FOCUS ON AGENTS E&O
Understanding products and documentation are key to preventing claims
By Lori Widmer
The word on the street for the future of the agents errors and omissions (E&O) market: cautious optimism. AmWins data reveals that minimum premiums have increased to approximately $5,000.
Yet that’s not the case across the board. According to a Willis Towers Watson Insurance Marketplace Realities report, agents E&O pricing in 2019 will trend from flat to a 5% increase. Still, storm frequency, wildfire activity and increasing numbers of cyber events are creating a potential for increased agents E&O claims.
“The overall market is stable, with consistent pricing for risks with good controls and experience,” says Mark Angelucci, resident senior vice president and E&O business segment officer at Utica National Insurance Group. “On the product front, the approach is more one of refinement than new products. Agents continue to expand their service offerings to their clients, so coverages that address those needs are being introduced. This includes coverage for agents who sell and service employee benefits programs.”
“Since producers often operate out of the office and are focused on the next sale, it is important to have processes to help them easily document their conversations, observations and recommendations.”
Resident Senior Vice President and E&O Business Segment Officer
Utica National Insurance Group
Within that view, though, is plenty of underlying movement. Tabitha DeGirolano, program manager and underwriter for the agents professional liability unit of All Risks, Ltd., says the market continues to see flux, particularly with carriers entering and leaving “with some regularity.”
Mark Lann, executive vice president of Rockwood Programs, has seen much of the same but says it’s not uncommon. “There has been some turnover with carriers getting in and out of the segment, which is typical.”
Also, Lann has seen some markets offer vanishing deductibles and first deductible waivers. That is indicative of the flat market, although Lann says price competition has slowed considerably over the last few years. “We’re probably at or near the bottom of the pricing curve.”
Cyber: The wild card
All of our experts say cyber liability is an ongoing and growing concern. Angelucci says there is one simple way for agents to prevent clients’ cyber claims: offer coverage. He’s seen claim activity arising from the failure to offer coverage, and he cautions agents and brokers: “Be sure to think about online fraud coverages because crime policies may not cover that exposure. A cyber policy with an affirmative grant of coverage (often sub-limited) can be an option. Check with your cyber carriers to understand what they offer.”
DeGirolano says agents are looking for E&O to include cyber coverage, or they’re seeking stand-alone coverage. Luckily, she says, agents E&O insurers are catching on to the need and providing a cyber component, although the degree of coverage varies. “Most frequently this includes coverage for responding to a breach of clients’ data; however, some carriers are offering additional third-party coverage and first-party liability.”
Lann agrees, saying agents should be considering cyber or crime policiesthat cover “fraudulently induced trans-actions with a limit that covers the scopeof your largest banking transactions.”
Another area where cyber liability is a concern: within the agent community itself. Angelucci says agents shouldn’t neglect their own cyber coverage and urges them to evaluate their needs. “Renewal of your E&O policy is a good time to think about all your exposures and coverages. Does your cyber policy include third-party notification services, liability coverage and online fraud protection? Consult with your agents E&O underwriter or agents association directly to learn what coverage options may be available,” he advises.
The claims picture
Cyber liability aside, the major claim driver in the agents E&O market is still the failure to recommend or place coverage for clients.
Lann sees claims being driven by failure to procure coverage, failure to procure appropriate coverage, and policy servicing issues.
DeGirolano agrees and says commercial lines products are driving more claims than personal lines. “Commercial property, commercial auto, GL and BOP claims are what I see most frequently,” she says. “Crop insurance is a more specialized line that sees claims with regularity.”
It’s the failure to provide requested coverage that Angelucci says is driving most claims, an issue the market has dealt with for a number of years, he notes. Also, failure to document is starting to catch up with agents, he adds. “With recent hurricanes—including Harvey, Michael and Florence—creating more flood than wind damage, it’s important to understand the National Flood Insurance Program (NFIP) and private flood coverage availability and to consistently offer flood coverage and document an insured’s decision not to purchase.”
DeGirolano says that claims arising from failure to advise have become more frequent in the last decade. She suggests agents develop written procedures for all employees and conduct periodic audits to ensure that employees are following the procedures. A key to preventing E&O claims, she says, is documentation. “Document every phone call right after ending the call,” she recommends. “If feasible, record all calls.”
She recommends that agents require clients to sign a document that states they have rejected a recommended coverage. “Have clients acknowledge limitations to the coverage that can affect their business,” she adds.
Angelucci suggests agents take it a step further and adopt procedures that support documentation. “Since producers often operate out of the office and are focused on the next sale, it is important to have processes to help them easily document their conversations, observations and recommendations.”
Then there are transactional issues. Lann says he’s seen an increase in what he calls fraudulently induced transactions. He says this kind of crime is increasing in frequency and is taking quite a bite out of claims coffers. In two cases, Lann says, nearly $2 million was sent to fraudulent accounts.
How can agents and brokers protect themselves? “Implement strong financial controls, such as second authorization,” says Lann.
Advice for agents
That’s good advice to help prevent cyber liability claims internally, but what about reducing claims that arise from providing inadequate coverage or failing to offer coverage? Angelucci says agents need to understand their products thoroughly and review their sales approach. “With the increased interest in the purchase of cyber insurance, agents must be sure that they properly present that coverage, which is difficult given the lack of standard coverage language. They need to work closely with their carriers to understand the coverage.”
Training is essential, says DeGirolano. “Make sure your staff is adequately trained for all of the products they are selling. A large number of claims reflect a lack of knowledge on the part of the agent that leads to coverage gaps.”
When in doubt, defer to the specialists, says Angelucci. “Unique and difficult classes of business can drive claims if agents are unfamiliar with their exposures and the coverages they should be offering. Examples include construction wrap-ups and ocean marine. Deferring to specialists in these classes, whether they’re program managers or wholesalers, is a good risk management strategy.”
For more information:
All Risks, Ltd.
Utica National Insurance Group
Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.