Firing Your Customer

By: Robert Procter & Judd Genda | Axley Attorneys

We see agencies end their relationship with customers for two main reasons. First, the customer may be too difficult to work with. It could be that he is confrontational, dishonest, or just challenging. Second, agencies will eliminate business that may not be profitable or that they no longer want to write. When terminating a customer, it is important that you communicate clearly, document accurately, and act fairly.

1. Contact The Carrier.

You are not terminating or nonrenewing your customer’s policy. The customer’s policy is with the carrier.  You are telling the customer that he will need to move his business to another agent and possibly another carrier at the time of renewal. Since the policy is with the carrier, you need to know and follow the carrier’s policy when terminating your relationship with the customer.

2. Confirm It In Writing.

Avoid any chance of a claim against your errors and omissions policy by having a “former” customer that fails to renew or obtain new coverage. Notify the customer in writing with plenty of time for him to renew his policy or obtain new coverage through another agency. Maintain a copy of the written notice as proof that you notified the customer of your decision and that he will need to seek a new agent. You may want to refer him to another agency. Many agents will decide to have a face-to-face meeting or a telephone call when terminating a customer relationship. Even if you verbally notify the customer of the termination, you still should confirm the termination in writing.

3. No Discrimination.

Statutes and administrative rules prohibit unfair discrimination relating to insurance policies. Keep adequate records of why you are terminating your relationship with the customer to ensure that you cannot be accused of doing so for discriminatory reasons. The reasons should be based on the customer’s actions, claims history, contractual violations, profitability, or other non-discriminatory reasons. Insurers may not refuse to insure or renew a policy based on sex. See Wis. Admin. Code § Ins. 6.55. Insurers may not cancel or refuse to issue or renew an automobile insurance policy wholly or partially because of age, sex, residence, race, color, creed, religion, national origin, ancestry, marital status, or occupation. See Wis. Stat. § 632.35. Similarly, insurers may not refuse coverage to a class of risks for auto or home solely based on past criminal record, physical disability, past mental disability, age, marital status, sexual preference, “moral” character, or the location or age of the risk. See Wis. Admin. Code § Ins. 6.54. Make sure that any action you take will not lead to a possible allegation of discrimination.

The decision for agencies to sever ties with customers usually stems from two key factors: poor working relationships and strategic business objectives. The process demands a systematic approach.

• Always remember that the customer’s policy lies with the carrier, necessitating compliance with carrier policies.
• Safeguard against potential claims by notifying clients in writing well before renewal, allowing them to seek alternative coverage.
• Protect against claims of discrimination by documenting evidence to substantiate decisions.

While emotionally challenging, parting ways with difficult or unprofitable customers is a pragmatic move for maintaining and growing a better business. If you have questions about terminating a customer, call the PIA Legal Hotline.

This information is provided for the convenience of PIAW members, but cannot be construed as legal advice. Members of PIAW may call toll (608) 200-4221, or email their questions to insurancehotline@axley.com, to work with an attorney and receive legal information specific to your situation.