When it comes to choosing an insurance agent or broker, consider the same process you’d use when finding a competent and reliable medical provider.
Imagine the following scenario. During your annual physical, your doctor says that you need to have surgery. It’s a pretty big procedure, but he or she says you should get it done sooner rather than later. What do you do? Likely, you’ll start trying to find a good surgeon, asking your doctor for recommendations, checking with friends and family to know if they have had a positive experience with one, checking with your insurance company to see if they have any recommended surgeons. You may go online and check Yelp or Google to see reviews about doctors as well.
Once you find a few potential surgeons, what do you do next? Schedule your surgery? Probably not. You’ll want to meet them first. Talk with them. Let them see your health history. Find out how many surgeries of this type they have done in the past, what their success rate has been. When seeing the doctor, you will likely also be assessing their personality and bedside manner. The staff in the office play a large role in your overall level of comfort with them, too. If all goes well, you still won’t schedule your surgery on the spot. Chances are, you will still poke around more online, ask around, verify information you’ve found so far. Then, and only then, after going through all these machinations surrounding which doctor is just right for you, will you decide on one, pull the trigger and schedule your surgery.
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All of this is entirely reasonable. This is surgery after all — it’s your body, your life. In a similar vein, when selecting an insurance agent or broker, the individual that you may entrust with assisting you in protecting your assets, from your home, your car, health insurance, even life insurance (and we’re right back to your body), it may not occur to you that not all agents and brokers are created equal.
Insurance agents are not all the same
Before you shrug this off, I will agree that you are worth more than any house, any car, any business. Having said that, having the appropriate insurance protection at a price point you can live with can be a matter of financial life-or-death. Ending up with the wrong agent can cost you, not only in potentially paying more in premium than is necessary, but also in not having the appropriate coverage if you have a claim. Nothing chaps my hide more than when a new prospect comes to me and tells me about a claim they were denied coverage for and why, and the why is their agent simply didn’t give them what they asked for.
Not all insurance agents and brokers are created equal. I remember long ago when I was a mere little guy in college, thinking I was going to be a pediatrician, because, well, doctor or lawyer, right? I had to dissect a fetal pig for one of my courses. Things did not go well, comically so, and I was ready to throw in the towel. My father told me to remember, and I quote, “Don’t worry about grades. The doctor who graduates from medical school with a C average still has MD after their name.” A strange comfort, and I never forgot what the ramifications of this were in every industry.
To sell insurance policies, each state has guidelines for the licensing process that an individual must go through. Imagine hours and hours of instruction and tests — yes, plural tests — that are state-dependent, but in no state is it a simple task. But guess what? The exam is pass-fail. And even if you pass the first time, you have, as my father indicated, the same insurance license as the person who failed the exam repeatedly before managing to pass.
You may also know of the incredible phenomenon with pass-fail exams. If you fail, you could have “just missed it by one question.” However, if you pass, then you might have “only missed one or two questions,” because, yes, exactly. I tell you this so that you understand that licensed insurance experts really are not all the same.
Tips for choosing an insurance agent or broker
Here are some important tips to keep in mind the next time you are seeking out someone to be your insurance agent or broker:
1. Check the status of their insurance license online. All state departments of insurance have a website where you can put in a name and get a history of the licensee. See if they have any reprimands on file, any noncompliance notices, fines or restrictions on their license.
2. Find out how long the agent or broker has been licensed and in the industry. Don’t knock the newbies, but all things remaining the same, they may not have the experience you require.
3. Look for any insurance designations other than the basic insurance license. While only the license may be required to begin offering insurance policies, there are designations out there for an individual who wants to put in the time to go that extra mile. Each of them will show you that this person wanted to do more than the minimum. They wanted to learn more and do more, and that hopefully means they will perform better for you.
4. See which insurance companies the agent or broker is approved to do business with. If you don’t recognize a single insurance company that they represent, that’s a red flag. Better insurers tend to kick less-savory agents to the curb rather than allow their brand to be tarnished by schlocky representation.
5. Ask the agent or broker how long their average client has been with them. If they are unwilling to tell you, or they give you a vague answer, then you should worry. Good agents and brokers will be proud to tell you that what we call in the business their “retention numbers” are high, meaning clients that come to them stay with them.
Far be it from me to knock my brethren insurance agents and brokers. I make it a point to try very hard never to knock the work of another professional. Yes, I try. But when it comes to protecting the things that belong to you, it may not appear so important now how or through whom you purchase your insurance policy, but I guarantee that if a claim comes down the way, you will be glad you took the time to select someone who cares enough about what they do for a living to do more than the bare minimum when it comes to educating and continuing to educate themselves on the insurance marketplace.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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