The High Cost of Human Error at Insurance Agencies
November 18, 2021
We may not like to admit it, but human error is simply part of being human. In an attempt to learn more about the cost of human error at independent insurance agencies, I spoke to several licensed producers under the condition of anonymity. After all, no one wants to air their dirty laundry on a wildly popular insurtech blog!
After conducting several interviews, one thing became clear: As long as humans are involved, human errors will occur. Another given is that these mistakes can range from harmless to extremely costly. While the majority of errors fall into the former category, it only takes one of “the big ones” to cause major harm to an agency or individual producer.
So, what are these human errors that insurance agents, brokers, and producers should be looking out for? Obviously, human errors are as diverse as humans ourselves. However, a few common categories include:
- Mistakes caused by missing a detail
- Mistakes caused by the lack of a standardized process
- Mistakes caused by staff overload
Let’s take a look at an example of each type, along with a real-world cost that an agent or agency incurred.
Human errors caused by missing a detail
One producer recounted this story: He had just become broker of record for a commercial auto policy and was manually transferring every detail of the clients’ old policy to a new application with his agency and the new carrier.
Number of vehicles: got it.
Value of vehicles: got it.
Rental car coverage: don’t got it.
Unfortunately, during what should have been a no-brainer of a process, with every detail of the client’s previous insurance policy directly in front of him, this producer missed the check box indicating the client wanted rental car coverage.
A few months later, one of the company’s top sales reps (who had been insuring his very expensive luxury car under the commercial auto policy) got into a wreck. Thinking he was covered for a rental car, he strolled down to his local rental agency and picked out the most expensive rental car possible. Because, of course he did! Imagine his shock when he learned his insurance policy didn’t, in fact, reimburse him for the $1,000 rental car expense!
Luckily, the producer recounts, this was the extent of the damage done by his own error. He did the right thing and reimbursed the policy-holder for the rental car fee, then immediately added rental car coverage to the commercial auto policy.
In this case, the producer got out relatively unscathed. It wasn’t a fun mistake, but there were no legal ramifications and the monetary cost was (relatively) small. However, this example illustrates just how easy it is for an agent to make a costly mistake even with all the right information in front of them.
Human errors caused by lack of standardized process
This next story has a happy ending, but it only narrowly avoided tragedy thanks to happenstance.
An agent who specializes in aviation insurance told me about a client they won from another broker. In the process of moving the policy over from one agency to the other, they realized a terrifying reality: there was no policy!
While the client had completed the application, received a quote, and even sent a check for the premium, the previous agent failed to actually complete the process and bind the coverage. Missing this vital step left the pilot and her plane uninsured. Luckily, the pilot was shopping around for a better policy and landed on a new agent, who uncovered this giant error during the process and was able to correct it.
Only a few weeks after binding the coverage (that should have been in place all along) the pilot got into a crash and totaled her plane: a loss of about $2 million. Thankfully, no one was hurt. But imagine the legal and financial liability the previous agent would’ve faced if the crash had happened while the pilot had no insurance thanks to the agent’s error!
This mistake was likely caused by a lack of process standardization, as well as a lack of checks and balances across the agency to make sure things that were supposed to have happened actually did. The former agent certainly intended to complete the coverage, but somehow missed the final step of actually doing so. I imagine no agent in history has ever been so thankful to have lost a client to another broker!
Human errors caused by being overloaded and understaffed
With the insurance industry facing a staffing shortage, the Great Resignation, and the retirement of a large portion of its workforce, it’s no wonder many agencies are understaffed and producers are doing the jobs of three people. On top of employee burnout, this also spells trouble for accuracy. Say hello to my little friend, human error!
The stories of mistakes due to overloaded producers are too numerous to recall. One particularly common problem is keeping up with state license requirements, renewal dates, and CE credits when it’s done by hand and when an agency has multiple producers licensed in multiple states.
One agency director of operations told me his agency used to keep track of producer licenses using a spreadsheet. With this method, it wasn’t uncommon to miss one of the many deadlines because he was so busy managing every aspect of the agency’s business operations without a team of support staff.
In some cases, a missed license renewal deadline isn’t a huge deal – as long as you realize it in time and get it corrected. In other cases, it’s a nightmare. Some states have grace periods for renewals, while others have zero tolerance and make the agent start the process over like a new applicant. If anyone tracked the time and money it took to fix these mistakes, they’d realize missing producer licensing deadlines is a serious time-and-money-suck. While the operations director I spoke with didn’t have a hard cost associated with producer licensing mistakes he’d encountered over the years, it was enough that his agency moved to a producer licensing management system and never regretted the investment!
If any of these stories sound familiar, we understand! As we’ve said many times before, there’s no way to eliminate human error entirely. The good news is, there are absolutely ways to reduce it! Maybe we’re biased; we are a tech company after all. But the best way we know to reduce human error is to adopt technology that takes the humans out of manual, repetitive processes that are better left to tech tools.
If you’re looking for ways to reduce the costs of human error at your agency, AgentSync can help! AgentSync simplifies and automates everything from producer onboarding to license renewals to carrier appointments. See AgentSync in action today.