The sale and servicing of insurance is not like other products. How often do you hear about a car salesman being sued by his customer for not selling him a new car – or for selling a car that lacked all the "bells and whistles?" That's why avoiding E&O claims is a big part of insurance sales. What follows are five strategies to consider in order to avoid E&O claims through smart sales practices.
#1: Offer ALL coverages that would commonly apply to the exposure (and that your agency normally handles.)
Do this even if you know that the customer won't buy all of the recommended coverages. Even if you think you won't be able to get a carrier to offer the coverage at a price that your client will find attractive. Why? First, your assumption about your customer might be wrong. They may actually want some of the additional coverages you offer, which increases their protection while putting money in your pocket. Second, when the customer declines and suffers an uncovered loss as a result, the jury will know you tried to help – a fact that tends to sway them in your favor.
But how do we prove it? After a loss, it is not unusual for the policyholder to testify that they don’t recall being offered the coverage in question – and they're being honest! They really don't recall that conversation years ago. What they know for certain, though, is that they would have purchased that coverage if it had just been offered. Hindsight is 20/20, as they say. Especially when it comes to someone else's mistakes.
Consider using exposure checklists and questionnaires. (Sample checklists can be found on the E&O Happens website requires a username & password and is available to Swiss Re Corporate Solution Policy Holders and IIABA Members.) It is important to have your client initial or sign off on the offered coverages and make a note in your agency system. Or better yet, send a letter confirming their rejection of any important coverages. And if you don't normally handle a certain type of coverage, suggest your client go to another agency for that coverage and document that in writing. What about those you do handle? Keep up to date on advertising and marketing materials issued by those carriers, so you know of any changes made to the product offerings.
#2: Offer higher limits, but avoid taking on the task of evaluating the sufficiency of those limits. You will need some basis to apply for those limits whether it be a cost estimator, an appraisal or, best of all, information supplied by your client. At the same time, make it clear to your client that you are not choosing the limits, because they are in the best position to know the value of their property and exposures. If you're still uncertain about the quality of your information, offer several limit options, erring on the high side with at least one.
If applicable, tell your client that a co-insurance penalty could apply if they do not have sufficient limits. Always inform your client that they have the option to purchase higher limits, particularly on sub-limited coverages such as water damage and law & ordinance.
#3: Be careful of misleading information in your marketing materials. Do not create unrealistic expectations through your marketing efforts. It is never "just an ad".
Avoid describing your agents as "experts" or "professionals," or claiming that your agency has particular expertise unless those claims are factually true, and you have every intention of using those talents for your customers. For example, some agencies offer risk management consulting as a "foot-in-the-door" marketing device. That can lead to trouble if you don't actually have that training or if you don't follow through.
Never promise to obtain the "right coverages for you," "all of the coverages needed," or "all-risk" coverage. A promise that you guarantee your client is "fully covered" is sure to be broken, because no customer is going to buy every coverage available at the highest limits allowed. The sturdiest of fences still has holes in it. Likewise, do not promise to identify all of your client's insurance needs, offer to anticipate and plan for all of your client's potential risks, or indicate that you will be their "partner." Any of these representations can increase your agency's exposure to E&O claims since a jury may find that you have held yourself to a higher standard of care and then failed to deliver.
#4: Review the application, quote, proposal and policy to find discrepancies. It is best to have your client complete the entire application. If that is not practical, it needs to be your standard procedure to ask every question in the application and have your client initial each page and/or important items on the application, then sign and date it. If you have your client's prior policy, identify and address any differences. Make sure the coverages requested in the application match the coverages quoted in the proposal and issued in the policy. If there are any differences, address them immediately with the carrier, any up-stream broker and your client.
#5: Keep your client informed. Immediately advise your client in writing if you are unable to obtain the coverage requested or if you are running into any problems placing the coverage. Advise your client in writing of what is needed in order to put the policy in place and provide the time limit for compliance. Timely pass on any quotes to your client. Advise your client in writing to review the policy and to contact you if they have any questions about the policy and/or they want to make any changes.
All of these practices will require extra effort on your part, but so do E&O claims. The difference between the two? In the long run, these business strategies will satisfy your customers and put money into your pocket – the win/win you're looking for – while an E&O claim is sure to take money out.
This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.
Caryn Mahoney is an Assistant Vice President, Claims Specialist with Swiss Re Corporate Solutions and works out of the Chicago office. Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re Corporate Solutions.
