This is the second in a 2-part series by Daniel Hale. The title says it all!

By Daniel Hale

5. Online Insurance Carriers Have No Duty To Advise The Policyholders of Coverage Adequacy

Most policyholders rely on their insurance agents to provide much needed expertise on technical insurance issues.  In fact, most independent agents strive to develop a personal and long term relationship with each of their policyholders.  This allows the agent to ask pertinent questions about exposures and anticipate the need for policy changes.  Ultimately, this close relationship allows the insurance agent to better understand the nature of the policyholder’s exposures.

With most online insurance companies, policyholders are left to figure the coverages out for themselves, both before and after the loss.  As a consumer navigates an online insurance quote, they must select a number of different coverages and limits.  Absent a background in insurance, it is unlikely that the average consumer would fully understand these coverages or the adequacy of the limits.

The general rule in Michigan is that an insurance agent has no duty to advise a policyholder of the adequacy of a policy’s coverage. However, the exception to this rule is when a so-called special relationship exists.

A special relationship between the agent and the insured may be found in four instances: (1.) where the agent misrepresented coverages, (2.) where the policyholder makes an ambiguous request that the agent should have clarified, (3.)  where the agent gives inaccurate advice, or (4.) where the agent assumes the duty by making an express agreement with or promise to the insured.

Most online insurance carriers is structured in such a way that no special relationship could possibly exist. This limits the liability of the insurance carrier for suits alleging that it failed to advise the policyholder of the proper coverages. Thus, the online insurance carrier has no duty to advise the policyholder of coverage adequacy, not would it have an incentive to do so.

6. Online Insurance Carriers Require The Consumer Execute a Waiver of Liability

Most online carriers require that the policyholder release the company from liability arising out of the use of their website.  The terms and conditions of one carrier state, “Insurance Company shall not be liable for any injury, loss, claim, or damage, nor any indirect, special, incidental or consequential damages of any kind, whether based in contract, tort, strict liability or otherwise, which arises out of (a) the use of, or inability to use, this site or content found in this site, or (b) unless resulting from the gross negligence or intentional actions of Insurance Company, the unauthorized access to or alteration of your transmissions or data, even if Insurance has been advised of the possibility of such damages.”  By way of example, this means that if you inadvertently enter the wrong policy limit from a drop-down box because the website layout was confusing, you can not sue the insurance carrier.    In the same way, if the carrier inadvertently publishes your social security and/or credit card number, you are barred from bringing a suit.

7. Insurance Company Financial Ratings Are Not Always Disclosed

The A.M. Best Company, Inc issues financial strength ratings measuring an insurance companies’ ability to pay claims.   These financial strength ratings represent the company’s assessment of an insurer’s ability to meet its obligations to policyholders.  The rating process involves quantitative and qualitative reviews of a company’s balance sheet, operating performance and business profile, including comparisons to peers and industry standards and assessments of an insurer’s operating plans, philosophy and management.  In short, an A.M. Best Rating indicates an insurance company’s ability to pay policyholder claims.

Often times, online insurance carriers do not disclose their financial ratings and even if they do, most policyholder’s would not recognize its significance.  Independent insurance agents on the other hand monitor the financial ratings of their insurance carriers and will avoid writing policies with those companies in financial trouble or who lack financial strength.

8. Online Policyholders Do Not Have An Advocate

In most states, an insurance agent is recognized as both an agent for the insured and an agent for the insurance company. As a “dual agent”, the independent agent acts as a conduit between the policyholder and the insurance carrier.  When disagreements arise between a policyholder and the insurance carrier, the independent agent usually has some degree of influence over the carrier depending on their relationship and the amount of existing business.

With online insurance, customer service represents are employees of the insurance company and are not policyholder advocates.  In the event of a dispute, policyholders are usually required to retain the services of a public adjuster or insurance attorney in order to sort out the coverages and negotiate the claim with the carrier.

9. Online Customer Service Representatives May Not Be A Licensed Insurance Agent.

Without extensive insurance knowledge, buying online insurance can be confusing. Special limits, exclusions, no-fault coverage, broad form collision coverage, and mini-tort protection are important terms to know and may not be fully explained in an online insurance quote. Without the input of a licensed insurance agent, consumers are left to their own devices when they try to get insurance estimates online.

Online customer service representatives (CSR) are mere order takers and are not always required to be licensed as insurance agents by the state’s department of insurance. Moreover, online CSR’s are usually trained in-house by their employer and often times lack the experience and/or expertise in other areas of insurance.

10. National Call Centers Lack Knowledge of Local Exposures and Legal Environment

Many insurance exposures are specific to certain regions of the country.  For example, California is exposed to earthquakes, brush fires and mudslides, Northern Michigan is exposed to car/deer accidents, potholes and heavy snow falls, while Florida is exposed to hail damage, hurricanes and flood water.  An online insurance company headquartered in Duluth, Minnesota might not be familiar with certain regional exposures and thus unable to tailor the policy to meet those needs.  A local independent agent on the other hand would likely have personal knowledge of the various local exposures and would have access to insurance carriers specifically tailored to meet the policyholder’s needs.

“This Article was submitted by, J.D., CPCU, CRM, ARM, CIC, AAI, LIC, AIC, AIS, API, AU.   Mr. Hale is vice president of Cambridge Property & Casualty and an attorney licensed to practice law in the State of Michigan.  He can be contacted at 734-525-2429,  [email protected] or via” .

Photo Credit: Thanks to Ben Ostrowski at Sylvar’s Photostream (