Insurance – a written contract, credibility and integrity vs. “Material Misrepresentation” and “ab initio” cancellation

It is strange to sit here and think about how I should address such a topic as one’s integrity and credibility in the Financial Services field – especially given the global financial meltdown of a couple of years ago and some of the lessons that, as a society, were learned – I thought – at the time.

Unfortunately, I have to be critical of competitors of mine which I don’t really like to do.  The reason is that I have seen something, recently, that brought this to the forefront while I have been contemplating it for the past 1-2 (surely, it can’t be 10-20) years now.

When an individual or business owner wishes to “shop” his/her insurance, how should this be done?  Should research be done into the insurance agent/broker and what degree of checking can they do?  Do you care about the “rating” of the insurance company that is quoting and issuing the insurance policy?  What significance is that to whether a claim – your claim – might be reimbursed?  Can an insurance company not pay a claim?  What is “Material Misrepresentation” and something called cancelling “ab initio”?

I’ve been through some excellent training – yes, even Roger Sitkins may have an excellent approach – but I don’t always agree with what is being implemented (hiring people from outside the insurance industry with various specialties and experience to then sell to those same industries but not really know anything about insurance?).  Might that not give cause for misrepresenting the description of operations (how important can this be?) to an insurance underwriter because of a lack of understanding of the insurance business?

Having seen a number of insurance “contracts” – yes, that is what the policy is and what the broker/agent’s “summary of insurance” (or any other written offer/binder until the insurance policy is issued) is – that do NOT properly address a client’s true “description of operations” is incomprehensible.  For many years, I have known of insurance companies who refuse to quote a submission where a licensed restaurant/facility may occupy a strip shopping plaza or where a portion of a multi-tenanted building is vacant.  And yet, that same insurance company will be insuring many clients in that identical situation!

How can any agent/broker explain to his/her client the reasoning behind this?  I don’t know if it is possible!  As to why one individual will provide a quote from “XYZ Insurance Co.” and that same company has declined similar/identical submissions to another broker?  Well, an important reason can be the information that was provided to an underwriter!  If I describe an apartment building that houses 5 or 6 students in each unit as a High-Rise Apartment Building, will I see the same result as a properly worded submission – “High-Rise Apartment Building occupied as Student Housing”?  Anyone who is familiar with our industry will know that the answer to this question is very obvious!  It is just as apparent to a seasoned veteran as describing a frame building as fire-resistive and we all should know that critical difference.

This week, I was advised by an insurance company that they have a “capacity” of $1,000,000 for property in a specific class of business – meaning buildings, contents, etc. (and $1,000,000 is NOT a large sum of money).  To insure a greater amount will then require obtaining their Head Office approval and the possibility of purchasing “re-insurance” at much higher rates than their normal charge might be – this is not too likely to happen!  They would, in all likelihood, not be competitive, either.  That company, apparently, quoted a competitor of mine (according to a client) for $20,000,000+ in Property values at lower premiums – hmmm?  What does that tell you?  It tells me the insurance company may now rescind that very quote (and I would hate to be the broker having to explain that one to the client – oh, it is easy to say it’s the insurance company’s fault, right?).

And when there is a claim that your (not my) client – I’m now directing this at my competition – expects to be reimbursed by the insurance company, will you be there to explain why – due to “material misrepresentation” – that the insurance company refused to pay?  I surely hope so but tend to doubt it.  Maybe my industry competition will claim that this is a case of my crying over “sour grapes” but I was raised in a family where a handshake meant something and a written contract wasn’t necessary (yes, I know those were the days, as is often said) and credibility and integrity still mean something to me!  Where is your integrity and credibility going to be?

I have known, countless times, of manufacturers who exported most of their product and were not paying suitable liability insurance because the company underwriter has limits for percentages of foreign sales and was never advised that they were exceeded (e.g. 10% when it was 90%!).  One instance, I know quite well, was a Wholesaler/Importer of goods from Southeast Asia where the insurance company was not aware of what the product was or where it was manufactured – and yes, it was “critical”!  Yes, company websites are checked, sometimes, and the info showing can be significant in the event an underwriter is reviewing your quote or renewal.

Having as many years in this industry, as I do, should give some of my clients and prospective clientele a degree of comfort but when another individual can insure someone for not 15-20% less but at 1/3 of my quoted premium, will you be really caring about that?  I surely hope so!  Then again, maybe you will think that insurance is a necessary evil and that nothing will ever happen to you and your business!  GOOD LUCK!

Oh, if you really care to know more about “material misrepresentation”, cancellation “ab initio”, etc., please contact me by your feedback, here or elsewhere, on the many postings I have.  Only then you may find that your provider is not too credible and wish to replace him/her!  But I won’t be waiting with nothing to occupy my time because I do have many clients who want a professional handling their insurance business for them.