(Agents' Legal Issues provides a brief, general overview of a complex area of law, and neither the author nor Rough Notes intends it to be taken as legal advice for any specific legal problem. For a specific legal problem, consult legal counsel that understands the law of insurance and insurance agencies, and provide all the details.)
You can't spend a month in the insurance business without hearing someone talk about cross-selling. Agency owners frequently focus on cross-selling to make more money from their existing client base. Those agency owners who do not offer all lines of products can suffer because some prospects are best brought into the agency through products other than their traditional lines.
Furthermore, in today's information-rich technological world, automated agencies can tell in a second if a given client or prospect has purchased certain types of insurance from the agency (and if renewal dates are coming up), so there is a natural desire to bring up other products which the client or prospect has not purchased or considered.
Of course, the old boundaries have been relaxed quite a bit. Banks are getting into insurance, insurance companies are getting into securities, and security companies are helping businesses borrow money. So it's natural for a client to expect that the modern insurance agency can do everything. Unfortunately, we know that there is a world of difference among the products that happen to be called "insurance." If you are an expert in general liability insurance, you may not know much about surety; and if you know surety, you may not know much about D&O. Crossing from D&O all the way over to short-term disability insurance, or variable life insurance, is a huge jump for most P-C agents. And that doesn't even count title insurance, which most P-C agents have absolutely nothing to do with.
But clients don't know any of that. Clients only know that you are their insurance expert; and in these days when the next insurance agent is just a click away on the Internet, you are loath to admit that you don't know everything about everything called "insurance."
The term "cross-selling," of course, can refer to a P-C agent selling a second P-C product to an existing P-C customer. However, for purposes of this article, we are going to focus mostly on P-C agencies that cross-sell L-H products (much of what will be said applies also to P-C agents who are trying to sell a second P-C product).
The rub, of course, is that you can't suddenly just start offering life, health, disability, and long term care products. It takes proper licensing, access to carriers, and training. And you must have producers who know what they are doing. The good news is that the areas of life, health, disability and long term care can be entered more easily by a property/casualty agency than property/casualty can be entered by L-H people. That's because carriers looking for P-C tend to have volume requirements that you must have just to start working with them, while you may be able to access L-H business through a general agent without having a single L-H client to start with.
Another positive factor is that L-H training often is set up with speed in mind. For example, CLU students have often gotten the Chartered Life Underwriter credential in one to three years, due to the availability of automated examinations.
But after the training, there is no substitute for on-the-job experience that teaches one what works and what doesn't. The problem is, you don't want to make big, costly errors on the way to learning how to make money in L-H. This article will focus on a few things that P-C people might want to be aware of, as they begin to earn money in L-H. We can't cover everything, since L-H is a huge field, but we can hope to cover a few things that could help you avoid misery during the learning curve.
It isn't about dying?
One early mistake that new L-H producers often make is to assume that life insurance is about dying. Sure, some people buy life insurance as a way to prepare for burial costs, and as a way to provide some money for the surviving spouse and others. But more and more, life insurance is about other things entirely--things that require specialized knowledge. Life and disability insurance provide for the perpetuation of businesses. Some life insurance is sold as a tax avoidance device. Often the most successful life insurance salespeople are experts in the estate tax laws, and how life insurance can be used to minimize specific kinds of estate taxes such as the generation-skipping tax (a tax that can hit the estate of people trying to pass money directly to their grandchildren or great grandchildren). Other life insurance experts specialize in the use of life insurance in connection with charitable contributions or real estate transfers, specialties that require an in-depth knowledge of the laws in those areas. Of course, there are other types of life insurance that are partly investment products, and the salesperson needs to have knowledge of securities laws.
Health insurance producers have similar problems. You can't just sell group insurance, for example, without knowing what companies are legally qualified for group health. In addition the COBRA laws have become so complex that now some people specialize in nothing but handling the insurance for people who have left their employers but still have legal rights under COBRA to receive health insurance.
Part of the problem for the new entrant into L-H is knowing what questions to ask. It is best to decide what particular specialties the agent or producer will be handling and to develop the knowledge base necessary for dealing with the new area.
Contractual issues
An agency can choose one of four ways to enter L-H. First, it can make an agreement with another agency or agent who already specializes in L-H. Second, it can use one of its own P-C producers to handle L-H. Third, it can hire a L-H producer to start up a L-H department within the agency. Fourth, it can hire a so-called "outside producer," that is, someone who is not an employee but is an independent contractor.
In each case, the agency needs to specify the limits of the arrangement. If an employee is to be involved (such as in the second and third cases described above), then the employee needs to be told the boundaries of the agency's effort to get into L-H. The employee also needs to learn what types of L-H are beyond his/her skills, so that big E&O problems will not arise (see more on that below). If the employee has a written contract with the agency, the contract will need to be prepared or modified to describe the employee's duties and limitations with regard to particular types of L-H insurance.
Arrangements with outsiders present additional issues. For example, the law of "expirations" has traditionally been different for L-H than it is for P-C. More than one agent has been totally surprised, after 10 or more years of building a book of life business, to discover that his/her contract gives the carrier or general agent, rather than the agent, all the rights to the book of business. Most P-C contracts give the agency the right to the renewals, but L-H has to be carefully handled or it will be handled differently under the law. Of course, some types of L-H are essentially month-to-month renewals, or may be one-time lump-sum payments, so that "renewal," in the P-C sense, isn't the same kind of issue at all. However, the question of who has the right to solicit further business from the insured still can be an important issue.
So the key points here are: (1) know what specific markets you are entering; (2) develop or acquire expertise in the specific markets, and realize when a given project is beyond that expertise; and (3) before you get started, make sure that the contractual arrangements give you the legal rights that you have assumed you will have.
Regulatory issues
Over the years, many of the regulatory problems I handled for insurance agents revolved around people who were trying to handle a product in an area of insurance that they didn't usually handle. Such people would invariably troop into my office moaning, "I knew I shouldn't have gotten into that." Some of those people were P-C producers who had agreed to handle a colleague's L-H business while that colleague was on vacation for a week. Others were P-C producers who just couldn't pass up a lucrative client seeking some sort of L-H insurance with which they weren't very familiar.
Some were L-H people who specialized in one sort of L-H product but were trying to enter another specialty. I represented one agent who had sold traditional L-H products for years, but who was brought up on charges before securities authorities for selling products that required not only a
L-H license but a securities license as well. This producer protested that the carrier's representative had told him that no securities license was needed for the products in question, but of course the securities authorities tend to think that you have your own responsibility to check it out.
Internet issues
Internet issues constitute a sub-set of regulatory issues. You have to obey your state's laws regarding advertising, but you also may have to obey other states' laws regarding advertising, since your Web site can be viewed by anyone around the world. And, from a regulator's standpoint, the Web can be an ideal place to catch violators, since your Web page just sits there until a regulator gets around to viewing it, unlike things that you mail or say which a regulator may never hear about.
Errors and omissions
You've probably seen those charts showing what areas of P-C insurance cause the most E&O claims for P-C producers. With L-H producers, you have some completely different issues. For example, it's fairly common to see claims against agents in connection with non-covered pre-existing conditions that the insured thought were going to be covered. Policy changes, too, can lead to problems: with P-C policies, producers may spend time once a year with insureds going over the coverage and the exposures; but with health premiums that are paid every month, it isn't as easy for a producer to remember to periodically go over the status of the coverages and exposures with the insured.
Just as with regulatory problems, many E&O problems arise from producers biting off more than they can chew--either getting into a new area of insurance, or helping out a friend on vacation, or trying to satisfy a client who needs insurance now!
Marketing
Even the day-to-day marketing may involve some legal concerns. For example, let us take an agent who has entered the group insurance market. At the moment, group rates around the country are jumping, so many insureds are open to talking to new health insurance agents and are looking for ways to limit the increases. One common door-opener to group accounts is to offer to do "benefit statements," which show to employees the full cost of everyone's total compen-sation package in easy-to-read graphs and pie charts, as a way of containing health insurance costs and cutting employee turnover.
But do agents know enough about benefit statements? Often, they use "benefit statements" as a door-opener and win the account without ever finding out what it takes to do benefit statements.
Marketing in the group health insurance field these days often involves the use of "add-ons." Before you promise an add-on, make sure you know about what you are promising.
The teamwork factor
If an agency develops cross-selling capability well, it likely will find itself with a team of capable producers, each of whom has expertise in his/her own area. That limits the problems of E&O within any one area. However, it still leaves open the possibility that clients can fall into the cracks between departments, thus opening the firm to legal problems. The agency doing a lot of cross-selling must beware of problems which can result when clients are "passed off" from one producer to another. For example, a producer might get a call from a client of another producer in the agency who is on vacation. Without proper communication between the two producers, problems can result.
A method of tracking clients being cross-sold has to be put in place, with responsibility assigned to a particular person to make sure that the client isn't forgotten.
In other words, an agency owner never wants to hear two producers in his office, each saying, "I thought you were handling that!"
Cross-selling is such a good idea that every agency should have a plan for doing it. As part of that plan, the agency needs to take care of the concerns mentioned above, such as the learning curve, regulatory issues, Internet issues, contractual issues, E&O concerns. *
The author
Randall Kleinman, JD, CPCU, CLU, is vice president of Online Services and corporate counsel for an insurance-related technology firm. He has worked with agents and their legal concerns for many years. He is a frequent speaker on topics such as the interplay of insurance, law and technology. He may be reached at oospensky@msn.com
©COPYRIGHT: The Rough Notes Magazine, 2000