The term sliding insurance can mean several different things. Some workers’ compensation plans offer a sliding scale dividend that changes based on the amount of losses you have and your loss ratio. A sliding insurance agent does not fully disclose all the details of an insurance policy and does not get consent to purchase all the coverages or products being included in the sale. Sliding-scale commissions compensate a company's sales representative based on the dollar value of products sold, as opposed to a set percentage.
Key Points
- The classic example of sliding insurance occurs when an agent fails to get your expressed or implied consent before selling you products or coverages not included in the original policy. It is unlawful for an insurance representative to deceive a client about the limits of coverages or premium costs.
- To prove that an insurer violated insurance agency law with sliding insurance, an insured must prove that 1) the agent did not disclose all the essential information about a policy or product; 2) he relied on that information in deciding whether or not to buy the insurance; and 3) he suffered damages as a result. The materiality of the undisclosed information is crucial in determining whether an insurer has breached its duty.
- The key to avoiding agents who slide on coverage and premiums is by obtaining a complete understanding of your policy.
- On the other hand, sliding scale insurance is a dividend-based rating plan that pays a dividend to the insured on a loss-sensitive basis.
- This type of plan is usually applied to insurance coverage like workers’ compensation insurance because it is designed for loss-sensitive insurance.
What is Sliding in Insurance?
The classic example of sliding insurance occurs when an agent fails to get your expressed or implied consent before selling you products or coverages not included in the original policy. It is unlawful for an insurance representative to deceive a client about the limits of coverages or premium costs.
As an example, an insurance company insurer may suggest that there is a law that requires you to purchase car insurance when you purchase insurance for your home. Or the insurance carrier may claim that car insurance is part of the coverage included in the homeowners policy for free when, in reality, there is usually a separate premium for it.
If an insurer implies that its policy is the only policy you can buy, or if it does not divulge all of its terms, then it may be engaging in sliding practices. These types of methods are not only unfair but are also often used to conceal high costs or limitations on coverages.
Is Sliding Insurance Illegal?
Sliding, as it relates to insurance coverage, does not necessarily mean that the policy is illegal. Instead, it usually means you are getting short-changed or do not know enough to make intelligent decisions about whether you should purchase additional coverages or products.
An agent who slides may have personal incentives to do so. For instance, some agents receive higher commissions for selling products not included in the original policy, and others may get bonuses for adding certain types of business.
Sliding Insurance Law
Sliding is a tricky area of insurance law because it involves applying principles of agency law to the relationship between an insurer and its insureds. For example, agencies establish the duty of good faith and fair dealing that an insurer owes to its insured and protects insureds against confident deceptions.
To prevail, an insured must prove that 1) the agent did not disclose all the essential information about a policy or product; 2) he relied on that information in deciding whether or not to buy the insurance; and 3) he suffered damages as a result. The materiality of the undisclosed information is crucial in determining whether an insurer has breached its duty.
Agency law also bars an insurance company from charging for extra coverage that the insured has not agreed to purchase. In addition, an insurance company cannot charge for coverage without the consumer's informed consent.
Some states, like Michigan, have invoked cases such as DIFS vs Sinan Jamil, Prostar Insurance Agency, Inc., Docket No. 15-064706 (June 19, 2017) as a reminder to insurance agents that sliding violates the duty of good faith and fair dealing.
The ruling in DIFS vs Jamil stipulates that an insurance agent failing to make clear the true details and exact costs of insurance products during the insurance purchase process violates insurance law. Whether agents who engage in this practice or the company they represent are considered in violation of insurance agency law may depend on the jurisdiction and judge overseeing the court a case is brought to.
How To Avoid Sliding Insurance Agents
The key to avoiding agents who slide on coverage and premiums is by obtaining a complete understanding of your policy. When you purchase insurance, you should know what types and amounts of coverages you have purchased and their cost. If it is not clear whether the agent obtained your consent before selling extra or optional coverage, then consult another agent or broker, if possible. If you are not sure what coverage you have, then call your insurance carrier directly and ask.
Do your research. Question everything. And compare quotes from several providers to be sure you're getting the most fair, honest deal.
What Is Sliding Scale Insurance?
Sliding scale insurance is a dividend-based rating plan that pays a dividend to the insured on a loss-sensitive basis. The lower an insured's losses, the higher the dividend is. Dividends are not guaranteed, and they are paid according to the proportion of the final audited premium to the total incurred losses of the policyholder for the period. After the initial dividends are calculated, the ratio of the premium to the total incurred losses will be considered for determining future dividends.
Why Do Insurers Use Sliding Scale Insurance?
Sliding scale dividends help reduce losses by charging a higher net premium when the claims experience is worse and a lower net premium when the claims experience is better. Insurers use this method in most lines of insurance, including general liability, workers’ compensation, and professional liability. Dividends are adjusted regularly as the incurred losses are audited.
Sliding scale dividends are not a law or statute, and they do not have to be offered at all by insurance carriers. Many carriers do not offer sliding scale or dividend-paying workers’ compensation policies. Dividend amounts may be adjusted depending on the conditions of policyholders' accounts with each insurer.
The plan is usually applied to workers’ compensation insurance because it is designed for loss-sensitive insurance. The insured is paid based on the maximum amount of losses they experienced in a given period. Dividends are not allowed to go below zero; they cannot be used as a premium reduction or refund; and they cannot be rolled over into future periods.
How To Interpret Sliding Scales in Insurance Policies
Sliding scales are simply dividends in an insurance policy that adjust depending on the severity of claims. These fluctuations are part of what is known as experience rating, which is a method for adjusting premiums to reflect the actual losses being paid out by the insurer.
The reasoning behind sliding scale dividends is not so much to punish claims, but to correctly discriminate based on the severity of claims to the premiums paid. In other words, if a company has high claims payouts, it will receive less in 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 policy period.
Consider speaking to a qualified agent or representative because several factors often complicate the sliding scale. Have a professional explain it to you, especially when you are actively seeking coverage.
Benefits and Drawbacks of Sliding Insurance
Workers’ compensation sliding makes sense for policyholders because they can benefit from the opportunity to reduce their premiums by receiving a dividend at the end of the year for low or no claims payouts. There is no drawback. If claims are high that year, you pay no more than the premium already disclosed on the policy.
Insurance agent sliding doesn't have many benefits. No one likes to be deceived, especially when you're signing on to pay for something you never consented to pay for.
In some cases, the benefit can be that you are getting more coverage than you thought. The drawback is that it is not included or free, as it has a different premium. You might have rejected the coverage and premium if it was adequately disclosed. For example, an agent may add rental car coverage to your policy to win a sales award for coverage add-ons and explain to you that it is included in the policy. In reality, there is a separate line-item premium for the coverage. If you own multiple vehicles and do not need rental car coverage, you likely would reject the coverage and premium if it was disclosed.
Final Thoughts
Sliding scales make sense in some situations, such as with workers’ compensation insurance. They exist to encourage insureds to operate a safe workplace so they are rewarded with a dividend at the end of the policy term.
However, selling sliding insurance using deceptive practices to goad the insured into paying for coverage they did not consent to buying is unethical and may even be against the law. The best way to avoid allowing an agent to successfully deceptively add sliding insurance coverages into your policy without your permission, become a knowledgeable insurance consumer and only use qualified insurance agents and carriers. Obtain quotes from multiple agents and get explanations regarding what is covered and what must be paid for.
Frequently Asked Questions
Q. How do you qualify for a sliding scale?
Typically, insurers will offer sliding scale premium options to clients with a lower than average claims history.
Q. What is the sliding scale rule?
The lower the insured losses, the higher the dividend payments.
About Maurice Draine
Maurice Draine is a former insurance agent, broker, underwriter tech, and agent sales support rep with over 15 years of professional writing experience. Maurice helps insurance, financial, and various online and ad agencies, create the words that drive customers to their websites and keeps them there.