28 Jul Be Careful Using Statistics
Imagine you are the client: you’re sitting across from the desk of your trusted insurance agent. The conversation gets to the topic of flood insurance. You are questioning whether you really need it, so you ask the agent for his thoughts. The agent proceeds to advise you that your house is in a “1 in 100” flood zone, which means that over the course of the next 100 years your house will be flooded once. Unfortunately, the agent further proceeds to advise you that he would not buy flood insurance if he was you. As the client, you think that sounds like good advice and you decide not to buy the flood insurance.
This is the exact situation that occurred in 2010 in beautiful Minot, North Dakota at a bank that also sold personal lines insurance. One in 100 sounds like rather good odds. After all, the last time the Souris River in North Dakota reached its highest level was in 1881, over 125 years prior! The problem was that just one year later in 2011, a historic event occurred. The levees were topped and over 4,000 homes were destroyed or damaged. It was definitely “1 in 100,” except next year was that year! An E&O claim was brought against the bank agency.
In October 2015 another rare event took place in the great city of Charleston, South Carolina. A “1 in 1,000” rainfall occurred resulting in widespread amounts of 15-20 inches and localized amounts over 25 inches, mainly in the Charleston tri-county area. This led to significant property damage. An event that had a statistical likelihood of .1% – how unlikely!
The premise behind these two events, and there are others, is that when you are discussing coverage with clients there is a strong possibility that when an event is a “1 in 100 years” or “1 in 1,000 years,” there may be a tendency for the agency to not even address the coverage because the chances of the coverage applying is so remote. Regardless of the remoteness of the issue (flood, earthquake, etc.), it is still highly suggested that agents discuss the coverage and provide the client with a proposal. After a client experiences a loss that is not covered, it is not uncommon for the client to allege that they would have secured the coverage had they known it was so inexpensive. By providing the client with a proposal, you are forcing them to decide whether to purchase the coverage or not. You are forcing the client to be accountable for their insurance purchasing decisions. Client accountability should be a goal of every agency.
Also, when discussing coverage, it is probably not uncommon for a client to ask what you would do. This is a dangerous question since there is a good chance the client is going to rely on your response. Interjecting statistics into the conversation should be used with caution. Statistics give us a historical perspective, but they cannot be counted on to tell us what is going to happen moving forward. Certainly, feel free to use the above scenarios in your conversation with clients if they are applicable. Consider a response such as, “the chance of your home being flooded is 1 in 100, but next year could be that year.”