an injury to one’s self-esteem. That is why young children, before they are aware of their own self-importance, learn so easily; and why older persons, especially if vain or important, cannot learn at all.”
We have a lot of important people in agencies so it makes sense they do not want to learn coverages. If they do not know coverages, it makes sense they do not want to use coverage checklists because clients might ask them questions about coverages for which they have no answer. I can see how it would be much easier and less embarrassing to simply not use coverage checklists.
Now I understand and I hope you, too, understand better the benefits of not using coverage checklists.