Author: Bill Wilson
In my state, a manicurist has to complete 600 hours of classroom and supervised work experience to get licensed. An insurance agent? Put in 40 hours and you could be licensed to bid on General Motors’ account in the morning and Microsoft’s in the afternoon.
I wrote the following article for the CPCU Agent & Broker Interest Group newsletter. I'd be interested in your feedback on insurance education in general and CE in particular. Email your comments to bill.wilson@iiaba.net and we'll add them here. If you don't want your name, agency and city mentioned, please indicate that in your email.
40 Hours and I'm an Insurance Agent
I read an article last fall in the Toronto Star that struck home. It was called, “$80 and I'm a Security Guard.” The author tells the story of how he dropped by the Ministry of Community Safety and Correctional Services with a passport photo, completed a security guard application, and gave the clerk $80. The clerk asked him if he’d also like a private investigator’s license. What did that take? Another $80. Two weeks later, his security guard and private investigator’s license materialized in his mailbox. As he put it, “I'm now fully licensed for two jobs I have no idea how to perform.” Sound familiar?
When I conducted agent licensing schools, I used to show completers at the end of their 3-day classroom training a photo of a manicurist with the caption, “What do you have in common with this woman?” The answer was, “Nothing...this woman has 15 TIMES as much education in her field than you do in yours.” In our state, a manicurist had to complete 600 hours of classroom and supervised work experience prior to being licensed (a beautician required 1,500 hours). An insurance agent? Put in 40 hours — 24 in the classroom and 16 self-study — and you could be licensed to bid on General Motors’ account in the morning and Microsoft’s in the afternoon.
Insurance policies are contracts. While attorneys focusing on contract law typically spend at least 7 years preparing for their careers, insurance agents often spend...a week. Attorneys take a rigorous bar exam. Many of them don't pass it the first time. Some of them never pass it. Insurance agents who were working at a convenience store last week take exams that sometimes have passing rates in excess of 90%. Attorney CE may be governed by the state Supreme Court which restricts who can deliver CE and what must qualify. The educational comprehension level of agent training and testing material is often at a fifth and sixth grade level.
In contrast, insurance agent CE all too often consists of a self-study provider with a 12-hour course called “Insurance Terms A-L” or 3 hours at an auto glass company rubber chicken luncheon learning how to steer customers to their business. For online education, most insurance departments grant credit hours based on a word count. As a result, some providers pad courses with verbiage from marketing brochures just to elevate the word count. Continuing education as an industry has become an end in and of itself, rather than a means to an end. But that's a rant for another day.
Insurance policies are complex contracts. With state insurance departments requiring minimum Flesch test scores, policies must be “easy to read” but are often not easy to understand. In a Flesch test, the higher the score, the easier the material is to read. In one insurance department study, the Bible scored a Flesch rating of 66.97, while Einstein’s Theory of Special Relativity scored only 17.72. Sadly, a personal automobile policy scored just 10.31.
Many insurance practitioners lack the requisite skills and knowledge to fully understand (much less explain) the products they’re selling. Too often, underwriters and adjusters don’t either. Here is a deposition excerpt where an agency owner was asked to explain coinsurance:
“I could give you the wrong thing, and I can stand to be corrected. But on coinsurance if you’ve got, like, a million dollars worth of coverage and if a person has an 80 percent coinsurance factor, all right, that means that it’s going to have to be sure that it is insured up to 80 percent of the value. That comes into play when it’s a partial claim is one thing that it will come into play. If a person is only insured up to 50 percent of the value instead of 80 percent, then it would be stated on the policy. Then there would be probably a 30 percent depreciation taken off the policy. So, the 80 percent is really better than a 90 percent coinsured or the coinsurance being 100 percent. And so that’s on that particular incident now.”
Consultant James R. Mahurin has performed expert witness and litigation support since 1993 and has been involved in litigation arising out of Hurricane Katrina for almost five years. He has observed that agents with academic credentials in the form of substantive designations, especially CPCU, are (a) rarely the subject of lawsuits, and (b) far more successful in defending themselves. He believes there is a strong correlation between the quality and extent of educational background and work quality and in deposition performance.
According to Mahurin, “A substantial number of insurance agents hold CPCU designations. A smaller number hold CPA certificates, MBA and law degrees. These men and women are involved in many of the most complex insurance programs in the United States and internationally. This group of agents is much less frequently subject to agent litigation. Their performance in deposition and trial testimony is far, far superior to the average agent.”
Education and articulation are key elements in successfully defending an E&O lawsuit. Mahurin cites a national conference he attended where an attorney from a prominent plaintiff’s law firm said (paraphrased), “If insurance industry personnel were required to take basic college level courses about the business of insurance, our law firm would have to find something else to do. We are successful as a law firm because the insurance industry doesn’t train their people.”
One area where this is evident is certificate of insurance processing. This function over the years has been pushed down to lesser skilled and trained staff in agencies. Demands being made on agents today for more detailed certificates, compliance checklists, and “agent affidavits” may require the review of lengthy and complex construction contracts, with document completion by staff members with little or no formal training in the subject matter. As a result, one of the largest agents’ E&O insurers in the country has seen a dramatic escalation in E&O claims involving certificates and additional insured requests.
However, more important than processing issues as they relate to education level is the fact that the vast majority of E&O claims arise from a lack of coverage. We all make mistakes, but it is the combination of education and experience that teaches us what we don’t know. The industry’s emphasis on process and procedures as a means of reducing litigation is only minimally effective when the practitioners do not understand what they don’t know. And the E&O implications are only one side of the education coin. Proper training and education can dramatically impact the bottom line from the standpoint of improved effectiveness and greater production and account retention.
Unfortunately, during hard times, training and education are usually the first budget items to be cut in a hard market, despite the evidence that a knowledgeable staff is a more efficient and productive staff. One insurer's study showed a close correlation between levels of professional education and production success, determining that production increased by up to 54% while taking LUTCF classes and up to 80% following completion of the designation. Insurance agencies typically spend from 0.4% to 1.1% of revenue on employee education. The U.S. Department of Labor suggests that 5-12 times as much should be invested in training and education.
Licensed agents spend 12-20 hours per year, when 100 is recommended. A housekeeper at a Ritz-Carlton hotel receives a minimum of 120 hours of customer service training before interacting with guests. How many of your agency CSRs have 3 weeks of customer service training in their entire careers? Did you know that if you invested only 15 minutes per workday studying policy forms or reading coverage reference manuals, you’d amass over 60 hours of learning each year?
In the 1970s, a new company underwriter or adjuster typically spent up to a year in formal training followed by a year of supervised work experience before he or she was unleashed on an unassuming public. Several insurer training schools rivaled college graduate schools in the comprehensiveness and difficulty of the subject matter. Agents often came from these ranks. The CPCU designation was actively promoted and supported by both companies and agencies. More than one carrier insisted that rising stars in the organization with management destinations actively pursue the CPCU designation. The time has come for each of us to step up and speak out about the relevance and importance of CPCU and other Institute programs.
So what are we, insurance professionals or security guards? We'd like to hear your thoughts on agent and industry education and training. Email bill.wilson@iiaba.net and we'll add your thoughts to this article.