While most insurance agents and brokers are honest, trustworthy individuals, the industry has a few bad apples. How can you tell if your insurance intermediary is dishonest? Here are 10 signs that your agent or broker may be doing something illegal.
High-Pressure Sales Tactics
Beware of any agent who pushes you to buy a policy right away. The agent might claim that "this deal won't last long" or that a rate hike is imminent. An ethical agent will allow you adequate time to consider your coverage options so you can make an informed decision.
They Ask You to Pay Them Directly
No ethical agent will tell you to make checks payable to them. If your agent asks you to pay them directly, find another agent. Premium payments should be sent to your insurer. If you must leave a check or any other type of payment with the agent, be sure to get a receipt.
Premium diversion is the most common type of insurance fraud, according to the FBI. It often involves an agent who pockets the premium instead of sending it to the insurer.
Agent Quotes a Very Low Premium
If a premium quoted by an agent seems too good to be true, it probably is. The cost of insurance varies from one insurer to another. Yet, a quote that's dramatically lower than others you've received should make you suspicious. The agent may be trying to sell you a nonexistent policy or one that affords very little coverage.
Lacks Credentials or a Valid Physical Address
A legitimate agent has a genuine physical address (not a post office box), a business phone number, and an email address. Avoid any agent who communicates only via his personal email or cell phone. Ask the agent for his insurance license number and then check with your state insurance department to verify that the license is valid.
Agent Adds Coverages You Didn't Request
Agents and brokers earn commissions on the premiums you pay. Commissions are calculated as a percentage of the premium so the agent earns more if you pay more. An unscrupulous agent might try to generate more commission by padding your policy with extra coverages. When you receive your policies, make sure they contain only the coverages you want. Scrutinize any requests you receive for additional premiums after the policy has been issued.
Agent Urges You to Inflate the Value of Your Claim
An agent who encourages you to lie on claim forms is asking you to commit insurance fraud, which is a criminal act. Don't risk prosecution and (possibly) a prison sentence. Report the agent to your state's insurance department or fraud bureau.
You can obtain contact information for your state's fraud bureau from the Coalition Against Insurance Fraud.
Agent Represents an Insurer You've Never Heard Of
Some fraudsters make money by collecting premiums for policies from nonexistent insurers. The agent may provide fake documents that look like real policies. If an agent recommends buying coverage from an unfamiliar insurer, research the company before making any payments. Check with your state insurance department to make sure the company is valid and properly licensed.
You Don't Receive Any Policy Documents
If you've paid your premium but haven't received your policy or renewal documents within 30 days or so, ask your insurer for copies. Some unscrupulous agents will collect a premium for one type of policy, send the insurer a premium for a cheaper policy, and then pocket the difference.
Agent Lies on Your Application
An unscrupulous agent may lie on an insurance application to make a business look acceptable to an underwriter. For instance, your agent might show "no previous losses" on the application when you've actually had two prior claims. When the insurer discovers the truth, both your and your agent's credibility will be destroyed. The agent's lie may also void your policy.
If you think your agent or broker has lied on an application, communicate your concerns to your insurer. Many insurers have internal anti-fraud departments that investigate incidents of insurance fraud.
Agent Misclassifies Your Business Operations
Some agents or brokers will intentionally misclassify a business to avoid underwriter scrutiny or help a client save money on premiums. For example, suppose you are seeking a general liability policy for a small motel you own. Your agent submits an application on your behalf to the XYZ Insurance Company. The agent knows that XYZ demands more information and charges a higher premium for a motel with a swimming pool than for one without. Accordingly, they include the wrong classification in the application, describing your business as a motel with no pool.
Alternatively, your agent offers to lower your workers' compensation premium by classifying half of your employees as independent contractors. In exchange for this "favor," the agent requests a $1,000 kickback.