The term slippage, when it comes to insurance, can mean several different things. Some workers’ compensation plans offer a sliding scale dividend that varies based on the amount of loss you have and your rate of loss. A sliding insurance agent does not fully disclose all the details of an insurance policy and does not obtain consent to purchase all of the coverage or products included in the sale. Degressive commissions pay a company’s sales representative based on the dollar value of the products sold, as opposed to a fixed percentage.
Slippery insurance premiums
It is illegal for an insurance representative to mislead a client about coverage limits or premium costs. If an insurer does, it can be a so-called impact. For example, an insurer from an insurance company may suggest that there is a law that requires you to purchase auto insurance when you purchase insurance for your home. Or the insurer may claim that auto insurance is part of the coverage included in the home insurance policy for free when in reality there is usually a separate premium for it.
If an insurer suggests that their policy is the only policy you can purchase, or if they do not disclose all of their terms, they may be engaging in slippage practices. These types of methods are not only unfair, but are also often used to disguise high costs or limitations in coverage.
Is sliding insurance illegal?
Slippage, when it comes to insurance coverage, does not necessarily mean the policy is illegal. Instead, it usually means that you are underrated or don’t know enough to make smart decisions about whether to buy additional blankets or products.
The classic example of slippage occurs when an agent does not obtain your express or implied consent before selling you products or coverage not included in the original policy. For example, you could purchase a liability-only auto insurance policy and not give your consent before adding full and collision coverage.
An agent who slips may have personal incentives to do so. For example, some agents receive higher commissions for selling products not included in the original policy, and others may receive bonuses for adding certain types of businesses.
Sliding insurance law
Slippage is a delicate area of insurance law because it involves the application of the principles of agent law to the relationship between an insurer and its policyholders. For example, agencies establish the duty of good faith and fairness that an insurer owes to its policyholders and protect policyholders against trusting deceptions.
To prevail, the insured must prove that 1) the agent did not disclose all essential information about a policy or product; 2) he used this information to decide whether or not to purchase the insurance; and 3) he suffered damage as a result. The materiality of undisclosed information is crucial in determining whether an insurer has breached its obligation.
The law also prohibits an insurance company from charging for additional coverage that the insured has not agreed to purchase. Additionally, an insurance company cannot bill for coverage without the informed consent of the consumer.
Some states, such as Michigan, have used cases such as DIFS vs. Sinan Jamil, Prostar Insurance Agency, Inc., Docket No. 15-064706 (June 19, 2017) to remind insurance agents that the slip violates the duty to good faith and fair dealing.
The ruling in DIFS vs Jamil states that an insurance agent who does not spell out the real details and exact costs of insurance products during the insurance purchase process is violating insurance law.
What is sliding scale insurance?
Sliding-scale insurance is a dividend-based pricing plan that pays a dividend to the insured based on losses. The lower the losses of an insured, the higher the dividend. Dividends are not guaranteed and are paid according to the ratio of the verified final premium to the total losses suffered by the policyholder for the period. Once the initial dividends are calculated, the ratio of the premium to the total losses incurred will be taken into account in determining future dividends.
Why do insurers use sliding scale insurance?
Declining balance dividends help reduce losses by charging a higher net premium when claims are worse and a lower net premium when claims are better. Insurers use this method in most lines of insurance, including general liability, industrial accidents and professional liability. Dividends are adjusted regularly as losses incurred are audited.
Degressive dividends are not a law or a law, and they do not have to be offered at all by insurance companies. Many carriers do not offer sliding scale or dividend workers compensation policies. The dividend amounts can be adjusted according to the conditions of the insureds’ accounts with each insurer. The scheme is generally applied to workers’ compensation insurance because it is designed for loss sensitive insurance. The insured is paid according to the maximum amount of losses he has suffered during a given period. Dividends are not allowed to fall below zero; they cannot be used as a premium reduction or refund; and they cannot be carried forward to future periods.
How to Avoid Slipping Insurance Agents
The key to avoiding agents who slip on coverage and premiums is to get a full understanding of your policy. When purchasing insurance, you need to know what types and amounts of coverage you have purchased and their cost. If it is not clear whether the agent obtained your consent before selling additional or optional coverage, consult another agent or broker, if possible. If you are not sure what coverage you have, call your insurer directly and ask.
Do your research. Question everything. And compare quotes from multiple vendors to make sure you’re getting the fairest, most honest deal.
How to interpret sliding scales in insurance policies
Movable scales are simply dividends in an insurance policy that adjust based on the severity of the claims. These fluctuations are part of what is called experience valuation, which is a method of adjusting premiums to reflect actual losses paid by the insurer. The reasoning behind declining dividends is not so much to punish claims, but to discriminate properly based on the severity of claims against premiums paid. In other words, if a company has high claim payments, it will receive less dividends the following year. The sliding scale encourages companies to operate a safe workplace to have fewer claims and be eligible for a dividend at the end of the insurance period.
Consider speaking with a qualified agent or representative, as several factors often complicate the sliding scale. Ask a professional to explain it to you, especially when you are actively seeking coverage.
Advantages and disadvantages of sliding insurance
The slippage in workers’ compensation makes sense to policyholders, as they can benefit from the opportunity to lower their premiums by receiving a dividend at the end of the year for low or no claim payments. There is no downside. If the claims are high that year, you pay no more than the premium already stated on the policy.
The slippage of insurance agent does not make sense. No one likes to be cheated. In some cases, the benefit may be that you get more coverage than you realize. The downside is that it isn’t included or free because it has a different premium. You might have rejected the coverage and premium if they had been adequately disclosed. For example, an agent may add rental car coverage to your policy to earn a selling price for the top-up coverage and explain to you that it is included in the policy. In reality, there is a separate premium for the coverage. If you own more than one vehicle and don’t need rental car coverage, you will likely reject coverage and premium if disclosed.
Movable ladders make sense in certain situations, such as with workers’ compensation insurance.
They exist to encourage policyholders to operate a safe workplace so that they are rewarded with a dividend at the end of the policy term.
If you don’t want an agent to deceptively slip insurance coverage into your policy without your permission, become a savvy insurance consumer and only use qualified insurance agents and carriers. Get quotes from multiple agents and get an explanation of what’s covered and what needs to be paid.
Frequently Asked Questions
Q. How can you benefit from a sliding scale?
Q. How can you benefit from a sliding scale?
Typically, insurers offer sliding-scale premium options to customers with below-average loss history.
Q. What is the sliding scale rule?
Q. What is the sliding scale rule?
The lower the insured losses, the higher the dividend payments.