By Mary M. Belka, CPCU, ARM, Are, RPLU, CIC, CPIW
MASTERING THE FINE ART OF POLICY CONTRACT CHECKING
Account managers are the “safety net” for correctly written coverages
During the past several months, we have addressed the more global challenges of various agency operational “inside matters.” It’s time to spend a bit of time in the weeds—the real world where account managers live on a day-to-day basis. Assuring that coverage has been issued accurately remains the most important service the agency provides. Yet, it is clear from the comments I receive from account managers, that policy checking is seen as pure drudgery by some and, more alarmingly, as unnecessary by others.
The basis for this view can vary, the most common being the lack of training and education. This task is not easy, if one is not up to it knowledge-wise. The resistance to change makes it difficult to end outdated processes considered “important,” that take up the time of servicing staff, making them susceptible to the logic of paring down duties, usually their own. These include components we recommend be stopped, for instance, accepting cash payments, accepting interim direct bill payments, and contacting poor pay clients. Many agencies do not have reception duties properly covered and require account managers to answer incoming calls. Paper duplication abounds, in a supposedly automated world; young account managers who have grown up digital are stymied by “pushing paper.” Why is paper even involved in the process? Need I mention seemingly endless emails and certificate “do-overs,” to say nothing of delivering policies via three-ring binders?
Regardless of the size and complexity of individual policies, all contain the same components, every time.
Servicing employees do their best to survive what can feel like overwhelming processing duties, so many of which are preventable—but rarely within the purview of the account manager to eliminate. Inefficient new business and renewal processes can add to this heavy lifting, creating a feeling that “something has got to go.” Left to their own devices—and in the absence of consistent
operations management—what is the first to go when frazzled account managers make the decision? Checking policy contracts for accuracy.
This critical core service is disappearing, and while the resulting exposure to the client and agency is not always apparent at the outset, the increased potential for uncovered loss and E&O exposure is all too real. The tradeoff is in the perception of saving time in the short term—yet the reality is that this practice is increasing overall risk.
A very real consequence is the decrease in coverage knowledge that results from never reading or evaluating policy contracts. It was interesting to hear one account manager describe the importance of being helpful to clients—yet he considers checking policies “boring.” How is it possible to be helpful, if one lacks coverage expertise derived from understanding the contracts that we sell? There is no way around it—if you expect to understand exposures and coverage, reading contracts is essential.
Eye on the prize
So, if policy contract checking is essential, the solution is to make it somehow less daunting, more consistent, and dare I say—more fun! It is important to understand that the more you know, the easier policy and contract analysis becomes and, yes, it can be rewarding to see what a difference an account manager can make, as he or she serves as the safety net, making certain that the coverage in place is the coverage the client agreed to and expects that it matches the coverage ordered from the carrier, and is synchronized with the documentation in the automated client file. In the end, when a loss is covered because coverage was written correctly and reflected in the policy contract, clients are happy. Doesn’t that sound more helpful—and fun?
What does it mean to check a policy contract?
Believe it or not, it is a process that can be learned and replicated—and handled efficiently, all things being equal (such a help if the agency is properly automated).
First and foremost, an insurance policy is a contract that matters most when it is brought into the forefront due to a loss—it is too late to correct it after the fact. It simply has to be right. Regardless of the size and complexity of individual policies, all contain the same components, every time: declarations, including endorsements; insuring agreement; conditions; exclusions, and definitions.
Compare policies received to all client/prospect file components, including previous policies, proposals, premium comparisons, applications, and any relevant submission correspondence. Agencies with clients operating in multiple states need to be aware of contractual differences that could result. This is especially important with an increase in account managers working remotely, often in different states. Account managers should be properly licensed and familiar with applicable rules and regulations; operational oversight is more important than ever in this evolving work environment.
When changing carriers, it is important to watch for coverage reductions. A comparative analysis should be completed during the submission/rewriting process, and the insured advised of any decrease/change in coverage. This can be in the form of so-called “enhancement” endorsements, which contain varying sub-limits and coverage that can differ by carrier. The agency should develop a comparative coverage matrix for their various carrier markets, to avoid any inadvertent reductions when replacing coverage. It is good to be familiar with competing carrier coverages, as well, when writing new business.
Most standard policies are delivered to the insured directly. The agency still has the responsibility to check the agency copy to assure accuracy. If originals are received by the agency, they should not be stockpiled to be delivered all at once. Rather, they should be handled promptly according to agency workflow standards, and forwarded electronically to the client as they are checked and processed. Clients do have a responsibility to review and understand their policies; this is not possible if they do not receive them in a timely manner and can create increased E&O exposure for the agency.
Any errors should be corrected by endorsement as applicable; the client may need to be alerted, especially if original policies have already been forwarded directly to the client by the carrier. Proper communication and coordination are key to getting any corrections made.
Use the following checklist when checking your policy contracts:
- Carrier and policy number.
- Named Insured. Make certain it is correct and complete, including any joint ventures or partnerships. These may be found on a continuation endorsement.
- Mailing address. This seems simple—but critical in the case of direct billing. It is amazing how much “returned mail” occurs with newly written/rewritten policies due to incorrect mailing addresses.
- Business description. This can be particularly important on E&S policies for professional liability. The business description must include all applicable activities in order for coverage to apply.
- Type of entity (corporation, partnership, etc.)
- Policy effective/expiration dates.
- Retroactive date, if applicable (sometimes this is in the body of the policy and not on the declarations page).
- Retroactive dates usually apply in the case of claims-made policies but may also apply on claims-made coverages on occurrence policies, such as employee benefits liability coverage on general liability policies.
- Make certain that the retroactive date has not been advanced.
- Rates and premiums.
- Minimum earned premium.
- Minimum premium.
- Limits of liability (including aggregates and self-insured retentions if applicable).
- Any reduction in limits?
- Any sub-limits added, restricting coverage?
- Any increased deductibles?
- Aggregate deductibles as applicable.
- First dollar defense on claims-made policies as applicable.
- Any general liability deductibles?
- Valuation (replacement cost, ACV, agreed value, margin clause, etc.).
- Business auto/garage keepers/auto dealers/motor carriers—double-check for correct symbols.
- Check all exposures for accuracy.
- General liability and work comp classification codes and exposure bases.
- Property, inland marine and auto schedules/descriptions, locations, garage locations, equipment model and serial numbers, VINs, etc.
- Umbrella. Are all relevant underlying policies, limits, and effective dates included on the Coverage A schedule of underlying coverages?
- Compare to last year’s policy if applicable. Are there any changes?
- Any new, updated, or unexpected restrictive endorsements?
- Review endorsement numbers and edition dates.
- In the case of manuscript E&S endorsements, it is possible that changes have been made to endorsements with no change in edition date. It may be necessary to compare wording to be certain no changes have occurred.
- In times of change and rapidly evolving coverage (for example COVID-19-related endorsements and cyber liability), changes in definitions, conditions, and/or restrictive wording could appear at renewal with no prior notice.
- Any endorsements missing?
- Any endorsements to be signed by insured and returned to carrier?
- Policy/endorsements properly signed as applicable?
Knowledge is power
Account managers can become invaluable to their clients and agencies, by developing the expertise to handle policy contract checking quickly and properly. Does it “save time” simply to attach all incoming policies without making sure they are accurately written? Perhaps in the short term. Is this the service your clients expect, especially when a loss occurs, and it becomes apparent that a policy error means reduced or missing coverage? Not so much.
New software products using artificial intelligence and integration between carrier and agency systems and new applications are certainly an answer to streamlining some or eventually all of these processes, and will no doubt help to save time in the future. In the meantime, it is important to understand the importance of the account manager’s position as the current “safety net,” assuring that coverage has been written correctly.
Mary M. Belka is owner and CEO of Eisenhart Consulting Group, Inc., providing management and operations consulting to the insurance industry. She also is an endorsed agency E&O auditor for Swiss Re/Westport. A graduate of the University of Nebraska, Mary holds the CPCU, ARM, ARe, RPLU, CIC, and CPIW designations.