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Common Pitfalls Leading to Insurance Agent E&O Claims

Common Pitfalls Leading to Insurance Agent E&O ClaimsThe world of insurance is changing with new players entering the marketplace, including Google, Overstock.com, Wal-Mart and others. This has made it even more imperative for independent agents and brokers to differentiate themselves from these disrupters and other direct marketers, not only in personal lines, but also in the commercial lines space. Increasingly more agencies are presenting themselves as consultants, risk management advisors and experts to gain more business and retain existing clients – and separate themselves from the price-driven commodity of personal insurance and even small commercial lines insurance policies like BOPs.

Along with this emphasis in relationship building and consultative positioning come increased risks for insurance agents and brokers. It’s important, therefore, for agents to identify the risks of selling new product lines and services, assess their existing Errors & Omissions (E&O) protection and implement appropriate loss control measures so that they don’t find themselves dealing with E&O claims. In fact, according to data from the Independent Insurance Agents and Brokers of America (Big “I”) and an attorney survey of insurance agency E&O coverage from reinsurer Swiss Re, 40% of all claims frequency comes from new business and another 25% come with renewal transactions.

There are four errors that represent the most frequent reasons for E&O claims among agents:

  • Risk Assessment and Recommendation Errors. This involves failure to ask the right questions of clients or to visit the insured property, which can lead to errors regarding geographic location, business operations, supply chain disruptions, hazardous chemicals or processes on the site and jurisdictions where employees live and work.
  • Policy Issuance Errors. Many agents expose themselves to risk by failing to provide the policy in a timely manner to the customer so he or she can review it for accuracy. Others fail to accurately identify the persons and property insured under the policy.
  • Application Errors. These easily avoidable mistakes include errors on the value or square footage of the insured property, missing claims history, or omitted medical history on life and health policies. When a claim is denied due to an application error, the customer is likely to feel the agent who prepared and submitted the application is responsible.
  • Failure to Duplicate Prior Coverage. With both new coverages and renewed or remarketed coverages, agents may fail to review the policy issued and compare it to the quote in order to ensure all requested coverages are in place. Insurance companies, for example, often add sub-limits or remove certain coverages or perils, which an agent may overlook without due diligence; this could qualify as misrepresenting the scope of coverage provided by the policy.

In evaluating your current coverage, the E&O specialists at Axis Insurance Services can assist you in ensuring that your policy is designed to respond and that your limits are adequate. Give us a call at (877) 787-5258 to go over your E&O insurance policy in detail.

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Blogged on: February 29, 2016 by Mike Smith
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