Wednesday

Liars and Cheats

One of the frustrating things about working in the church insurance business was dealing with liars and cheats. You wouldn't expect that from a group that is allegedly working for the good of the church, but every industry has its black sheep. Sadly, some of those dealings involved people I worked with or for, but most had to do with a particular competitor. I've already detailed some of his antics in the Mr. Big Bible the Dumpster Diver post.

For those who are not familiar with the insurance business, there are different ways to rate different risks. A building will fall into one of a number of categories depending on the age, construction type, condition, presence of sprinklers, etc. In the same way liability rates for a particular building are determined by usage and are rated using different factors. Church classrooms, offices, sanctuaries, etc. are considered "Church" and the rating basis used is square footage regardless of membership or attendance. Schools and preschool are rated according to the number of students, regardless of square footage. A large church building with only a few members can really get hit for liability because of the square footage while a large school building with only a few students can make out like a bandit. It's a far from perfect system.

Mixed use buildings are supposed to be rated according to the percentage of each risk present, and that method is ripe for abuse. I'll give you a real life example.

I was quoting a large synagogue in San Diego that had multiple fire-resistive masonry sprinkled buildings - the absolute best kind of buildings to insure because of the low risk of fire. They were very large which meant the liability charges were going to be pretty steep, but the construction allowed me to pile on the credits (an explanation of credits can be found in this post) and dramatically reduce the premium. The largest of the buildings was about 18,000 square feet - 17,000 of which were classrooms and offices, and the remaining 1,000 square feet a small preschool with 30 students. According to underwriting rules the liability would be calculated using 17,000 square feet at the "Church" rate and 30 students at the "Preschool" rate (there are other liability charges that apply, but those are the big ones).

When I met with the church to present the proposal they brought out their existing policy and I was shocked to see that despite the huge credits I was still thousands of dollars over their pricing. I started digging into their existing policy to look at see how the charges were calculated and quickly discovered the pricing shenanigans that Mr. Big Bible was using to keep this policy's pricing so low. On the building I described above, he had rated (for liability) the entire building as "Preschool", using only the small student count, totally ignoring the 17,000 square feet that was not used for the preschool. His liability charge was a tiny fraction of mine. Bottom line - he was cheating.

He was cheating not only his competitors, but his own company. By under reporting the liability for that building he lowered his premium and denied his company the funds they should have collected for the liability issues they faced at that property. Had that policy been audited by his company or the State, he would have been facing big problems.

Oh, except for one thing. Mr. Big Bible had been doing this kind of stuff for years with the company's blessing. We had seen numerous examples over the years where square footages or student counts were under reported. Some were absolutely laughable, but Mr. Big Bible was pretty much bulletproof because he had a good relationship with the company's bigwigs and produced so much business that they were willing to look the other way when he cheated. Keep in mind, this was one of the nation's largest church insurers that was condoning this unethical activity.

I had an early run-in with Mr. Big Bible during my first year or so in the business. We saw a quote he had done for one of our clients, and in this quote he had understated student counts at their large Christian school to lower the premium. My boss decided to call him on it and drafted a harsh letter to the church detailing what he was doing. The boss asked me to review the letter and make any revisions I might think are necessary.

The letter was poorly written, angry, and very likely actionable in the accusations it made. I took his poor start, rewrote it to tone it down a bit, and with his approval, sent it to the customer. The customer passed it on to Mr. Big Bible who promptly demanded an apology or else legal action would be taken. Of course, Mr. Leave Alone Slap (the boss) immediately jumped all over me, even though I probably saved him a sure lawsuit had that first draft of the letter been sent. I should have seen that coming, but I was still fairly new to the agency and hadn't had the opportunity to see what a poor manager he really was.

To our credit, we refused to play the pricing games that Mr. Big Bible played, but that decision cost us a lot of money over the years. Meanwhile, his company turned a blind eye to clearly unethical and possibly illegal behavior, and his clients stuck with him thinking him to be an honorable Christian businessman.

He was just another liar and cheat.

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