To truly eliminate E&O exposure its necessary to understand the root cause of E&O losses and implement change at that level. In general, E&O losses occur because of inadequate training and education, poor risk identification and analysis, lack of uniform practices and procedures, inappropriate organizational structure, lack of compliance with office practices and procedures, time constraints and/or chronic backlog.
Our industry is unique in that there is a specific "buying date" for most of our transactions. Policies renew and must be "purchased" on a certain date, new vehicles, equipment or buildings must be covered on the day the insured takes ownership, and claims must be reported by the agency to the carrier promptly after reported to the agency. Therefore, our ability to manage and prioritize our work is of utmost importance. Some tasks, like checking new policies when received, or processing some kinds of endorsements, may seem to be less urgent and get put aside. The truth is, all agencies can and should target to operate with reasonable turnaround for every transaction. When items are not processed in a timely manner, it leads to inefficiency and, potentially, E&O claims.
Hiring the Right People
When an E&O claim occurs, you can sometimes isolate it to an individual or group of individuals who may have contributed to the loss. Keep in mind it probably was never the intent of these people to cause harm to the agency. Rather, it probably was the result of a lack of training or compliance with procedures. But how can an agency know if they have the right person in the right position?
Inadequate Training (Education, Education, Education)
Very few people intentionally do things wrong. Rather, they presume they are acting appropriately. Inadequate training can include a lack of understanding of the customer risk analysis process, inadequate product knowledge, and unfamiliarity with the agency management system. There are many reasons (excuses) put forth by agencies as to why their personnel may not be adequately trained, but the most common are lack of time, lack of resources, or lack of motivation. Imagine going to a doctor who has not completed the journey from student to intern to resident to practicing physician. The stakes are no less high in insurance and we want our customers to work with the best people available to meet their insurance needs.
Lack of Compliance with Office Practices and Procedures
Even if an agency has good practices and procedures in place, they are not helpful if agency personnel fail to adhere to them and this creates a real exposure to E&O claims. In some instances and depending on the issue and its relation to a potential claim, an agency may actually be better off having no procedures than having to admit, under oath, that there is no requirement that they be followed, or any consequence if they are not. Consistent practices and procedures should be applied to reduce the chances of errors and to provide the service intended to the agency's customers.
Lack of Uniform Practices and Procedures
Most people, in order to perform their job to the best of their ability, require some kind of structure or "roadmap." In most agencies, however, there are no written practices and procedures. Without written guidelines, agency personnel are forced on an ad hoc basis to use their own best judgment in a variety of circumstances. While their judgment may be generally sound, problems occur when each person develops their own system of operation, some being better (or more dangerous) than others. Some agencies are actually an amalgamation of several smaller agencies, all operating under the same roof, and each of these mini-agencies may have its own way of doing business, which may or may not be appropriate. Consistency in practices and procedures regarding how business is done is a critical component in E&O claims prevention.
Problems with Organizational Structure
Many E&O claims are the result of miscommunications or incomplete transactions between agency staff members. The more people who must touch a transaction to complete it, the more likely something will not get done as it should. In an automated world, organizations should be flatter and look for ways for transactions to be handled start to finish by the same person. Whenever a transaction is passed from person to person, the potential is increased for someone to "drop the ball" and this is a point of E&O vulnerability.
When examining E&O claims that have been made, it is often stated by agency managers and staff members that the real reason something was not done or that it was done incorrectly is that the person or persons involved simply didn't have enough time. Most people feel that their agency is understaffed and that all problems would go away "if only we had more people." Generally, insufficient staff is not the problem. Rather, it may be the ability of staff to manage the tasks that must be completed and use the tools available to free up time to complete all tasks required.