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October 05
08:40 2016

Staff understanding of agency procedures is key to preventing claims

 By Christopher W. Cook

 When it comes to risk, agents may find it necessary to arrange coverages for emu and ostrich farms. Flightless bird establishments present a plethora of risks for both employees and visitors. Okay, I seriously do know what E&O stands for, and I’m well aware that it’s neither emus and ostriches nor my previously suggested eggs and omelets.

When it comes to preventing an E&O claim, it’s best to start by carefully examining procedures and policies.

“Agency principals must make sure that their staff—including producers—is completing the daily execution of risk management practices and operational procedures,” says Mark Angelucci, CPCU, ARM, resident senior vice president and E&O segment leader at Utica National Insurance Group. “For example, suppose your agency’s procedure states that each policy must be checked against its signed proposal. What if that doesn’t happen, the policy comes in different than requested, and then a loss occurs? This could lead to an E&O claim that was preventable.

“It’s vital to set the expectation that the staff should take the time to do a thorough job on every transaction,” he adds. “This is important not only for controlling E&O exposures, but also for allowing the agency to run more profitably.”

Mark Mullarkey, RPLU, executive vice president of RT ProExec, stresses the importance of sharing operational procedures during an acquisition.

“There’s been a lot of merger and acquisition activity in the independent agency space,” he says. “When your agency makes an acquisition, ensure that your policies and procedures get funneled down to the agency you’re acquiring. Make sure everything is running the way it should; and conversely, when your agency is acquired, make sure you are able to purchase coverage to protect you should a claim arise at the point at which you were acquired.”

The same procedures should be followed for all new hires, regardless of work experience. “As agencies hire new staff, management should take special care to ensure that new hires understand the agency’s risk management culture and procedures,” says Angelucci. “It’s important to make your agency’s standards clear. Do not rely on a new staff member’s previous experience in following agency standards.

“It’s also beneficial to use your available risk management resources, such as self-assessment tools and conversations with your E&O underwriter. These can provide valuable insight into your current agency operations.”

Angelucci also advises having an external agency audit completed. “This will provide an unbiased view of how consistent and effective the execution of procedures is,” he says. “It’s the best way to get under this issue. Also, have an effective internal quality control process. Have a staff member check the files to ensure that processes are consistently being completed and documented.”


As technology advances, agents should be informed of the agency’s cyber privacy issues and policies involving social media. “Principals should review their current policy to see if there is any coverage for a cyber or privacy issue that might arise, or a claim that might be brought against them from a breach of their computer system,” says Mullarkey. “Smaller agencies can get coverage built into their existing E&O policies where there’s a specific coverage grant for that exposure. Larger agencies with over $10 million in premium volume should purchase a separate policy for the cyber and privacy exposure.”

When it comes to social media, Angelucci continues, “an issue today is defamation, where negative comments made about a competitor are looked at as libelous. Every agency needs a policy governing how its staff uses social media. This should clearly set appropriate expectations and provide guidance on how to handle situations as they come up when communicating on social media platforms.

“It’s vital to set the expectation that the staff should take the time to do a thorough job on every transaction. This is important not only for controlling E&O exposures, but also for allowing the agency to run more profitably.”

 —Mark Angelucci, CPCU, ARM
Resident Senior Vice President
and E&O Segment Leader

Utica National Insurance Group

“Other issues include violations of non-compete agreements and business disputes where, for example, appropriate admitted market declination rules are not being followed before a risk is placed in the excess-surplus market.”

“I’ve started to see carriers offer coverage for situations when an agency is subpoenaed for information that is not directly related to an E&O claim that it may or may not be involved in,” says Mullarkey. “Often the agency will turn that subpoena over to its law firm to handle on its behalf. Carriers are now offering specific supplements for subpoena coverage where they’ll pay the law firm that’s stepping in to help.”

 Coverage and advice

“Selecting the right E&O carrier is crucial,” says Angelucci. “This has reputational and business impacts far beyond those of a standard lines property/casualty placement. It’s important to know the carrier you select, have a good working relationship with it, and have easy access to its underwriting and claims staff. Also important are the carrier’s market stability and its commitment to developing new products focused on the expansion of services provided by agents.”

“It comes down to making sure that all exposures are covered,” Mullarkey asserts. “Many agencies are starting to branch out. Some traditional agencies are now selling life and health as well as property/casualty products. Some have gotten involved in consulting or selling through an online portal. Make sure your E&O policy’s description of professional services covers you for everything you are doing.”

Another strategy to prevent an E&O claim should be employed during the initial meeting with a client. “When a producer calls on a client, he or she should make sure that all appropriate insurance products are offered, and make sure that the client signs off if it declines to purchase a specific coverage,” Mullarkey says. “Down the line, if the client gets into a claim situation and is not covered, you have proof that the client was offered the coverage and decided not to buy it.”

“Commit to getting the most out of your agency management system,” adds Angelucci. “Using the system to track insureds’ requests and document customer interactions will tighten your agency’s operational execution and can help prevent potential disputes.”

Before meeting or talking with a client, know the coverages your agency provides and understand its E&O policies and procedures—and count every single feather on your emu or ostrich. Don’t do the last part; that’s just silly. Getting slapped with an E&O claim isn’t.

For more information:

RT ProExec—

Utica National Insurance Group—

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