4 Reasons Why Risk Assessment is Vital More Than Ever for Agents

Insurance agents need to be experts at risk assessment and risk management in the current market. Why? Read on to find out.

Insurance agents have been a staple in insurance since it’s conception back in 1350 AD. The professional is as old as the industry itself. And like the industry, it has evolved to match the market.  

Agents of yesterday would have a more of a broker’s role, taking care of paperwork for the insureds and acting as the point-of-contact. In recent years, computers have largely replaced traditional paperwork. However, brokers are still numerous and prosperous. This is because the role of an agent is shifting towards an advisory one rather than a sales agent.  

To be a good advisor requires knowledge and experience. The biggest reason insureds still prefer agents over direct computerized systems is due to the advice an broker can provide them regarding the risks they face. 

Insurance is Risk Transference 

Insurance, in essence, is the transference of risk from the insureds to the insurers. Specifically, they transfer monetary (and sometimes legal) responsibilities of any loss they may face to the insurers in exchange for paying a premium. 

But how do the insureds know which risk they should transfer, and which they can afford to bear comfortably? And if they do transfer risks, how do they know one risk isn’t covered twice? 

Simple: through insurance agents. 

This is where the agents play their part. While it is ultimately the underwriter that details and specifies the risks the policy covers, the agent is the one that needs to get all the information. Hence, agents need to be experts at risk assessment and risk management because: 

1. They need to adapt to the market

As we mentioned before, the role of the agent is changing. According to Bluefin Professions, carriers selling insurance policies directly to the insureds are forcing agents to adapt. If agents cannot assess risks accurately, they face several problems.

Agents face a lack of business. Customers are present at first, but as things start going wrong, they will switch. 

The first problem brokers face is a lack of business. They might be getting customers at first, but as the customers start noticing that their risks are not appropriately covered, they will switch.

Customers are more likely to pick and recommend an expert over a novice. They usually look for an agent’s ability to assess risks accurately and recommend appropriate coverages.   

Agents need to be able to do this because: 

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2. They might face legal action by the insureds

“Failure to advise” is a common lawsuit that plagues agents today. Which is an E&O exposure that is filed by the insureds when the advice they get is not good enough.

Agents are increasingly facing legal battles. After Hurricane Sandy, people affected by the storm got a rude shock when they realized that the homeowner’s policy does not cover flood damage (this is a popular insurance meme in the niche). It wasn’t funny to them, though. 

Homeowners (beachfront property holders in particular) filed numerous lawsuits against agents. According to Consumer Reports, 56% of Americans think incorrectly that flood damage is covered by a standard policy.  These lawsuits increased exponentially after the American Building Supply Corporation vs. Petrocelli Group: the New York court conceded that policyholders don’t always read their policies. 

NBC News reports, American General Life and Accident Insurance paid $250 million in a case involving 9.1 million policies. On the other hand, in 2002, Metropolitan Life Insurance Co. paid $157 million for 1.9 million policies. Recklessness by agents cause these losses.  

Before this lawsuit, agents were largely insulated from these lawsuits if insureds accepted the policies without objection. However, in this case, the court concluded that “receipt and presumed reading of the policy does not bar an action for negligence against the broker.”

Simply being good at risk assessment is not enough in this case — examples like this show why brokers need comprehensive Errors and Omissions Insurance policies to protect themselves.

Accurate risk management helps agents avoid these lawsuits, and E&O policies protect them in the worst-case scenarios.

Risk assessment is also necessary because:

3. It helps progress your career

An agent’s job has the potential to be very big, but this can only be realized if they are good at it. Moreover, agents aspiring to become MGAs (Managing General Agents) need risk assessment skills more than ever. 

An MGA is an insurance agent that has been granted underwriting authority by insurers. This means they can sell and bind policies by themselves. To do this, they will need to be exceptional at recognizing and addressing risks, on the danger of more severe lawsuits than agents normally do.

Referrals are the holy grail of insurance marketing for agents, and it will only happen once people are confident in the abilities of the agent. Brokers need to build trust before people start recommending them, which can only happen if they meet the needs of the customers adequately.

 

4. Consistent and efficient operations

The main idea of risk assessment is to discover the risks that would cause daily operations to fail. Identifying those risks that would hamper operations should be an important task for an agent. Agents need to minimize risks as much as possible, which in turn, results in smooth operations.  

Any improvements in the risks identified, big or small, can lead to efficient operations for an agent. Resolving risks improves an agent’s operations, which in turn increases customer satisfaction levels significantly.  

To manage this risk, agents need to find solutions to resolve risks or alternative methods.  

Insurance agency without risk assessment is risky business! 

As we highlighted above, brokers need strong risk assessment skills; else, they will lose business they have, face lawsuits, and run the risk of having a stagnant career. So, on top of your soft skills and knowledge of insurance, you need to foster a respectable amount of risk assessment and risk management skills as well. 

Do you agree with us? Let us know in the comments below. 

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