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Can Our Agency Cancel or Non-Renew a Client?


BIGI_logo_askExpert.pngThis question was posted to our Ask an Expert Service, a members' only benefit of the Big "I" national which is staffed by more than 50 volunteer industry experts:

We have a client at our agency that has been a nightmare to work with. They have been very belligerent to our agent and our staff on more than one occasion throughout the years. We would rather they go somewhere else, but they keep staying at our agency. I am wondering, if we give the proper 60-days' notice, can we non-renew this client?


Big "I" VU Faculty Responses:

An agent has no authority to cancel or non-renew a policy. It is unlikely that “being a belligerent client" is a reason for cancellation. Most states will allow a carrier to non-renew a policy for any reason. However, cancellation is a right of a carrier, not an agency. You need to contact your underwriter and discuss the possibility of non-renewal. You could also have a discussion with your client and encourage them to find another agent at renewal. In my experience, we lose good clients because of apathy but bad clients are like the “jelly of the month" club – the gift that keeps on giving all year long.

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The authority to cancel or non-renew a customer rests with the insurer. You can ask them to do it, but my experience is many won't do that.

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Ask the insurers involved (you are their middleman) to issue cancellation notices. If they have a better idea, listen to them.

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Problem customers in normal transactions are nightmare customers when they have serious claims. Get rid of them. 

You can resign as their agent. Tell them you will not be working with them on the renewal. Offer to give them copies of their applications, audit reports, claims histories, etc. 

Start the process ASAP so they have plenty of time to find another agent.

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There is no obligation to deal with abuse nor is there a law that you have to deal with a client you don't want to deal with. But only the carrier can cancel a policy. 

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This depends on your state regulations. Some states have anti-discrimination laws that prohibit such cancellations, especially for individuals (personal lines clients and individual L&H clients). Check with your state association or insurance department.

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The agency isn't a party to the insurance contract, so you have no authority to non-renew the policy. You can ask the carrier to do that.

Search the VU for “fire a customer" and you'll get several articles about this.

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An agency cannot "give notice" since that right is reserved to the carrier as a party to the insurance contract (which the agency is NOT). However, you can ask the carrier to assign the risk to another agency or to write the risk directly.

If there has been a loss or change in risk that qualifies as a legal reason for nonrenewal, you can ask your carrier to issue a nonrenewal notice on that basis. Of course, you can also take advantage of any late (after cancellation date) payments and not accept the late payment.

One of those should be possible in this case.

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Here are links to a couple articles:

Remember this, you do not have the authority to cancel the policy. It's a contract between the insurance carrier and the insured. You can ask the insured to go elsewhere for servicing. But they may not leave. However, when you lay out all your grievances, in writing by certified mail, they may gladly take you up on your offer to go elsewhere. 

Oh, and when you layout your grievances, discuss WHAT will be different going forward. Basically, call them out – professionally yet forcefully. One of two things will occur, they will become the model client, or they will go harass some other agent.

If you choose to put the issues in writing, keep it professional with specifics. No generalities should be used. “On this date, this happened," etc. It cannot be about anything that may be considered discriminatory. Also, this does not involve anyone else other than the insured and the agency. Do not make this public. 

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Work with your carrier if underwriting issues will allow the proposed action. However, I suggest that you write a “Professional“ letter asking them to please take their business elsewhere. Explain to them that your staff and agency is no longer capable to meet their business needs. Your staff has tried to meet those needs and feel that in their AKA Clients best path is seeking advice with another agency.

I have done this several times and the relief personally were a great relief to all. I experience a client that apologized for his actions as he was a lawyer who worked with Fortune 100 companies. Your professionalism is the most important aspect to this action.

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The insurance contract is between the insured and insurer. You do not have the authority to cancel it.

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It depends on the type of policy and the rules in your state. I doubt you have the authority to cancel mid term—that right is probably reserved to the insurer. In our state we could advise a commercial client to go elsewhere for a renewal as long as the reason was not one of the hot button issues: age, gender, race, etc. But auto and homeowners policies can only be cancelled or non renewed by the insurer and only for specific reasons spelled out in our laws. Ask your insurance company and E&O carrier and be guided accordingly. 

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Consult with a good attorney and your E&O carrier.

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First, an agent or agency cannot non renew a customer. The insurance policy is a contact between the company and the policyholder, so only those two parties can effect a contract action. In the “old days “, it was possible to occasionally find an accommodating underwriter who would issue a nonrenewal notice if an agent so requested. I believe those days are in the rearview mirror. Remember that a non-renewal must be declared by the client on the new application for future insurance in most states, a negative mark that may inhibit their ability to secure new insurance at a reasonable premium. 

The approach I recommend is to have a frank conversation with the client. Tell them their needs do not match with your agency's ability to provide what they want. Suggest other agencies would be a better match, such as a nearby State Farm agent. Hopefully they take the hint. 

The Iowa Big I ran this article in their newsletter a couple years ago:

Can I fire a customer? More and more agencies are coming to the realization that they cannot be all things to all people and must allocate their agency resources more carefully. Sometimes you have to fire a customer, but how can you tell someone you don't want to do business with them?

The first step should be to decide who deserves your resources and why. Some agencies segment their clients into relationship clients and transaction clients. Relationship clients are those who are interested in protection and service first, price second. Transaction clients are interested in the best price available at the moment. Some agencies segment clients according to demand for services versus profit margin. Clients who consistently consume more agency resources than value they bring to the agency are identified for an eventual exit plan.

Struggling with the concept of firing a customer? Consider this: is it fair to customers who are committed to you to compete for resources with customers that are committed only to the lowest price? Also, consider the customers that everyone in the agency hates to deal with. Wouldn't it be better to politely direct them to another agency which may be better equipped to serve them? Of course, it is easier to embrace such a philosophy than to execute it. The reality is that it is a bit tricky to fire a customer.

Try this three-step process: 1. Develop the criteria used to qualify who you will serve. 2. Go through your customer lists and identify them. 3. Create a letter that can be used to "refer" clients that don't make the cut.

The best approach is the honest approach. Here is some sample wording to give the flavor of such a communication: "ABC Agency appreciates having had the opportunity to serve you. However, in our desire to more efficiently allocate our agency resources in a challenging economy, we feel it is in your best interest to refer you to an agency that is more equipped to provide the service you deserve."

There are some important things to consider before you fire any customer. First, it costs five times more to acquire a new customer than to retain an existing one. Secondly, take a long-term perspective when determining if a client is profitable or not. Lastly, consider the fallout from a customer who is unhappy about the separation. Is he or she influential in circles that you rely on for customers? Negative word-of mouth travels farther and louder than positive. For these reasons, it is always better to consider how you can make an unprofitable customer profitable before terminating the relationship. If you must terminate, be sure to comply with all regulatory rules, laws and policy conditions and remember that only the carrier can non-renew a policy. Remember you cannot refuse to do business with someone because of race, religion, color, creed or sexual preference.

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Please do NOT put your grievances in written form to the client. That can lead to a personal injury claim or even a discrimination claim in some cases. You can use phrases such as "we do not have carriers that fit your insurance needs" but do not get any more specific than that. Better to leave the client alone completely and work with the carrier on ways to get off the risk.

Last updated: January 22, 2021
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