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How Prepared is Your Insurance Agency for an E&O Claim?


How PrepareHow Prepared is Your Insurance Agency for an E&O Claim?d is Your Insurance Agency for an E&O Claim?

Subhead: E&O Insurance Agency Claims Common

Individuals across the U.S. file 15 million civil cases each year and spend more money on civil litigation than any other industrialized country. Moreover, these costs are only continuing to increase. According to actuarial consulting firm, Towers Watson, the American civil liability system cost about $265 billion in 2010 in direct costs – that’s up from $180 billion in 2000. Insurance agencies are represented in the mix of lawsuits being filed, with 1 in 7 professionals named in some type of errors and omissions (E&O) issue, according to industry association, Independent Insurance Agents & Brokers of America (IABA). The cost of these claims, according to the IABA is an average $22,000 – and this doesn’t include attorney fees.

With statistics like these, it’s prudent that insurance agency owners, principals and individuals pay close attention to the Best Practices they have implemented to mitigate their exposures and review the strength of their Errors & Omissions insurance coverage.

Let’s take a look at the most common causes of an E&O claim against an insurance agency:

  • Inadequate communication and documentation
  • Misrepresentation of qualifications or experience
  • Misrepresentation of a policy provision
  • Inadequate coverage or failure to address a key financial need
  • Breach of duty, not placing all insurance coverage’s that were stipulated to client

Additionally, there are new emerging exposures that can trigger E&O claims, such as those that come with the Affordable Care Act (ACA). Agencies working in the employee benefits or individual health insurance sector will be subjected to potential increased scrutiny when assisting health insurance customers. And although we are well into the second year of enrollment, there are still aspects of the law and its requirements that are confusing, specifically as the employer mandate begins to roll out. With the possibility of missteps under the ACA on the part of an agent, a robust E&O plan is a must.

Now let’s look at who in an agency is most likely to be involved in an E&O claim.

The IIABA says 9 out of 10 E&O claims involve the following staff members: Producers who are on the front line selling insurance programs to customers. Claims often involve errors related to coverage type and limit recommendations, policy interpretation, application and policy insurance mistakes. Licensed customer service representatives who are involved in the claims process, application handling and Certificates of Insurance policy cancellation also are involved in potential E&O claims. Account managers are most involved in errors relating to the recommendation of coverage and limits as well as assessing consumer risk. And agency owners/partners, principals/sole proprietors are involved in many E&O claims depending on their involvement in the various processes and services offered. This group has the highest percentage of recommendation errors related to coverage and inadequate limits.

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Blogged on: February 9, 2015 by Mike Smith
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