Fewer E&O Claims? Consistent Agency Processes? Sell
Checklists check all the boxes!
In most states, the duty of a typical independent
insurance agent or broker – one who has no 'special relationship' with
the client -- is simply to use reasonable care in procuring the insurance
coverage requested by the customer, or if such coverage cannot be obtained,
to so advise the customer promptly. The problem is, your customer may be
unaware that certain coverages are not included in a standard policy, but
instead must be added by endorsement or a separate policy. State law may
not require you to recommend those additional
coverages, but it may make sense to at least offer
them to your customer.
One proven way to ensure that available coverages and
higher limits are offered is to use a checklist. A good checklist will
include coverage choices as well as optional coverages a customer might
want to accept or reject. Does the commercial property customer want
basic, broad or special form coverage? ACV or replacement cost? Do they
want business income coverage? Does the general liability customer have
any additional insureds to include? Do they want employment practices
coverage? Workers compensation? An umbrella?
For example, many homeowner's insurance customers may not
know that flood coverage is not included in a typical homeowner's policy.
While a flood policy may not be appropriate for many such customers, a
checklist that ensures that every customer learns that flood coverage is
not included in a homeowner's policy and can be purchased separately
gives the customer an opportunity to request or reject such a policy.
Experienced agents or brokers ask these questions and more
when working with new customers, but what if your employee forgets one or
more of these topics? Do you and your employees ask each
of these questions again at renewal since customers' needs change over
time? And even if you do, is there documentation of the discussion? A
checklist documents that the agent asked each of these questions (and
others), particularly when it includes a signature line at the bottom for
the customer to confirm they have accepted and rejected the coverages as
noted on the checklist.
As with so many other recommended agency procedures, consistency
is essential. Agency checklists are a great loss
prevention tool – for you and your client -- when used consistently.
Conversely, failing to use one as a routine part of an agency's
procedures could be a problem when defending an E&O claim. Checklists
probably do not create a higher duty than the general duty to procure the
coverage requested, but failing to use the agency's standard checklist
allows an argument to be made that the agency failed to follow its own
procedures. So long as checklists are used consistently, it is likely
that they will be very helpful in defending a claim.
Should agencies develop their own checklists or purchase
them? Purchasing industry standard checklists is advisable to ensure they
are comprehensive and up-to-date. In fact, many agency management systems
offer checklists as part of their system. That's helpful, but their value
is limited unless each agency employee is using the same checklist and
doing so consistently.
In addition to reducing E&O claims (and helping to
defend claims that do arise), checklists are a great way to sell more
insurance, providing additional revenue for the agency while enhancing
your customer's protection! Granted, a few customers are only concerned
with minimizing premium and will never even consider additional coverages
or limits. (As you read this, several names and faces are popping into
your head.) So should you forego the checklist with them? On the
contrary: it is with those customers more than any other that you should
go through the checklist every time, because those clients are the most
likely to suffer an un(der)insured loss and blame it on you. And you may
be surprised: once in a while common sense prevails and even the most
miserly of clients chooses to buy additional coverage.
If an agency does have an E&O claim and is insured
under a Swiss Re Corporate Solutions policy, using checklists may provide
another financial benefit. Under the Deductible Reduction feature of the
policy, if an insured agency generates and maintains contemporaneous
written documentation in the agency file of a customer's refusal to
accept any type of coverage or limit offered by the agency, and there is
subsequently a claim alleging the failure to secure such, 100% of the
agency's deductible for that claim will be waived up to a maximum of
$25,000, or until dismissal of the allegations, whichever is first.
Agencies that consistently use coverage checklists reduce
their E&O exposure by ensuring that at least a brief discussion
occurs about available coverages and higher limits, and by providing
highly credible documentation of the discussion if a dispute occurs
later. Checklists also increase cross selling opportunities and lead to
additional sales of policies or endorsements the customers may not have
When considering procedures that can benefit an agency in
a variety of ways, checklists check all the boxes!
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.