By Richard F. Lund, J.D., Vice President, Senior Underwriter, Swiss Re Corporate Solutions*​

"Compliance," like the term "audit," can strike fear into our hearts. "Compliance" is a term that for many people has a negative connotation. Merriam-Webster defines "compliance" as:

"1a: the act or process of complying to a desire, demand, proposal, or regimen or to coercion
"Patient compliance in completing the treatment regimens was excellent.— Georgia A. Chrousos"

b: conformity in fulfilling official requirements
"His actions were in compliance with state law."             

2: a disposition to yield to others"

When used in the proper context, compliance is a good thing. In fact, in an E&O setting, compliance is something that can actually yield a monetary reward, or at the very least prevent having a monetary loss.

Let me explain. In more than 50 years of errors and omissions risk management experience, we have found that when an agency has good written policies and procedures in place that staff are expected to follow, the likelihood of having an E&O claim dramatically decreases. Documentation is and forever will be the single most important cornerstone in E&O claims prevention. By having the written requirement to document each and every contact with a customer, if the staff is in compliance with that requirement, the ability to defend a claim is greatly enhanced.

And even if a claim is made, the probability of payment of a loss is significantly reduced if the documentation is in every customer file. As a matter of fact, we have gone so far as to provide premium risk management credits if agencies consistently use coverage checklists. Why? Because we know that by using checklists, the ability to defend a claim for failure to procure coverage is greatly enhanced. When agencies act in compliance with our recommendation to always use coverage checklists, we give a discount on their E&O insurance premium, and if a claim comes and the checklist makes note of the additional coverage types and limits that were offered at the time the coverage was placed, the agency may have their deductible completely waived. That is a monetary reward up of to $25,000 if the agency and its staff are in compliance with our recommendations.

In addition to my duties as the risk management coordinator for the insurance agents E&O program, I'm also a senior underwriter for the program. As a senior underwriter I am expected to be in compliance with our underwriting standards. As long as I am in compliance with our standards, we are confident that we will make the right decisions when underwriting a risk, and ultimately, we'll avoid claims and make a profit. Again, in this case there is a monetary reward for me being in compliance.

Our risk management program is based on our experience in handling insurance agents E&O claims for more than 50 years. Each of our recommendations is based on that experience of knowing the types of claims made against agents and using the lessons learned about what should have been done to prevent the claim from happening in the first place. While we understand that an agency may not be able to implement each and every recommendation we make, we know if an agency staff works in the same manner each and every time they interact with a customer and are in compliance with agency procedures, it's not a dirty word. In fact, it can make you money.

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. The views expressed in this article do not necessarily represent the views of the Swiss Re Group ("Swiss Re") and/or its subsidiaries and/or management and/or shareholders. 

*Richard F. Lund, JD, is a Vice President and Senior Underwriter of Swiss Re Corporate Solutions, underwriting insurance agents errors and omissions coverage. He has also been an insurance agents E&O claims counsel and has written and presented numerous E&O risk management/ loss control seminars, mock trials and articles nationwide since 1992.

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