The way agencies interact with their carriers for providing underwriting information, getting quotes, binding coverage and issuing policies has changed tremendously in the past 5 to 10 years. Use of carrier underwriter systems has largely influenced the way business is transacted. While they have increased agent response time to the customer, there are potential E&O issues that the agency needs to beware of including the potential for there to be no formal application signed by the customer and for agency personnel to use “placeholder” information to generate customer indications.
The E&O exposure of not having signed customer verification of the information used to procure coverage is that the misrepresentations of the customer can become that of the agent should a carrier deny coverage. E&O attorneys agree that the actual insured signed application is a critical piece of evidence in defending the agency. So even if carrier underwriting systems allow the agency to deliver quotes without getting a formal application, it is a good idea to get customer signatures verifying the information used to create the proposal. In addition, you should also review your agency/carrier agreement as there may be provisions requiring the agency to maintain signed applications. The Big “I” recently introduced a program to offer exclusive, discounted pricing to members for an e-signature solution called Docusign. Using Docusign can enhance the process of getting signed applications or verifying information used for proposal. Visit www.docusign.com/iiaba to learn more.
Another E&O claim that is becoming more frequent is where an underwriting question is entered into the carrier system as a placeholder because it was not responded to by the customer. Agency staff has every intention of going back to the customer and gathering the appropriate information but wants to proceed with getting an indication to the customer as quickly as possible. Unfortunately, no reminder is set and the indication is bound and policy issued with inaccurate information that was input by agency staff and not verified by the customer. This leaves the agency wide-open to future E&O claims.
Below are some E&O claims facts regarding the application process and some recommendations to reduce your agencies E&O exposure.
E&O Claims Data Insights:
· Over the past five years claims data reveals that application errors have been on the rise. From 2008 to 2013 application related claims have increased by about 60%.
· Claims being made relating to applications include: failure to procure coverage, incorrect or incomplete information provided to the carrier, failure to add additional insureds or loss payees, and negligent misrepresentation.
· There is a clear trend of CSR’s more frequently being the target of application related errors. The graph titled “Application Errors: CSR’s vs. Producers” clearly shows a divergence of claims with application related claims involving CSR’s nearly doubling from 2009 to 2013. Conversely, producers are less frequently involved in application related claims.
· So why the trend in CSR’s being more frequently involved in application errors? With the integration of carrier underwriting systems into agency workflows, the more intensive data entry requirements likely transitioned more of the application process from the producer to the CSR.
E&O Recommendations:
· Review all carrier contracts to determine the agency’s responsibilities when it comes to completing and storing customer applications, along with customer signature requirements.
· Even when a formal application is not required by the carrier, the agency should consider implementing procedures to obtain signed applications from all customers. At a minimum establish a process for documenting the information provided by the customer that was used to procure coverage and get a customer signature.
· Be precise when entering information into carrier systems to avoid data entry errors. Agency staff should double check the accuracy of the entries.
· Discourage agency staff from inputting “placeholder responses” on behalf of the customer in an effort to more quickly deliver indications. If they don’t know the answer, contact the customer at the time of entry, but don’t proceed with the indication. At a minimum if agency staff continues the practice of using “placeholder responses”, make sure diaries are being set in the agency management system to follow-up with customers for the correct information and changes are made prior to quotes being bound and policies being issued.
