The Case of the Difficult Customer

Cheryl PhotoA Guest Post By: Cheryl Koch, a featured speaker at InsurEXPO14!





EXPO14_shortlogowithtaglineWe have a long-held belief in our firm that a bad account is a bad account is a bad account for an insurance agency.  Exactly what do we mean by that?  Simply that if you have a client that has a lot of claims activity, is chronically late making payments, and receives multiple non-payment cancellations (or threats thereof), eventually that customer is going to hurt you in other ways.

A case in point:  An insurance agency was involved in an E&O claim with a customer whose Homeowners policy was non-renewed by the insurance carrier due to numerous (seven to be exact) damage claims.  Six days after their policy terminated, the insured suffered a fire loss for which no coverage was in force.  The E&O claim against the agent was based on an alleged conversation that took place between the agent and the insured when the notice of non-renewal was originally sent, to wit, that the client was not to worry and the agency would find replacement insurance.  The agency’s defense was that the conversation never took place because they would not have even considered seeking replacement coverage for this client due to their loss history and the 18 (yes, you read that right) different instances where the insured had failed to make timely payments to the insurance company.

Let’s examine this situation from a procedural perspective.  What could the agency have done differently to possibly avoid the E&O situation?

  • The most obvious loss control measure would have been to terminate the relationship with the customer when the pattern of late payments first appeared.  It doesn’t take 18 notices of intent to cancel to figure out that the client is financially irresponsible.  Agents have wasted too much time and money chasing after chronic, late-pay direct bill clients and in fact, have enabled that behavior.  Stop the insanity!
  • Taking the agency at its word that no replacement coverage would have been considered for this client, a letter should have been sent immediately upon receipt of the non-renewal notice, advising the customer that coverage would need to be replaced with another agency and that no coverage would be in force after the renewal date.  Seek closure!
  • To substantiate the agency’s position that no such conversation ever took place with this customer, the agency would produce its procedures manual that indicates any such call would be documented in the client’s file.  Because there was no documentation in this instance, obviously the call never happened, or at least not the conversation that the insured says they had with the agency’s representative.  Procedures trump “he said, she said”.

It’s no wonder the client suffered an eighth loss very shortly after their coverage expired.  Even if the agency had replaced the coverage with another carrier, it’s equally likely the loss would not have been covered due to non-payment of that policy, in which case we’re sure the basis of the E&O claim would have been that the agency had notified the client the other 18 times their policy was in a state of cancellation so the insured would only expect they would do the same in this case.

The agency prevailed in this action, but it is clear that had proper procedures been in place and followed, the E&O claim might never have gone to trial.  It’s time to put the responsibility for sound loss control and timely payment back where it belongs: on the client, not the agency.


Cheryl Koch has been in the insurance industry for a very, very long time.
Now, you might think that makes her old, however, old is merely a state of
mind.  Over the years, Cheryl has served in nearly every capacity in an
Independent Agency, having been an Account Manager, Producer and Agency Owner.
She now devotes her time to agency management consulting and training and
speaking at industry functions throughout the country.  She is the President and
CEO of Agency Management Resource Group located in Roseville, California.
Cheryl consults on marketing and sales, sales management, agency operations,
automation, and strategic planning.

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