August 1, 2023

Hospital Robes and Insurance Policies

Did you ever hear the joke about hospital gowns and insurance policies? You are never covered as much as you think!

The world of selling insurance is a truly fascinating one. Unfortunately for most people, while listening to an insurance seminar or sales pitch, their eyes start to glaze over with sleepiness within a minute. Today we’ll discuss buying insurance coverage and provide two “Pro-Tips.”

First, we want to recognize that the social worker profession is noble and founded on service, integrity, and clinical expertise. At times it can be a stressful and hazardous occupation. The nation is grateful for what you do. AND SO ARE WE! Thank You!

Insurance comes in many flavors. In the Life & Health category, examples include term life, whole life, final expense and burial, credit life & disability, mortgage, accidental death and dismemberment, health, hospital indemnity, dental, and vision.

On the Property & Casualty side, examples include auto, motorcycle, boat, renters, homeowners, and liability lines, including professional liability, malpractice, general liability, cyber liability, employer’s liability, and the big one called workers compensation. There is also a vast array of other insurance lines called specialty, marine, and others.

The common denominator is that all insurance policy contracts shift defined peril risks from the insured to the insurance carrier in exchange for paying a premium. When an incident occurs, the fine points of the policy contract language become critical. Policy contract language determines whether coverage exists and if the claim is coverage eligible under the policy contract. You must read your insurance policy contract thoroughly to understand what perils are covered and to what extent.

Policies limit peril frequency and severity. For example, most general liability policies impose a fire liability sublimit of $250,000 or $350,000. The policy may state that it is a $2,000,000 or $1,000,000 per occurrence limit, but when you read the contract language, you see a much lower sublimit imposed for a fire liability claim. Some policies only cover a single fire incident claim per policy year.

Conversely, Preferra Insurance Company has no sublimit on its general liability policy and no frequency limit on fire liability incidents. Preferra is introducing a $2,000,000 per occurrence general liability policy in addition to its existing $1,000,000 per occurrence general liability policy. You will also see that the Preferra general liability policy is the lowest-priced premium on the market, the most liberal underwriting, and the most generous comprehensive coverage.

Insurance is a part of life, almost like death and taxes.

So, depending on your life and state license requirements, you will be an insurance policy customer. So, you should know how the insurance distribution process works. It will save you money. Here are two tips.

TIP #1

Consider what life stage you are in and your specific needs, and do not be oversold. You may not need particular insurance policies, so do not be swayed by online ads and insurance agents driven by commissions. Also, do not be oversold on policy endorsements, extra benefit coverage, or expanded limits. These may not be necessary in your circumstance.

It would be best to have insurance to drive for your health and profession, and you may want insurance to provide for your family. We all live in an age-driven life continuum that insurance carriers and agents focus on. Each person’s life span segment is an opportunity to sell a specific insurance policy for your particular needs.

After all, that’s the insurance carriers’ business to sell an insurance policy to you. In their eyes, it’s all about metrics such as policy benefits to drive up the premium and agent commission, requests for quotes, policy quotes, policies sold, policies fulfilled and premiums collected, and claims paid frequency and severity.

Let’s quickly walk through typical life stages in the continuum that insurance carriers focus on. These are called “life events” in the trade.

Typically, when you start driving as a teenager, in most states, you must buy auto or motorcycle insurance to cover liability, accidents, and health-related injuries. When you move into your first apartment or home, your landlord requires you to buy renters insurance or a homeowner’s policy. If you own a house, your lender will require insurance on that asset which is security for the loan. You should also buy some health and medical insurance coverage.

Many people, as employees, receive some coverage through their employer, but many purchase supplemental coverage. If you start a business, most states will require you to buy a workers’ compensation policy. If you create a social work practice, for example, most states require a professional liability policy, and your office landlord will require you to buy a general liability policy. When you start a family, you should buy term life or whole life insurance.

These products provide for your loved ones when you die. A wide array of accidental death and dismemberment policies are considered term life, and many are guaranteed issues with no underwriting required.

Insurance carriers also focus on the end-life stage with products such as Medicare Supplement policies and long-term care policies. Finally, we have Final Expense life policies at the end of the line. These are typically guaranteed issue policies that are the low-face, maybe from $10,000 to $25,000, that cover burial expenses.

These policies will respond regardless of the insured’s age. Death triggers the benefit payment. The same holds for term and whole-life policies.

All of these policies have specific features and complexities. For example, some whole-life policies have investment options and savings features on the cash accumulation of premiums. Some auto insurance policies provide some cash back if you report no claims. Some life and health insurance carriers offer cancer policies that return all premiums if you are cancer-free after a defined period.

The critical point is to assess your needs and not be oversold on various policies and coverage amounts.

TIP #2

Consider your purchasing channel premiums are typically lowest without an insurance agent involved. When renewing an insurance policy or buying a new one, a distribution channel is embedded in the process, which applies to any insurance coverage.

First, determine the type and level of coverage you need and read the actual policy contract endorsements; after the sale, read the Declarations page as well. As stated in previous Tip-of-the-Month articles, make your insurance coverage review a standard part of your practice administrative support tasks.

To be an informed shopper, you should know how the distribution channel works. The insurance world is complicated and centered around shifting risk from the policyholder to the insurance carrier. As the customer, you are directly involved with the various categories of insurance carriers and their distribution partners, all insurance licensed. Licensing is a critical tool used by state governments.

The federal government sometimes regulates insurance sales processes, administration, standards, policy contracts, communications, policy rates, money, coverages, and disciplinary action. The purpose is to make sure that the public is protected using a set of very high standards.

Currently, insurance is sold by several categories of licensed intermediaries, such as carrier salespeople, agent producers performing as independent agents, and insurance agencies appointed by a carrier or master general agency. This wholesaler deals with retail producer agents or a broker. In all categories, the interaction is in a fiduciary capacity since the law requires honest and faithful performance.

Typically, every two years, the producer agent or distribution participant must complete continuing education training and a series of rigorous exams to earn insurance license renewal.

Here is when the distribution system gets complicated. Suppose you want to buy a Professional Liability policy or “PLI” policy. Very wise indeed. Whether or not a PLI policy is mandatory in your state, and if you are self-employed or an employee, buying a PLI policy is undoubtedly worth the money. Legal defense costs are about $250 to $800 per hour compared to the average PLI policy annual premium for an individual that, starts as low as $55 annually for a claims-made policy and averages about $240 annually for an individual.

When shopping for a PLI insurance policy or other policy, for example, you will most likely deal with three categories of sellers:

  1. the independent agent,
  2. the captive agent in-person or online employed by a carrier or an agency, or
  3. the online aggregator.

First and foremost, the more parties involved with the insurance policy sale in the distribution channel, and the more personal selling during the policy sale, the more costly the premium will be to you. That is because commissions and policy fees are applied.

Moreover, when sales agents are paid on commission, they naturally flock to selling the higher premium insurance products, which are also the more complex ones. They will also try to “load up” the policy with additional coverage to get a higher premium and more commission. They will also focus on significant cases or large customers, which drives up premiums and the associated sales commission.

For example, a prominent business may buy a fleet policy, general liability, workers’ compensation policy, and maybe life insurance for key employees, so the total annual premium from the case may be $30,000 with a sales commission of $4,000. On the other hand, commodity-based, narrowly focused products made for individuals have much lower annual premiums, such as a $55 annual claims-made premium PLI policy that produces a commission of about $5, which is not worth the sales agent’s time.

Typically, the lowest cost for the small individual insurance shopper is to buy online or through a direct response purchase like the mail. Online and direct response distribution channels need the personal attention an insurance agent provides, so you must research your policy and coverage. Many distributors have sales agents available by telephone to answer specific questions, but you still need to do your homework.

Insurance is complicated; online platforms only answer some questions or provide the shopper with the detailed knowledge that a producer agent offers. That is why it is essential when buying insurance online and through direct response methods to utilize all available information sources and recommendations, including telephone-sourced customer service where licensed insurance agents are available on the telephone to answer questions.

The insurance carrier is considered the “manufacturer” and wants maximum distribution but cannot have a distribution contract with each independent producer agent because there are 1.2 million agents in the U.S.

As a result, many independent producer agents work out of their own small office or home and distribute through an MGA or Managing General Agency or Wholesaler appointed by contract by the insurance carrier and perform all administrative duties. In contrast, the independent producer agent sells the insurance policies.

The MGA or online aggregator insurance agency contracts with the insurance company to distribute the insurance products and receives a commission on new and renewal policy sales. The MGA pays its independent producer a small commission.

Some insurance carriers have their own “captive” agent sales force, and some carriers have an online sales website to sell policies. In some situations, an insurance carrier will contract with a group or association, either directly or through an MGA, for permission by contract to distribute to an entire membership base. Usually, an “endorsed” or “affinity” group program arrangement with exclusivity for a specific line(s) of insurance offers premium discounts often embedded for the group members in these affinity arrangements.

Online aggregators work efficiently in the distribution channel for low-priced to moderate insurance policies across all insurance lines. The focus is on individuals, small businesses, and small practices. The online aggregator is an MGA that contracts with many insurance carriers to distribute their products.

Some act as MGAs doing administration, while other MGAs simply mass-market the insurance products and sell the policies for a commission. The online aggregator brings together many carriers for comparative rating. They also offer a variety of products that fill coverage gaps. In other words, some carriers only cover certain occupations with PLI, so by recruiting many PLI carriers on the aggregators’ platform, there is a wide choice of PLI coverage solutions and occupational coverages. The premium pricing is lower because the intermediary agent producers and their commissions and fees are eliminated from the distribution channel.

However, the information service side needs to be improved.

Conclusion:

The nationwide insurance distribution network is widespread, highly flexible, and very fluid. Insurance carriers often utilize multi-channel distribution, and there is channel conflict and variability in insurance policy pricing.

Many insurance policy individual or small business shoppers approach their buying decision the following way. Initially, they determine what their coverage needs are.

Since the case sizes are small, they then seek out quotes from insurance carriers, mostly from website-based quoting engines. Many wisely call online customer service licensed representatives for more clarification, which is the most complex and time-consuming part of shopping. Make sure you read a copy of each carrier’s insurance policy contract, no matter what type of insurance.

We have found that the NASW endorsement of Preferra Insurance Company brings overwhelming support and heightens shopping knowledge. The NASW-endorsed insurance products have already been vetted, approved, and rated by A.M. Best as “Excellent.”

Again, as stated in previous Tip-of-the-Month articles, ensure you understand how your insurance policies operate.

Read the policy contract language carefully and ask questions for clarification. Check the policy limits and the sub-limits by peril type. Check the frequency and sub-limit of each kind of peril. Verify what the deductibles are. Also, check the insurance policy exclusions. You will need this information to select your insurance coverage properly and compare insurance carriers’ policy coverages and premiums.

Thank you for all that you do! Your profession is genuinely noble and needed now more than ever. Good luck, and stay healthy!