The Insured Doesn’t Understand Risk, and That’s Why They Need You

Recently, I attended a presentation for potential investors in a startup company. I’ll call them Startup X. One thing that came up was liability, and whether or not the company was at risk for lawsuits arising from use of their software.

Of course, the answer is yes. Surprisingly, the executives of Startup X (some of them quite seasoned) believe the answer is “no.” Boiling it down, they have their B2B users accept a license agreement that relieves the startup of liability, and therefore they believe they have everything covered. They do have a standard CGL policy, but their assumption is that anything they do professionally or as a service provider is protected by the license agreement. Well, is it?

Startup X helps larger companies comply with safety requirements. Their software is one part of how they help. They also consult with the clients and put together safety information for them. The clients then rely on this information to keep employees and consumers from harm. Are you tempted to read their policies yet, looking for E&O coverage?

Let’s say they’re right, and because of the agreements they’ve made, and the things “their lawyers” told them, Startup X’s clients can’t sue them. I’m certain that is not the case, but it doesn’t matter if we can think of any other way Startup X can be sued.

What if Startup X’s client supplies another business with goods or services, relying on safety information from Startup X. Did the 3rd party client ever make an agreement with Startup X? Is the 3rd party bound by an agreement between two other parties? No, surely not.

What if a consumer is harmed because Startup X failed to supply correct information to its B2B client? Does the agreement between Startup X and the B2B client supercede the individual’s rights? If it does, we’ve made a brand new discovery in the field of tort law. The idea is ridiculous.

If the environment is damaged because Startup X’s product or consulting missed something, will they be immune to litigation related to environmental damage?

Looking more closely at risk is one of the many reasons why the insured needs you. It’s also a reason why the insurance carrier needs you; how many carrier call centers are staffed and licensed for conversations like this with the insurance buyer?

It doesn’t have to be a complicated commercial account either. I’ve heard so many objections from prospective insureds that I’ve started to look forward to the occasional novel ones. Here are some of the more routine ones:

  • I can’t be sued if it’s not my fault.
  • My house is on the highest ground in the county, so I don’t need flood insurance.
  • I’m only required to carry these auto limits, so I can’t be held liable for more.
  • This is a No-fault state, so I can’t be held liable if I have the required insurance.
  • If my limits run out, bankruptcy protections will prevent me from losing my assets.
  • Workers’ Comp is a “sole remedy” so don’t try to sell me higher Employer’s Liability limits.
  • We have everyone sign a waiver.
  • I have “all the standard insurance” (usually Homeowners Section II or CGL) and an umbrella, so I’ve got all the bases covered.

I could do this all day, but you probably have plenty of your own examples. Regular folks don’t know what risks they’re exposed to. It’s up to us to educate them, and where we can, offer them insurance solutions.

Don’t let objections like the ones above pass unanswered. These are opportunities to help people understand something that could damage them financially.

Tell them you’re glad they brought it up, and start explaining. They still don’t want coverage? Have them sign off, stating they understand the risk and don’t want to transfer it to an insurance company. Befriend a lawyer or two, and ask if they’ll talk to a group of clients about litigation.

In my experience, good customers really appreciate understanding what they are buying, and why they need it. It’s what brings them back to you year after year, despite having any number of other agents they can “shop” with.

Listen to the objections, talk through risk scenarios, and build trust and respect with your clients.

Rab Beverly

Rab Beverly is Chief Editor of Insurance Agency Builder. He owns the Andy Beverly School, which teaches insurance licensing classes statewide in Florida. His experience includes agency management, agency technology, and commercial property and casualty insurance.

Categories: Strategy

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