Insight offers E&O markets for accountants,
architects, engineers and agents
By Dennis Pillsbury
Insight owners James M. Romano and Michelle A. Duffett, RPLU.
"We understand that we are a support system for our agents," says Jim Romano, co-owner of Insight Insurance Services, Geneva, Illinois. "As such, we offer single-minded customer service so our agents do not have to manage us. We always provide a quick answer when an app comes to us. We actually return phone calls, a standard professional courtesy that isn't so standard anymore. That has kept us going whether the market is hard or soft. It's a consistent, long-term approach that relies on us having a strong relationship with our agents."
Michelle Duffett, the program administrator's other co-owner, adds: "Jim and I worked together at a number of companies before we established Insight in 1987. We wanted to do it better, and service was the key. Market turmoil is not good for independent agents or for their insureds. We have always remained true to disciplined underwriting so we can keep prices where they should be and avoid some of the tumult that afflicts the insurance marketplace."
When Insight Insurance Services was set up in 1987, "the insurance market was similar to the current one," Jim remembers. "It was a tight market and we saw a real need for an accountants professional liability facility. We were the fourth market in that business in 1987. There were 21 markets available five years later. Now the market is tightening again. We are very comfortable in either environment because of our emphasis on service."
Jim explains that Insight is an open market source for independent agents. "To get started with us, all an agent needs to do is send an application on behalf of his client. Obviously, the agent and the agency need to have the proper licenses and appointments. It's not very complicated."
Michelle adds that, in addition to the service the program administrator provides to its agents, "we also bring tremendous expertise that translates into excellent service to the agent's customers. We are able to explain loss ratio issues to their clients. We also can provide risk management advice that will ultimately serve to reduce their clients' insurance costs or at least ameliorate the increases."
Michael W. Ryan, Insight's full-time programmer, maintains a proprietary system that is continually improved to maximize efficiency and effectiveness, and makes certain the processes work well for the entire staff.
A recent example of the kind of service Insight provides to accounting clients was a national broadcast via satellite and interactive Webcast to accountants of an instructional seminar sponsored by the Accounting Continuing Professional Education Network (ACPEN). Michelle, one of the speakers for the seminar, presented 10 underwriting trouble spots CPAs could avoid:
1. Bad client selection. Accountants should take a thorough look at a client's reputation, check references and determine the reasons potential clients are changing accounting firms. "Bad clients will switch firms until they find one willing to accede to their wishes," Michelle said. She warned that the fees generated by a questionable client are never sufficient to cover the resultant claims.
2. No engagement letter. Always send a concise engagement letter, even if the client refuses to sign it. If clients are uncomfortable about signing, "tell them your insurance company requires it." Engagement letters should be updated annually or whenever additional services will be performed.
3. Embezzlement within client's office. Nearly half of all claims over $100,000 are due to fraud on the part of the client. Unethical behavior by a client is one of the foremost reasons for disengagement. "It's often safer to take a stand against a client than it is to defend a suit from a third party," Michelle advised. "If the choice is being sued by a client because you didn't agree with a questionable situation, or being sued by a third party because you went along with the situation, it's better to be sued by the client. It's easier to win and you'll sleep better at night."
4. Technical standards violations. Technical errors are usually honest mistakes, but the majority can be avoided. Appropriate independent review of the work within an accountant's office, before it is released to the client, often will catch errors and will minimize the possibility of a professional liability claim.
5. Real or perceived conflict of interest. These situations are difficult to defend, even if fully disclosed, in the event of a claim. "Third parties have a tendency to either disown knowledge of the conflict or claims that they were unduly persuaded by the accountant's involvement," Michelle said. "Perceived conflicts of interest can be just as dangerous." Most perceived conflicts arise out of referrals, she said. "When you feel you must offer a referral when asked, it's imperative you provide two or three options."
6. Client expectations are different than the work provided. This is a corollary to the engagement letter and extremely important if there is ever a suit. "Outline not only what you will do, but highlight what you will not do to avoid a possible gap between client expectations and what you are actually being paid to do," Michelle advised.
7. Services provided are beyond the expertise of the accountant. When establishing a relationship with a client, accountants should perform a self-evaluation of their firm and its abilities to perform the services required both in terms of expertise and manpower. Michelle warned against overselling services. "Flowery marketing phrases like 'the best' or 'exceeding your expectations' will come back to haunt you when presented to a judge or jury as a rebuttal to your position that your services met industry standards."
8. Advising more than one party to a transaction without significant disclosures and waivers. This is another case where the accountant needs to get it in writing. "Every year we defend claims where the accountant represented two parties in a transaction, usually with the client's blessing and encouragement," Michelle pointed out. She gave an example of a father passing the family business to the next generation and using the same accountant, because he already knows the business, for both the father and children. The accountant can easily provide a fair valuation and help structure a buy-out plan, but what happens when the children falter at running the business? Who's going to get blamed?
9. Lack of internal procedures within the accountant's office. Follow consistent billing practices and document everything. "Giving proper attention to business practices in the invoicing and collection is a much better alternative than having to file a lawsuit for collection of fees," Michelle said. "Suing for fees is a surefire way to face a six-figure countersuit for malpractice," she added. Concise and legible file notes on client discussions are important to give credibility to your testimony and professionalism in the event of a claim.
10. Lack of disclaimers in prepared financial statements (even audited ones) stating their purpose and use. This is a very specific part of managing client expectations and goes further to mitigate the expectations of third parties. Often, the accountant is preparing financial statements that also are needed for obtaining credit or some other type of contractual benefit for the client. The accountant needs to actively protect against professional liability claims from all recipients of the work by clearly delineating any limitations in the scope of the work in the financial report.
Jim goes on to point out that 90% of accounting firms have 10 or fewer employees and quite often don't have professional liability coverage. He continues that agents would be well-advised at the very least to recommend such coverage to any of their accounting clients in order to avoid potential E&O exposure. "Sarbanes-Oxley has certainly changed the climate and all accounting firms should have coverage. Certainly, any that are engaged in auditing will be directly affected by the legislation. However, you can anticipate spillover to others in the profession as well."
An upsurge in A&E submissions
"We've seen a significant increase in the number of submissions from architect and engineering firms," Jim points out. He attributes the increase to a number of factors, including increased demand for such coverage from the third parties with which the A&E firms work and the turmoil in the marketplace. "Many more architects and engineers are looking for coverage while, at the same time, those that have coverage are shopping around either because their insurer has left the market or because they have been hit with sticker shock by the significant increases."
Despite the rapid increase in submissions, "our service standards have remained constant," Jim continues. "We are providing 24 to 48 hour turnaround to our agents. This is what we are set up to do. The agents who do business with us stay with us because they have found out that we really do live up to our promises. We've become an excellent resource for them."
Agents E&O
"The agents E&O market is probably experiencing the most hardness," Jim observes. "Supply is way down. Major competitors have not fared very well in this class. Unfortunately, we don't expect it to get much better any time soon."
Michelle explains that the market conditions for agents have been exacerbated ironically by the market conditions in general. "Agents are more likely to have claims in a period where they are replacing policies and having to sell price increases and/or coverage diminutions. There's also the fact that, in a soft market, the insurance company will help the agent with certain claims. That's not true during a hard market."
Ready for the influx
"We have a great staff of 15 people to provide excellent service regardless of the number of submissions," Jim says. "One of these people is a full-time programmer who makes certain the processes work well for the entire staff. It's a proprietary system that is improved every day to maximize efficiency and effectiveness."
Michelle adds that "the systems do great things for our accuracy. We're able to keep routine stuff moving forward without error. And that means we don't get behind chasing errors."
The system is redundant with the server backed up to another server every day. The system also dumps all of the data onto a separate storage tape that leaves the place every day. "Basically, we have a RAID system with instant backup," Jim says. "The technology to handle even more submissions quickly and effectively is in place." *
For more information:
Insight Insurance Services, Inc.
Web site: www.insightinsurance.com