Implementing E&O risk management into the agency can be overwhelming. Agency staff is busy servicing customers and trying to grow the agency. The good news is that an agency with good E&O procedures in place is also more likely to be more profitable. Below is a list of 13 steps the agency can implement to help reduce E&O exposure. They don’t need be implemented all at once. To keep from getting overwhelmed consider implementing one per month.
1. Assess customer needs: Understanding your customers’ operations can help agency staff uncover areas of exposure. To do this, agents need to know the right questions to ask. Risk assessment questionnaires can guide producers in their conversations with customers and E&O coverage checklists can document coverage that is offered. Whether state law prescribes a legal duty to assess customer exposures and offer coverage, covering exposures that could later lead to an uncovered claim is the most proactive thing agencies can do from an E&O risk management standpoint. For an annual subscription of $250, the Big “I” Virtual Risk Consultant offers descriptions for operations of hundreds of businesses, risk assessment questionnaires and E&O coverage checklists. It will make agency staff better at what they do and in the end increase agency revenue.
2. Offer Coverage: When it comes to E&O claims against agents, it’s always interesting to hear testimony from customers saying they would have bought the coverage if only it was offered to them. Yeah, right! Customers come to the agency with an idea of the type and amount of insurance they need and are looking for the best price. Even if it seems like a bother to the customer, don’t be afraid to discuss other exposures they may have and provide quotes for additional coverage. Producers should keep these couple things in mind: 1.) it’s the agents job (although not necessarily legal duty) to offer coverage to protect the customer’s assets and it’s the customer’s job to make the buying decision and 2.) offering coverage and documenting rejections protects the agency even if the customer doesn’t purchase them.
3. Offer Increased Limits: It’s the customers’ responsibility to determine insurable values and preferred limits. However, why not include increased limits with every quote? E&O claims often stem from inadequate limits so higher limits can be the difference between a covered and uncovered claim. Another proactive risk management approach is to make sure customers understand the valuation methods and any coinsurance limitations.
4. Don’t Renew As-Is: Agents work so hard to attract new customers which is a difficult task. But once the customer is written there is danger in putting their renewal on autopilot. Customer exposures change over time and so do their coverage needs. How often is agency staff working with renewals to assess their exposures? Is there at least an annual letter emphasizing that the customer should contact the agency for changes to their insurance needs? Is coverage that may have been offered during the new business process being offered at renewal?
5. Review/Audit Customer Files: You’ve heard it in E&O seminars that the three most important things an agency can do is “document, document, document”. Good documentation in customer files is tremendously important, but does your agency have it? Make it a routine to periodically pull some customer files to check if they have the level of documentation that would help defend the agency should an E&O claim occur. Consider a peer review process. Make it an exercise of continuous improvement, not one targeted at catching employee mistakes. This type of process will keep good documentation at the forefront of the minds of agency staff.
6. Stay Current On Coverage: Insurance coverage is complicated and it is constantly changing. In 2012 ISO introduced changes to the commercial property form and 2013 will bring changes to the CGL form. Agency staff needs to stay abreast of changes in coverage and educate customers accordingly. The investment in educating agency staff will pay huge dividends in writing more coverage and reducing E&O exposure. Set up education paths for all agency employees and keep in mind that Continuing Education requirements should be looked at as minimum standards.
7. Create a Culture: E&O risk management is not something that the agency staff should turn off and on. It needs to be a culture that permeates agency staff year round. Hold staff meetings about the importance of E&O risk management, share articles, periodically audit files, and make part of the employee performance review discussion. Frequently asking employees if they are aware of situations that could potentially give rise to future claims also keeps the subject front and center. But it is only possible with a culture of awareness.
8. Don’t Be Afraid to Report Potential E&O Claims: The earlier your E&O carrier is involved in an E&O claim the better the chances of a positive outcome. While your first instinct maybe to try yourself to make the claim go away, this is the wrong approach. On the average, 1 in 7 agencies will report an E&O claim but 50% of claims are closed with no defense or indemnity payments. E&O claims are going to happen but focus on getting your E&O carrier involved early.
9. Handle Customer Claims Expeditiously: It is astounding how many E&O claims involve agents failing to handle customer claims properly. The common error is failing to forward the claim to the carrier in a timely basis. When claims are taken and not delivered to the carrier the same day with appropriate follow-ups set in the agency management system, the agency not only puts itself in jeopardy of an E&O claim but also of losing its reputation with customers. Customers pay premiums for the moment when a claim happens and when it is not handled appropriately frustration can set in as to why they purchased the coverage in the first place. Make sure customers understand their responsibilities in the event of claims and execute on the agency’s responsibilities as well. Agencies should never make coverage determinations, as that is the role of carriers. Agency staff should report the claim in a timely fashion to ALL carriers where coverage may be applicable including excess and umbrella carriers.
10. Incorporate Disclaimers: A simple line of defense against E&O claims is incorporating disclaimer language in the agency’s operations. There are different types of disclaimer language that can be used in different scenarios such as voice mails including language that coverage cannot be bound or changed without speaking to a licensed agent or proposal disclaimer language that the insured should read their policy. Sample disclaimer language can be found on the E&O Happens website (www.iiaba.net/eohappens). Disclaimers are helpful in the defense of an E&O claim and can reinforce information customers need to be aware of.
11. Value or Limits: Re-evaluate how your agency handles the determination of insurable values and limits for customers. Inadequate limits or values are common allegations made against agents when customers experience a loss that is insufficiently covered. Be sure to clearly state that values and limits are determined by the customer. When agency staff specifies the limits a customer should procure their standard of care can be increased to assure the limits are adequate. When using cost estimators provide a disclaimer that this is just an estimate and the cost to rebuild or replace could exceed the limits. Make sure the customer is accounting for upgrades and explain that purchase price and appraisals are different than the actual cost to rebuild under specific circumstances.
12. Protect Customer Data: This is a complicated issue but it’s time for agents to stop burying their heads in the sand. Agents have a legal obligation to protect customer data. Start by educating yourself on the state and federal laws outlining responsibilities. The E&O Happens website and the Big “I”’s Agents Council for Technology website (www.iiaba.net/act) have information to help you understand agency exposures. Keep in mind that your customers have cyber liability exposure and are also subject to many of the same regulations that the agency is. Learn how it applies to the agency and then parlay that into selling coverage to your customers. Visit www.bigimarkets.com if you are in need of access to some cyber liability markets.
13. Attend an E&O Class: Only good things come to those that attend an E&O seminar put on by a Big “I” state association. Data shows that those agencies that attend are much less likely to have an E&O claim. Agents can also get discounts on their E&O premium and CE credits are often filed for the seminar. In addition, attending the seminar will help you achieve and implement all of the suggested risk management items listed above.
Implementing any of the above steps can help any agency reduce exposure to E&O claims and improve customer service. If you feel overwhelmed by the list, pick the low hanging fruit such as sending all staff to an E&O seminar, pull a couple customer files every so often to review documentation being used, implement disclaimer language which is available at www.iiaba.net/eohappens, and purchase the Big “I” Virtual Risk Consultant (www.iiaba.net/VRC) for staff which will educate them on customer risk exposures and coverages, and provide them with E&O checklists. Remember, small steps over time can make a big difference. Here’s to a lucky 2013.