AGENT FRAUD…Chip Merlin, again!

It feels like every time I begin looking for something to write about Chip Merlin bails me out with another blog.

In this case, after falsely accusing Citizens board of Governors of breaking the law, the head of a prominent sinkhole law firm alleged that insurance agents may be committing the crime of insurance fraud, via a blog he titled:

“Talk About Insurance Fraud, How About the Conduct of Some Insurance Agents?” 

Like his allegations against Citizens board, Merlin’s question mark is strategic–avoiding a specific accusation while not forfeiting his usual goal of intimidation.

The “practice” Merlin wants to keep agents from engaging in by saying “The Department of Financial Services should investigate…” is that of recommending “higher deductibles” because (hold on to your hats)… it results in “…underinsurance”.  

To my amazement and to the chagrin of Peoples Trust Insurance Company, (and I’m sure other insurers with similar arrangements) Merlin lambasted Peoples plan to pay bonuses to agents who sell higher wind deductibles, stating it “…encourages agents to leave policyholders underinsured as a consequence of choosing higher deductibles, in contravention of public policy.”

I swear I’m not making this up!

Here it is word for word:

“The Department of Financial Services should investigate this [Peoples Trust] practice. It encourages agents to leave policyholders underinsured as a consequence of choosing higher deductibles, in contravention of public policy. Agents should carefully suggest the possibility of higher deductibles only if policyholders can afford them. From my experience, few can. This incentive program pits agents against their clients. Insurers know that higher deductibles can cause significant financial damage at the time of loss. Agents and insurers acting under this performance plan better disclose the consequences of a high deductible or expect class lawsuits when losses happen. This program clearly incents agents to act unethically.”

There’s so much wrong here (including transparency of motive) it’s hard to comment.

The bonus plan encourages agents to leave policyholders underinsured in “..contravention of Public policy”? Geez…wind deductibles, including the minimum mandatory  are not only prescribed by law, but approved by the OIR.  By definition that is Florida’s public policy as determined by its public policy makers often referred to as duly elected legislators.

Second, “underinsured” is when the total amount of the loss exceeds the total amount covered under the policy; it’s not when the insured elects to lower his premium by sharing in the loss.

The size of any deductible is a matter of consumer choice; a balance between the economics of insurance premiums and insurance coverage.  Efficiency is improved and costs are lowered when insured’s cover smaller, more frequent losses, and insurance covers less frequent, larger losses–premiums go down for the individual and for the group.

Merlin should consider that for non-wind/hurricane losses the “standard” of $1000 is probably too low for many policyholders.   That’s right, “too low”, because it causes them to pay a premium that is “higher” than their ability to share in the loss otherwise dictates. Either way, it’s their choice.

Regarding the Peoples Trust commission plan, (and similar plans by other carriers) why doesn’t Merlin argue that traditional commission arrangements encourage agents to sell low deductibles because, in doing so, they earn a larger dollar commission on a higher premium?

Anyway, just like falsely accusing the Citizens board of breaking the law, Merlin’s starting block is always threat or intimidation–here he warned of  “… class lawsuits when losses happen.”

Question: if Agents should expect class action lawsuits from Merlin, what should Merlin expect from the Citizens board and others he falsely accuses of breaking the law?

I’m sad to say, it’s apparently…nothing!


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