A few weeks ago, an insurance broker made the national news. His name is Jerry Goldman and he was the insurance broker for Tom Hanks and his wife Rita Wilson. Goldman pleaded guilty to mail fraud for overcharging Hanks and Wilson hundreds of thousands of dollars in excess premiums. Over a 13 year period, Jerry Goldman inflated premiums as much as 600% and presented phony invoices to hide the overcharges. He was sentenced to 27 months in prison and ordered to pay about $840,000 in restitution.
A couple of weeks ago, I received a call from a couple buying a home in the Dallas area. It’s the wife’s first home purchase and she’s thrilled and a little nervous. The husband and I reviewed all the details on the home which enabled me to quote their home insurance through all my carriers. I emailed him the best quote of the batch and we reviewed it together. I explained the different coverage and answered his questions.
During our conversation, the husband mentioned something that caught my attention. One of the other agents he’s talking with provided him with an attractive quote and then told him that there would be a $190 agency fee payable directly to the agency at closing. I was floored. The husband thought the other agent’s request was odd, but I let him know it was an unethical insurance agent practice at best and should be reported to the Texas Department of Insurance (TDI).
Unethical practices by insurance agents include overcharging or inflating premiums as well as charging an “agency fee” on a policy. Other unethical practices may be less obvious to a consumer but include agents or agency staff receiving payments from a vendor for steering clients to a specific company such as an auto glass company, roofer, etc. and pocketing premiums paid for policies that aren’t delivered.
Here’s what to look for to avoid being a victim of these four practices:
- Agency fees or expenses not included with the premium payment at closing for a home policy on a new home.
- Fees and expenses that are not specified in the quote from the insurance company.
- Always insist on a written quote. The quote should have the insurance company’s name on it along with the name and contact information for the agent and/or agency.
- When money is paid for a policy, you should always receive a policy with a declaration page for home and auto. In addition, you should always receive ID cards for a new car insurance policy.
- If you make a change to a policy (change in coverage on a home, trade in a vehicle, add a new driver, etc.) you should receive an endorsement summary from the carrier outlining the policy change.
- If you feel pressured to use a specific service glass company, roofer, body shop, etc. ask for more references or find your own. Texas law allows you to use whatever body shop, roofer, etc. you want.
Please note, some carriers have preferred vendors for body shops, roofer, etc. There are benefits associated with using an insurance company’s preferred vendors, but you can pick your own. In addition, there are some policies that include legitimate fees and taxes. These are usually associated with some commercial or business policies or with some personal lines policies from non-admitted carriers. In these cases, the fees should be a part of the official written quote and not a surprise that’s presented after the fact.
If you’re being asked to pay for something that seems unusual, out of the ordinary, or do not receive paperwork for a new or changed policy, ask your agent or the insurance company. You can also talk with the Texas Department of Insurance or your state’s insurance department. I’d be happy to review it, or answer your questions, too.
Most insurance agents are honest, ethical, and conduct their business with integrity. These agents and their team understand that the best way to conduct business is ethically and with a long term perspective. Providing excellent service and consultative guidance is the way to build a successful agency. In the case of my couple buying a new home in the Dallas area, the agent that asked for an agency fee that would be paid apart from closing, lost the sale because he lost the trust of the prospective client. While I may or may not win this couple’s business, I’ll do so having conducted myself with integrity.
What do you think? Share your comments, questions, and experiences with me in the comments section of our blog or on our Facebook page. I’d love to hear from you!