Advice for agents, because some mistakes simply can’t be erased or obliterated
By Christopher W. Cook
See what I did in the title and below the title? That will be a contribution to my running gag of misinterpreting the meaning of “E&O”—prior examples being eggs and omelets, and emus and ostriches. Hey, I have to mix things up every once in a while (emphasis on the H, if you’re familiar with Family Guy). Right?
Onward to the discussion.
Avoiding E&O claims sounds as easy as doing the job right in the first place, but we all make mistakes. We have personal lives and get distracted by problems outside the office. We have late nights; I stayed up to watch the Cubs win the World Series, and dragged in the following morning. But, as both Lenny and Carl have reminded us on different episodes of The Simpsons, that’s why pencils have erasers.
“Doing the right job on each transaction is the way to satisfy your customers and provide the level of service needed to avoid potential E&O claims,” says Mark Angelucci, CPCU, ARM, resident senior vice president and E&O segment officer for Utica National. “One of the biggest E&O issues facing agency principals is the quality of service they provide their customers. The expectations of what constitutes good service are rising as people judge the experience they have with insurance providers against all their other transactions.”
“The majority of agents are competent professionals who know their products and work tirelessly for their clients,” comments Tony Wittwer, president of CalSurance Associates. “However, at the end of the day, this knowledge does not prevent a client from looking to that agent to fill the gap between an insured and uninsured loss. Even the most loyal client can quickly become a contentious adversary when there are large financial stakes. These situations often evolve into an allegation that the agent failed to procure adequate coverage.
“The number one, time-tested way of minimizing the agency’s exposure is to have proper documentation procedures that are consistently followed. Processes like paper file notes, handwritten call logs, and indexes have largely been replaced by electronic solutions, including comprehensive agency management systems and paperless/imaging systems. While these are great solutions, they can represent a liability when not used completely and consistently. We see E&O claims where the agency may have a number of different systems to track customer requests—agency management systems, email folders, spreadsheets—but they are not used consistently by all of the staff.
“The challenge is that cyber coverage forms are not uniform. … Take the time to ask questions of your carriers as to what is covered and what services the policyholder is entitled to, and then train your staff on these issues.”
—Mark Angelucci, CPCU, ARM
Resident Senior Vice President, E&O Segment Officer
“On the other hand, we have observed offices that do a great job of documenting client communications, but fail to track interactions with carrier representatives. Establishing written procedures, training the staff, and managing their adherence to the procedures are imperative.”
Adds Angelucci: “When you’re replacing a policy from one market to another, the customer expects the same, if not better, coverage. We have seen a number of recent claims where that did not happen. Applying the ‘mirror test,’ comparing one policy against the other, could have prevented these claims. Checking the policy to make sure it reflects the coverages requested and providing clear documentation to the customer of the coverage differences between the policies are important risk mitigation tools every agency should use.”
Added services and technology
As the industry changes, elements and objects (I did it again) regarding these modifications should be top of mind.
“Two areas that need to be addressed are the increasing diversity of services agents are offering, such as human resources consulting or loss control services, and the complexity of cyber insurance,” says Angelucci. “Human resources consulting is a service that agents frequently offer their clients. This can include consulting and administration services for clients in areas such as COBRA benefits, wellness programs and personnel recordkeeping.
“Similarly, many commercial lines-focused agents provide loss control services for existing customers and for a fee to other entities for which they may not be the agent. Be sure you have coverage for these exposures under your E&O policy.”
“Agents must also make sure that they are not unknowingly assuming additional duties that may lead to a heightened standard of care,” says Wittwer. “Simple actions or statements—such as picking up premium checks at the client’s office or representing themselves as an ‘expert’ or ‘specialist’ in a particular subject—could lead to an expectation of additional responsibilities above and beyond those traditionally expected or legally required of an agent or broker. When these additional duties and risks are assumed, the agent must be knowledgeable enough to address them consistently and proficiently.”
As for cyber, a 2016 Zurich Insurance-Advisen survey shows that take-up rates on cyber insurance have increased substantially—rising to 65% of the companies surveyed from just 35% in 2011.
“The challenge is that cyber coverage forms are not uniform,” says Angelucci. “Coverage triggers and whether ransomware demands are covered, the policy ‘paying on behalf of’ or only ‘reimbursing’ for a covered loss, or the policy provides access to service providers versus needing to vet and contract them on your own, are just some of the areas in which cyber policies can differ from one carrier to another.
“Take the time to ask questions of your carriers as to what is covered and what services the policyholder is entitled to, and then train your staff on these issues. In many cases the cyber carriers are happy to conduct agency staff training sessions.”
“Agency principals should be concerned about their own cyber exposure, as well as the E&O exposure they could face if cyber is not discussed and reviewed with clients,” adds Wittwer. “Agents should know that the sub-limits for cyber liability in many agent E&O policies may not be enough to provide coverage for all costs if there is a data breach. In other words, you get what you pay for.
“If it is free, buyer beware. Assess your data security and privacy risks, and then consider buying higher limits of liability for first- and third-party coverage or purchasing a stand-alone policy. Data security and privacy coverage should be reviewed with all commercial clients. Like any other proposal, if a cyber policy is offered and not accepted, make sure that file documentation includes the customer’s rejection of the quote.”
What else should agencies consider when purchasing E&O coverage?
“Agencies should be thinking about trusting and knowing the participants in the transaction,” says Angelucci. “Are you buying through an association, where you have an ongoing relationship, or are you going through a wholesaler? Are you dealing with a carrier that has claims handlers exclusively handling E&O claims and that understands the reputational impacts of how the claimant (your customer and community member) are handled, or are claims handled by a contracted service provider that may be handling many lines of coverage and working with a number of carriers?
“The number one, time-tested way of minimizing the agency’s exposure is
to have proper documentation procedures that are consistently followed.”
“Agencies should also take the time to think about their limits and coverages. Agents are so busy tending to the needs of their customers that they sometimes overlook their exposures and coverage needs. Take the time to confer with your E&O underwriter.”
Wittwer adds, “Retroactive dates are extremely important. We have seen situations where there is no coverage for an E&O claim because the agency changed carriers and accepted a ‘retro inception’ quote without fully understanding the impact of the loss on coverage and/or without looking at other retro date options.”
It goes without saying that a well-designed training program is key to avoiding E&O claims.
“Every agency should have a written operating procedures manual that is updated at least annually,” says Wittwer. “This manual can be used as a training tool for new hires. It should have sections on what is required when interacting with both clients and carrier representatives for both new and renewal business.”
Adds Angelucci: “New employees should also understand the expectations for use of the agency management system, know what documentation requirements are, understand service standards—how quickly are phone calls to be returned, for example—and learn about carrier binding authority and claims reporting requirements.
“Above all, especially when hiring an experienced staff member, do not assume he or she knows what to do based on the previous employer’s procedures. There is a great amount of variation in how agencies run their operations and in the quality of their risk management controls.”
Agency auditing programs and retraining programs are equally important.
“Internal audit programs are necessary to verify that the standards of your agency are consistently being used,” says Angelucci. “There was a recent claim for an agency that had the standard of ‘every policy must be checked against the application to verify coverages.’ The policy involved in the claim was not checked, but an agency audit program could have identified that this standard was being inconsistently applied and prevented this claim.”
“Best practices include a random sample of files for each employee on a regular basis, with either supervisors or peers conducting the audits,” says Wittwer. “If multiple lines of business are produced by the agency, the audit sample should include at least one client file for each line of business. The audit should include new business as well as renewal files, and if the CSR assists more than one producer, files from each producer should be included. This ensures that senior management has a quality assessment on the entire book of business and that specific retraining needs can be identified and addressed before it is too late.”
“Ongoing training of your staff is vital,” adds Angelucci. “This can be in-office training by the carriers you represent or training held by your agents’ association. All types of formal education should be considered and built into your staff’s annual performance expectations. A multitude of strong courses are offered by The Institutes and The National Alliance for Insurance Education and Research, to name a couple.”
Ideally, these words from the wise can better prepare you to avoid E&O claims, because if you are facing one, you’re going to need more than an eraser.
For more information: