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Reducing Insurance Agency E&O Exposures


Reducing Insurance Agency E&O Exposures

Reducing Insurance Agency E&O Exposures

Insurance agents and producers better than anyone else know that as professionals you are exposed to allegations and claims that an error or omission caused financial damage to an insured. Even with best practices in place, mistakes can happen considering the massive volume of transactions that occur in a typical agency over the course of a year.

The most frequent E&O liability claims for insurance agents include failure to place or provide coverage; failure to provide adequate coverage; creation of a gap in coverage; stating coverage exists when it does not; failure to notify clients of cancellation, nonrenewal or new coverage restrictions; failure to review or explain coverage, or advise clients about it; and failure to obtain excess coverage.

E&O Hotspots for Agents

There are certain areas that can cause agents increased potential problems if not carefully considered. Certificates of insurance, for example, are a potential E&O hotspot as they can cause confusion for the insured. Certificates typically are a summary representation of what the basic policy provides. But, because clients ask for all kinds of information on these certificates there is a huge E&O exposure for agents. Things on the certificate may not reflect what the policy actually covers.

Another area agents need to consider is when they frame themselves as thought leaders and experts in a specific industry. If, for example, you advertise (on the web, in your brochure, email campaigns, direct mail, proposals, face-to-face, etc.) that you specialize in writing insurance for contractors but neglect to provide/offer Professional Liability insurance for those involved in design/build you could end up facing an E&O claim if your client is sued by one of his clients for negligence and your client doesn’t have the coverage to respond. Specialization also brings the potential for higher claims settlements should an E&O situation arise.

Weather-related catastrophes also continue to put stress on agency E&O claims, specifically involving issues related to lack of coverage or coverage gaps, such as flood insurance or business interruption.

Practices to Implement in Your Agency

The following are practices and procedures that should be a part of your agency:

  • Document everything. Your best defense against an E&O claim is adequate documentation. Everyone throughout the agency should document logged phone calls, issued certificates and everything else in the same place and in the same way – every time. In addition, when seeking a coverage interpretation from a carrier, be sure to get it in writing. If the carrier is reluctant to send an e-mail confirmation to you, send one to them confirming your understanding of the conversation. Make sure all communications are “attached” to the client file. Everything pertinent to coverage recommendations or transactions should be documented in your agency management system.
  • Have clearly defined job descriptions. This helps reduce “assumptions” of who is responsible for a specific task or item. Clearly defined job descriptions can prevent items from falling through the cracks.
  • Use checklists. Good checklists can help ensure that no one drops the ball.
  • Centralize your procedures manual. Post your procedures manual on your agency intranet. Make sure it is constantly updated to reflect changes. For example, cyber liability exposures and privacy issues are a key concern today as is social media and the potential for reputational damage. These issues should be reflected in an updated procedures manual. This will help ensure your staff is in compliance with your agency’s procedures as well as to continually assess training needs. Whatever you monitor, the documentation that you see should be coherent and consistent. Can you match the documentation with activities? Can you answer who, what, when and why?
  • Stay educated. Every state association offers E&O classes. Be sure your staff participates in these classes.
  • Conduct an insurance agency E&O audit. An audit begins with an on-site visit to the agency, and the length of the visit depends on the agency’s size. Procedures, forms, and documents are reviewed with key managers and supervisors. One-on-one conversations with producers, CRS and managers take place. At the end of the audit, management will receive a comprehensive report that presents E&O recommendations for every area of the agency.

Be sure when purchasing Errors & Omissions insurance that you are satisfied with the policy terms, conditions and limits. Axis Insurance Services specializes in writing Professional Liability/E&O insurance for agents as well as for MGAs, MGUs, Specialty Lines Agencies, Surplus Lines Agencies, and Wholesalers. To learn more about our E&O program, just give us a call at (877) 787-5258.

 

Sources: Property/Casualty 360, My Markets, Insurance Journal, Rough Notes

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Blogged on: November 16, 2016 by Mike Smith
Error Omissions
Error Omissions
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