Insurance agents provide some very important work as professionals in the insurance industry, but they also face some ethical dilemmas in the course of their duties. Creating some of these dilemmas are the fiduciary responsibilities involved and any compensation received, in terms of commissions, to those agents.
The broker is most commonly the “agent” of the insured, in the principal/agent sense, and it is within this relationship that most claims arise against the broker. A broker can be sued for several reasons, including breach of contract, fraud or misrepresentation; but the most common assertion is generally for a breach of fiduciary duty.
By definition, a fiduciary is a person (or organization) in a position of financial trust. The public has both, the expectancy, and a need to know that the insurance industry will function in the capacity of a fiduciary and also act in the best interest of the insured.
Failing to do so could potentially result in a lawsuit and a need for insurance agent professional liability insurance to fight such a claim.
Concerns and dilemmas regarding this arrangement
Agents are expected to competently present the features of any policy they represent and find the policy and rates that best fit the needs of the insured. The insured may end up having “buyer’s remorse” when it comes to the policy they decide to purchase and may attempt to put fault with the broker for any number of reasons, whether or not they have merit, including charges of unethical behavior, failure to disclose certain information, or engaging in some form of illegal activities.
The agent therefore needs insurance agent professional liability coverage, and should also be documenting all contracts, agreements and transactions in writing. Under professional duty of care, agents are required to perform with “reasonable conduct,” which includes:
- Securing the coverage sought by the insured within a reasonable period of time; if no coverage can be obtained, the broker must notify the insured
- Notifying an insured if and when the requested coverage has been denied
- Securing adequate coverage for the risk, assuming that the broker was given sufficient information to understand the amount needed
- Placing coverage with a carrier that the broker knows or should have known to be financially stable, and
- Notifying the insured of cancellation, expiration and renewal or non-renewal of a placed policy
Because there are so many situations where claims may arise, it is vital to secure professional liability coverage to protect against fraudulent claims.