Why I’m Using Client Questionnaires on P&C Coverage
In a recent post I discussed how financial planners should consider looking into a client’s property and casualty insurance coverage. From the comments made on my recent post—most from practitioners who engage in this type of analysis, it seemed probable that most planners ignore this area when constructing financial plans. However, without properly analyzing these issues, gaps in coverage may result.
When I made that post, I was working to complete my continuing education requirement and this was one of the topics in the material. Years ago, when I was studying to earn my CFP, this was also discussed in the text but the material was so broad, and since I did not have a P&C background, I promptly forgot about it. However, without properly analyzing these issues, gaps in coverage may result.
Consider the wealthy professional or entrepreneur who is underinsured in the liability area. They cause physical or financial harm to one of their clients and with our litigious society, they are sued and it costs them dearly. If we were managing their financial assets, we may have witnessed a major outflow. Since we try and protect our client’s wealth from market downturns, why leave this critical area unattended? Here’s what I am doing about it.
In recent weeks I have been enhancing my financial planning software in this area. Moreover, I have developed three questionnaires: one for personal, one for professional, and one for commercial clients. The personal questionnaire delves into the client’s homeowner’s, automobile, and liability coverage. The professional version probes their exposure and coverage relating to malpractice and errors and omissions insurance. Finally, the commercial questionnaire is designed for the business owner and covers issues pertaining to employees who are injured on the job plus lawsuits which may arise from wrongful termination, sexual harassment, or discrimination.
The questionnaires are a first effort, but I expect they will expand as I grow more familiar with these areas. I should mention that I have no plans to add this as a product offering. To the contrary, I view my role as the person who watches out for clients on a number of fronts. After identifying any gaps in their coverage or potential risks, I would assist in bringing the solution. Clearly, their other advisors would need to be involved.
I’d like to hear from those of you who engage in this area as a part of comprehensive financial planning.
Have you ever thought of doing joint work with a CPCU, instead of being the classic arrogant NAPFA member? Oh yeah, you just might have to rub elbows with people who make a living with commissions–I forgot. Or would you just rather mess around until an event happens and you get sued into the next century (with the plaintiff’s use of a CPCU to shoot holes in your proferred recommendation)?
mike,
i have been around fro 25 yrs now. started out in 1984 at a fixed inc shop calling on banks. then moved into retail wire house. had stints with merrill lynch, prudential, paine webber etc. couldnt take it any more so in 1996 set up a fee only reg inv adv shop. it didnt really go anywhere & i just kind of let it die. started in p&c in 1999 & it has provided a decent living. now have a staff of 6 & am adding fin back in to the mix. i think we can help each other out. i dont envy however anyonoe trying to add p&c on to a fin planning practice, its not that it cant be done its just….ughhhh. having said that i have always maintained that it would be a lot less difficult doing that than moving from p&c into really adding value as a fin adv. im currrently looking for ideas on fin planning programs & maybe a firm that has a decent amount of agreements to hold a series 65. appreciate it if you could give me a an email. i can offer some good tips in p&c perhaps.
I have gone to the extent of bringing on a P&C producer and giving him an ownership interest in the firm. What we are finding is staggering. In every case where we have examined a clients P&C coverages we have found problems, some minor to be sure, but problems. Properties insured in the wrong name, underinsured for replacement, completely uninsured, insured for actual cash value rather than replacement, etc., etc., etc.. It seems as if the personal lines P&C field is full of incompetence or worse.
Now, it means taking compensation in the form of commissions, but I also feel that my obligation to my clients to make sure that their financial house is in order takes precedent over form of compensation. Also, since we are always putting their needs ahead of our own and not writing inappropriate coverages to generate commissions I do not feel there is a conflict, as long as there is disclosure of the fact that such sales generate commissions, which my ADV does.
Our experience so far is that this is a grossly neglected area for financial planners and needs to be addressed if we are going to call ourselves financial planners and not just investment advisors.
Ok, for the record…I am not against commissions. As I understand P&C, commissions are a level percentage each year. What I am against are large upfront commissions which unduly entice advisors.
Also, for the record…Brent…you seem to make a huge leap in your assessment of who I am, simply by reading some of my writings. Your sarcasm is unfortunate and very misplaced.
Hey there!
I stumbled upon your blog as I was looking for a way to talk to “my” Financial Advisors in regards to uncovering gaps in their clients P&C coverage.
I am a National Product Manager and Certified Insurance Counselor for P&C Insurance at a privately owned, Comprehensive Financial Planning Company. We are in over 40 states serving over 300K clients. My role is to help “my” Advisors understand the value of adding P&C to the Risk Management evaluation of a Financial Plan. Like Jay suggested above – it is not the easiest thing to do, bringing P&C to a Financial Planning firm, but after 4 years and over 5M in written premium, we aren’t doing so bad – although, we could do much better!
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Here is a very real scenario that took place in my firm – a multimillion dollar client of ours had a heart attack and passed away while driving his car. He wrecked into 7 cars, totaling two – one brand new excursion and another SUV and sent a handful of victims to the hospital. When the Estate Attorney was reviewing whatever they review after a spouse has passed away, he suggested to the widow to be prepared for subrogation. Why? This client of ours was carrying a 50/100/50 auto policy and obviously – no umbrella policy. This was something the Advisor could not believe she missed when reviewing everything else of the client. The client had a nice Life Insurance policy in place but no umbrella to protect those assets for unforeseen events such as this. He will never, ever let another client walk out of his door without this review.
My point is that you are providing a very real solution to your clients – these things do happen and we do need to help make sure we do all we can to not let it happen to our clients. Does a Life Insurance policy pay for that lawsuit? That catastrophic accident? The answer is no.
As long as the unlicensed Advisor doesn’t hold themselves out as an expert – pointing your client to someone in your network to provide the expert advice that is needed…. your client will very much respect the fact that you are taking the time to review this need with them – the call center at which they purchased to begin with did not ask the questions. Some of the questions? What does the client own? Do they know that their HO policy doesn’t cover Flood losses? Do they have teenagers that blog or text? Have they heard about the very real need for Personal Injury Protection to protect him/her from slander, libel charges? Do you have any additional homes? Do they understand what an umbrella policy will do for them? Do they know how inexpensive this coverage is? More often than not, the call center isn’t asking these questions. To be honest, a lot of P&C agents aren’t taking the time to talk about these things. As a fiduciary (depending on licensing), it is our role to make sure those P&C Agents/Call Centers have done their job – providing a policy to our clients that will help protect them from unforeseen events prior to death.
Sorry for the rambling message. This is a very real problem in, like you said, a very litigious society. Thanks for making it a priority and please let me know how I can help!