Is insurance too complex?
Updated: Aug 25, 2020
I ask this because over my 25 years of doing E&O audits, E&O instruction, and giving E&O advice, not much has changed relative to whether producers will use coverage checklists. The reasons they will not use coverage checklists are well documented. Some, such as just being lazy, are inexcusable and have nothing to do with the complexity of insurance.
Distinguishing between producers being lazy and producers that can't use coverage checklists requires some digging. Lazy producers use all the same excuses for not using coverage checklists as the reasons given by producers who can't make them work, but at least try. The producers working unsuccessfully often state they can't get checklists to work because the conversation is so difficult.
I teach people how to use checklists conversationally and my technique works. However, few producers take up the offer for instruction -- are they really lazy then?
Those that do take me up on my educational offerings all have more success. The ROI is fantastic. Honestly though, I expect even more success and some of my best clients have come back and advised, that while they would never go back to the sloppy way they were doing things before, they are not sure they can ever fully maximize the value. They see, often for the first time, the infinite opportunities to make people's lives better and one can't catch infinity! It is an awesome but magnificent conundrum.
At first, I dismissed some of these statements because the accounts involved were small. While every small contractor needs all kinds of coverage almost none of them will buy all of the coverages they need (this is why agencies should use coverage checklists from a defensive perspective). Even if they were to buy all the coverages they need, taking the time to go to the nth degree in coverage discussions is just not realistic. These small business owners have so much on their plates and they lack the base knowledge of insurance required to have more complex discussions. This is no excuse for the lazy producer because I'm not suggesting a checklist should not be used. I am suggesting that a long, detailed checklist complete with a comprehensive coverage discussion is not likely to occur due to the customer.
I then began paying close attention to my clients who use checklists on an offensive basis. Coverage checklists used well are the best sales tool ever created, especially for large commercial accounts. These accounts have the dedicated personnel that are supposed to have the required underlying knowledge so that complex exposures can be proactively addressed. However, complexity keeps hindering the full use of checklists.
Then came cyber.
When anything becomes complex, two bad things inevitably happen. First, con men rise from some level of Dante's Inferno. They understand too well that in a complex environment, people want simple answers. So, they give simple answers to complex insurance questions. Simple answers inevitably create major coverage gaps, but the con men will be long gone prior to any claim.
In other words, people are throwing darts and buying policies that may or may not provide coverage for a claim they hope they will never have, regardless of the policy they buy. One major reason for the origination of so many new insurance companies and agencies that offer simple solutions to complex situations is they are providing solutions to people's emotional needs rather than their true insurance needs. This is a huge and important distinction.
Insurance nerds like me can rail about the need for addressing clients' insurance needs, but emotions always trump, until the uncovered claim occurs. Unfortunately, because of the way many of these new carriers and agencies are organized, their E&O standard of care is quite low, so the burden is placed on the buyer. What happens when obviously inexperienced people with complex but not understood exposures buy an inadequate product? What happens when people without medical knowledge but with pain requiring complex treatment they do not understand decide to buy the latest snake oil? What happens when people with serious legal needs hire an attorney who sounds nice but has little skill?
Emotion always trumps reason. We are not going to make real insurance any less complex. The cheap stuff is easy to make simple, just eliminate most of the coverage while hiring the very best attorneys to write the insurance contract.
To advise insureds relative to the purchase of a complex product they do not understand and do not have the emotional energy to learn because it is a product they never, ever want to buy, one absolutely must focus on their emotions. Exposure checklists, done as a conversation, is one of the best solutions. Potentially a simpler but powerful solution is the one that is purely anathema to almost very E&O expert in the industry. Call yourself an expert. Tell people that if they will take the time with you to design their insurance program well, and it does not work within the parameters they have agreed to, they can sue you. It is that simple. Give them a certificate of insurance with your E&O policy information. It gives people a simple solution and confidence in you that you will stand behind your word.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand Insurance Education, Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.