As an independent agent or broker, there is a lot that separates your services from an easy, online quoting tool. One of the biggest value-added services independents bring to the table is risk management advice: a cogent analysis of the exposures a business owner or private individual faces given their operations or assets.
However, what you might be surprised to learn is that it doesn’t always pay to conduct a full-scale risk analysis. In fact, in the event of a lawsuit, it can actually come back to hurt.
According to Peter Kochenburger, executive director of the Insurance Law Center at the University of Connecticut, there is a strange gray area in insurance law that actually de-incentivizes producers from asking the questions that reveal different risk profiles.
“In many states, there is not a duty to inquire or make questions about the use of your home or business, but as a matter of business practice, good agents ask a lot of questions about risk,” Kochenburger told Insurance Business America. “But as those questions are answered, there’s a likelihood that risks—sometimes without market-based solutions, as we’re seeing with the sharing economy—aren’t properly addressed and that creates E&O risk for agents and brokers.”
However—because much of case law does not hold agents and brokers to the same standard of fiduciary duty as, say, a personal financial advisor—producers who were unaware of a client’s risks may use that as a defense.
“That creates disincentives to be a good agent,” Kochenburger said. “It’s one of the disconnects in common law now—to the extent that you don’t ask and you won’t get hurt.”
In an environment in which one in seven insurance professionals will be named in some type of E&O claim during their careers, according to the National Association of Professional Agents, this gray area is certainly a concern. However, just how long a producer can sustain a healthy business while asking the minimum number of questions is a concern perhaps even more relevant.
As of yet, courts and regulators have not explicitly addressed this legal conundrum.
