Calling non-pay clients... a good idea or an E&O exposure?

[jtharpo]

In the past I owned and operated a $3 million book of business where we had about a 92% retention ratio. The guy who I bought it from had always called his clients who were about to cancel for non-payment of premium with the idea that it was a way to stand out to our competition. It was one of the reason's that I believed my book had such a high retention rate.

After selling off my book I became a regional manager for a large personal lines independent agency. Our retention is at about 83% and it is something that we have been trying to increase. When I brought up the idea of calling non-pay cancellation policy holders was when it was explained to me that this is a huge E & O exposure and is something that the agency cannot do. In my search for documentation or specific cases regarding this i have come up with very little.

Does anyone out there have any specific cases that they have lost due to calling their non-payment of premium cancellation clients? Or is this simply a case of Urban Insurance Legend?

[d's insurance store]

Maybe real...maybe Insurance Urban Legend...but it's worth noting that if client only pays after an agency phone call, and then one day, for what could be a variety of reasons, that call isn't made and the policy lapses and a loss occurs, can the insured assert that the phone contact was the payment trigger and it was the agency fault for the loss of coverage?

I subscribe to that theory, and therefore, my agency practice is to call once in a policy period and always when a late pay is out of character with the payment history. I always tell my regular late pay clients that the calls will stop because I cannot professionally put my agency at risk for being the reason people pay their premium notices.

Something I've always wondered, and seldom asked...do these regualr late pay people blow off ALL of their bills, or is it just insurance. I mean, the phone company doesn't call before shutting off service...but we insurance agencies do.

[InsMgmt]

Just saying "no" seems a bit too cut and dry. You will always have those clients who need reminding from time to time (the independent elderly or clients whose skills do not include administration - small contractors come to mind). But, you may be creating a problem if you call one set of clients and not others. There are statutes which may require that there be no invariability in your practices. Essentially, you have procedures in place so it's done one way, by everyone, all the time.

I would believe that your E&O exposure arises when you deviate from established practice. You choose to notify certain clients of pending cancellations, but not others. If you are going to do it for one, you must do it for all. Do not develop a "favored client" service, which the courts may deem to be above the call of duty, such as pending cancellation calls, and require that you do the same for all of your clients. If you don't provide this service to all, the ones who were notified might be classed as "favored clients" and those who were not notified, and subsequently canceled, might use that against you if there was a claim after their policy canceled.

So, if you are not prepared to make this standard practice for all clients, just say “no” and do not offer the service. There is even some discussion amongst E&O experts as to whether or not an agency should be mailing notices in concert with the carrier’s cancellation notice, since the timing of the agency notice may not make a difference. This would seem to be especially true in states where the carrier is only required to give a 10 day notice for nonpayment cancellation; unless, of course, the carrier is using an incorrect mailing address.

[meytai]

This is an issue that i had a few months ago.. i asked 3 of my marketing representatives.. even the underwriter that wrote my E&O policy if this was an issue.. and according to them this is not an E&O exposure.

By the way, these late pay phone calls are very common (especially the non-standard office that we run). It is a practice that we partake in and i feel that it helps.

One thing that we do is inform the client that this is a courtesy call and not part of our OBLIGATION to them.

I had these questions before myself, but let them to rest a few months ago, but i guess now i am worried again! If my E&O underwriter is telling me it's cool i thought i'd be okay to conitnue the phone calls.. in fact i stopped them for an entire month until i can find an answer

Meytai

[jtharpo]

Thanks for the posts. I am still looking for an example where someone has actually lost a case. No one has come forward and in looking at information on the internet there is nothing that I can find, which is the reason that I have this forum. I know that all CIC courses mention this as a practice that you should not do, but there is no support to that which I can find.

Please someone come forward and let me know that this is real and no just the urban insurance legend.

[INTLXS]

This is more of a matter of do it for ALL customers or don't do it for any of them. Its one way or the other.

In terms of find a "case" you can hang your hat on, you might have to search hard and wide. Best bet it to contact one of the industry Insurance Agents E&O experts and pose the question to them.

You may not find a case if the carrier in investigating the case, taking depostions and determining the liability of their insured determines that there IS LIABILITY and subsequently settles then it will never "hit the books". Its more of a pattern of activity, what are your procedures, do you follow them and have you documented your file.

Direct bill was intended to take the collection process out of the agents hands. The company sends a bill with a due date and then sends out warning (notice) of pending cancellation if it was not paid by a specific due date. That is pretty clear to me! Agents complain that carriers are dumping more responsibilities in our laps and lowering our commissions at the same time, which reduces our profit margin and forces us to work harder for the same $$$$'s and yet we are trying to TAKE ON MORE?

Credit underwriting has merit. If people aren't responsible enough to pay their bills on time, then they are more likely to suffer a loss. So getting rid of the late payers is good risk management and should reduce our loss ratio with that carrier, right?

I personally do NOT expect my agent to call me if my insurance premiums are late. I do expect a direct bill notice of cancellation if I don't meet the due date. I think by calling we perpetuate one of the core problems in the US, people are NOT responsible for their own actions.

Ok.. time to step down and yield the soap box to the next person...

[d's insurance store]

The above comments mirror my own feelings, and that's why in my earlier post, I said that I will call a personal lines/small commercial client when a late pay notice is out of character, but I will not become the third billing notice for clients with an additional phone call.

In all honesty, after 25+ years in this personal lines business, I have concluded that by and large, it is the same clients who have the cash management problems, month after month.

In fact, I have been in the position of making that phone call, having the insured respond with a payment and reinstatement, only to have them suffer a loss within days of the payment, impacting my contingency bonus in major ways. Boy, did I beat myself up over those three or four instances in past years. If ever there was a reason to let something fall off the books, there you go.

I think the perpetual late payers perhaps have similiar issues with other billpaying aspects of their lives, and are just used to collection type calls from other creditors, so the expectation of calls from their insurance agent is right in line with the rest of their bill paying habits.

[meytai]

d's insurance,

Today i had a rep from GMAC who previously owned her own agency, worked as an agent and now is a rep for GMAC talk to me today.. i'm 26.. and basically learning this business.. today i learned something from her.. today i learned soemthing from you.

I have gained some new perspective on this.. and i agree with your post. I have taken upon myself more responsibility than i should have.. i will rethink some of teh things i practice at my agency.

Thanks for teh posts

meytai

[mhutch69]

I have instructed contact with late payment non-standard auto clients for 30 years without incident. Although I can see the potential for E & O exposure, the legal notice of cancellation is required by and satisfies statute. Once issued, the matter of a phone call or not is a hard case to make for the insured.

"I would have made the payment , but the agent did not call me". "I disregarded the prior 3 notices and did not remit my monthly payment, but had the agent called, I would have paid for sure".

I am confident we could defend such an allegation in court. If it came to that. If the CSR(s) calling late payments were out sick during the period whereby the individual clients lapsed, I find it difficult to believe the customer could make a case for us not doing our job properly.

But, in return for the signficant improvement in retention in my line of business, I am willing to take the chance.

[jtharpo]

Still no one has come forward and said that there is a real example of this being an E & O exposure. To me it is an urban insurance legend that no one has really questioned. With improved retention and a means to seperate yourself from the competition I see nothing except the benefit. In regards to all late paying clients are not a good risk I disagree. Many times notices or mail from their insurance carrier goes unopened or is dismissed. We are in the business of insuring people and many times clients feel like if they were in trouble with their policy they would get a phone call from their agent.

Is there anyone out there that has some a real life example of an E & O case in regards to a call?

This Urban Insurance Legend will most likely live, without question, except from me.

[R Levine]

I don't believe there is a right or wrong answer here. Many Agencies may even be selective and not know it. This was brought up in an E&O seminar. The instructor said to be consistant throughout your office. He stated that if it was his Angency, he wouldn't call. The best recommendation I can give is to send a follow up letter stating that your Agency called in the past but will not be calling in the future. This might eliminate the expectations of a reminder call on Non-pay cancelations.

[wlunday]

And me, too. I've always practiced contacting overdue insureds. Our retention is extremely high and loss ratios are low. We don't look for non-standard business, but as a general rule we have some on the books. If I ever have an account that I really don't want to keep I will send them a postcard instead of a call... saying "Dear ___, I've just been notified by the company that your aotu policy in no longer in force. Please have your new agency contact me if they need any additional information to service your account.

Swymmer

[d's insurance store]

At this point in the discussion, I'm going to conclude that, like many of the things brought up here, this is an agency specific solution to what may or may not be a problem.

Agencies concerned first and foremost with retention, perhaps because they are still in the growth phase, tend to call on every account.

Agencies more seasoned, or looking for a more refined client list, will let the 'problem' clients fall by the wayside to become someone else's problem.

And, I found it interesting that no one, even with web research, could substantiate any E&O cases related to this issue.

Me, I'm still going to be selective about who gets calls from my agency. Retention is very important to my personal lines and small commercial base, but when the workday is finished, I'm not 'mommy' to my late paying clients, and if they don't care, then why should I?

If the business has transitioned to where the only clients are the 'hard to deal with', then it's probably time for me to leave the business to others.

[rknrl]

After 26 years in the business as an agency owner, my advice: Just keep your E & O paid up, & don't worry about whether you'll be sued for providing a service that most are either to worried about, or to lazy to do. I have never heard of an actual case & think that making the calls is actually going to make your case stronger than if you are accused of not making the calls at all. For example they can say, " my previous agent called & I expected my current agent to do the same." You can always be sued & the chances are it will be for something else, like not placing coverage, or not placing the right cov, ect... Just my opinion.

[etimer]

Over twenty years ago I remember an E&O seminar saying you should not engage in such actions. Their reason was, once you start the exercise, the other party has legal recourse to come against you if you forget to call them. In other words, the onus lies with you to keep after them to pay.

On the other hand the calling isn't part of your normal business model it would be hard for a court to place the blame on you. I tend to agree with them.

The same holds true with holding yourself out as an "expert". Courts WILL hold you to a higher standard if you have held yourself out as an expert. It is one of the reasons I don't use all my alphabets in the public or business cards.