Enhancing your E&O culture one person at a time

For many agencies, establishing or enhancing an E&O culture can be somewhat of a daunting task. Issues such as “where do I start” and “what should we do next” are common. Other issues such as “they know what their job is, why can’t they just do their job” might be part of the equation.

Hopefully every agency knows the importance of establishing or enhancing their E&O culture. In actuality, this is one of the most important initiatives an agency faces. I know of more than one agency that essentially went out of business because of a poor E&O culture. The agencies had multiple claims and were non-renewed more times that they care to remember. They either were then unable to get E&O or the price and conditions (such as the size of the deductible) were so prohibitive, they decided to close up shop.

To establish a strong E&O culture does not just happen. It takes a strong concerted effort with strong leadership. It also takes delivering the message to each and every person and then holding them accountable for their results. There is an expression I often use – “Agencies don’t make mistakes, people do”. Thus, it takes a strong staff with the necessary knowledge levels. However, this is only part of the formula. I have met many very solid agency staff that have the skill level but not the necessary E&O mindset. The mindset that will prompt them to do what is expected of them no matter what. For some reason, that is missing.

To get this message to each and every person, it may just take a sit down, one-on-one with each staff member to discuss with them their role and the importance of their performing based on expectations. If the agency does performance reviews, this might be a good time to have this discussion. All staff members, regardless of their role, need to understand how important they are in the establishment of a solid E&O culture. Every agency should have (and needs to have) staff members that “get it” and can be that “leader on the floor”. They are the staff that everyone clearly sees that they do the job and they do it the right way. Someone that is like “a field leader” to use a sports analogy. They should take a lead role in staff meetings when discussing the various E&O prevention topics.

There is another quote that I have used a few times in my day that “an agency’s E&O culture is only as strong as its weakest link”. The agency should periodically perform an assessment of their E&O culture and commitment and even consider a grade for each staff member. Those falling short should be identified and an action plan developed to address their areas of deficiency.

After all, a strong E&O culture starts “one person at a time”.

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Is “competency” enough when it comes to E&O prevention?

Throughout the years, I have heard many agency execs and staff comment that they “know what needs to be done” or “we are a veteran staff that know our jobs”. Said a different way, they feel their competency is “good enough” and is their reason for not feeling the need to be more diligent in the design and implementation of various procedures that will enhance their E&O culture and commitment.   

First let’s look at the definition of “competence”. It is “the ability to do something successfully or efficiently”. The ability to do something the right way. The key word here is “ability”. I am of the firm belief that virtually every agency in the United States has staff that have the ability to do the job and to do it the way they are supposed to do it.

The key issue is execution of that ability. Just because someone has the ability does not mean that they will actually do what they should be doing. If one were to survey agency management, it is probably fair to say that this is one of their biggest frustrations. They have staff that have the ability. The problem is that those same staff don’t always execute to the level of their ability.

As I interact with agencies, I will hear stories where the agency staff member knew what they were supposed to do. In fact, in many cases, there are exact procedures in place that detail what actions are required in various situations. The problem that has now generated an E&O claim is that the staff member “decided” not to execute to the level stated in their manual. Excuses such as “I didn’t really understand the procedure” or “I just didn’t have the time” are often used.

For agencies to reach the “platinum” level of E&O loss prevention takes a lot more than just competency. It takes a total buy-in from the staff, each and every one, that they will perform their duties to the level expected in the agency.

How is this achieved? It actually starts with hiring the right people and providing them with the necessary level of training, both initially and ongoing. It takes detailed job descriptions and procedures manuals where the employees is required to state that they understand the manual and will comply with the contents. It also involves auditing and a variety of other issues. When problems occur and it is clear that the employee did not perform to the required level, it takes disciplinary action, including termination if the situation warrants it. This may sound harsh but in the world of E&O loss prevention, merely having competence is clearly not enough.

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Moving coverage to a new carrier – here’s an example what can happen

The backdrop on this E&O claim involves an account the agency had to replace due to the prior policy being non-renewed as it was no longer within the carrier’s appetite. Although this was a tough account, the agency was able to find replacement coverage. During the course of the proposal, the producer advised the client the policy terms of the new coverage were the same as those provided under the expiring policy. The coverage is bound.  

At the end of the policy period, the new carrier issued a premium audit notice to the client. The client was expecting this as they were aware of the subject to audit provision. However, during the audit, the new carrier asked for payroll information concerning one of the client’s subsidiaries. The client immediately contacted the producer asking why the carrier was asking for subsidiary information when the old carrier NEVER asked for this? 

As soon as the client asked the question, the producer remembered that despite the question on the application asking for the payroll for both the parent and subsidiaries, the prior carrier had agreed that the client’s payroll audit would not include this particular subsidiary’s operations because the operations were ancillary to the main operations of the parent. Of course, the new carrier never agreed to this arrangement and eventually required the client to pay an additional premium of $100,000.  The client subsequently brought an E&O claim against the agency to recover the $100,000. Five years later, the matter is still in litigation.

What can be learned from this real-life E&O claim? Actually, there are a few solid lessons to be learned.

1) Keep a running note/list in the file of any special circumstances / agreements relative to an insured’s coverage and make it a point to review that information on every renewal. Also make sure marketing is aware of the special circumstances where appropriate.

2) Be extremely careful about representing that new terms are the same as expiring, because “terms” includes not only the wording of the policy itself, but how the carrier interprets the words. 

3) When moving coverage to a new carrier, give thought about the policy terms that carriers can interpret differently, the audit terms being an example. 

Moving coverage to a new carrier is not as easy as it sounds. The agency should have a checklist to ensure that the necessary review is completed. 

 

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What do you do when one of your carriers is downgraded?

Within the next 3 – 4 months, the various rating agencies will be looking at the financials for the vast majority of insurance carriers. In the overwhelming number of situations, the rating will not change but what if it does? How are you finding about it and then what are you doing about it?

First off, every agency should have an established minimum financial rating of the carriers they do business with. Using the AM Best methodology, an “A-” rating is the minimum rating for many agencies.   

Come the months of April – June (and actually beyond), AM Best will be publishing updated ratings based on their review of the carrier’s most recent financials. Every agency should have an established process for identifying the ratings of the carriers.  There are a variety of processes. Some agencies have a process where the rating is pulled up each time a proposal is generated; for other agencies, they rely on the carrier marketing rep advising them (definitely do not suggest this approach). For other agencies, they review daily the announcements provided by AM Best. Personally, I suggest an automated approach. AM Best has a tool that is part of their Key Rating Guide that provides e-mail alerts on the various carriers. Agents might want to check it out through www.ambest.com/sales/krg. They provide a video to see if this approach is right for your agency.

Presuming that your agency has a minimum acceptable rating of A-, what would happen in your agency if one those carriers was downgraded from A- to B? The suggestion is for the agency to identify the clients with those carriers and put them on notice that the rating of that carrier has changed. An explanation of the rating should be included. While B may have been pretty good in high school / college, in the world of financial ratings, a “B” rating is only considered “Fair”.

The notification to the clients should include an offer to remarket the account to a carrier with a higher AM Best rating. If the client wants to stay with the same carrier despite having been notified of the rating drop, they should be requested to sign the document stating they wish to continue with the same carrier.

Carrier ratings do change and it is important for agencies to be aware of these changes and when appropriate to be proactive notifying the clients and educating them on the situation.       

 

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Are you outsourcing your policy checking?

It is fair to say that in many agencies, policy checking probably does not get the attention it deserves. It is not that agencies don’t value the importance of policy checking (although some do not), it just seems that there is always something more pressing. That is not necessarily a good reason but it is close to reality.

For this reason, many agencies are utilizing an outside vendor to handle this function with many of these vendors residing in a foreign country and are handling this function “overnight”. Many of these organizations do a very nice job.

One of the keys when working with outside organizations is for all parties to have a clear understanding of the work to be performed and the expectations. For policy checking, this includes an understanding on what will be reviewed and what documents will be used for the review. With few possible exceptions, most agencies utilize these vendors to check a set number of fields, not the entire policy. Thus it is highly suggested that when agencies are working with one of these vendors to check policies for there be an agreement that clearly spells out the expectations in the necessary level of detail.

Is there the possibility that the policy contained an exclusion or limitation that was not noted on the carrier quote or agency proposal? If so, will the vendor note that? Possibly but this could depend on what the expectations are. This exact situation has occurred numerous times so it is definite reality.

Personally, I do not advocate that if a vendor is checking the policy that this removes any responsibility for the agency to also do a check. After the vendor check, agencies should have a procedure that details who provides the “second set of eyes” and possibly the third set as well. The “third set of eyes” could very possibly be the producer that is going to be delivering the policy. It would probably be very embarrassing for the client to question the producer on a specific exclusion when the producer was not even aware that the exclusion was in the policy.

Bottom line, don’t expect that the outside vendor is the one and only set of eyes. Agencies should have a procedure that allows for some further checking on those areas where the vendor was not responsible.

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Claims-Made – do your clients know the definition of a “claim”?

For those policies written on an “occurrence” basis, it is fair to say that most clients have a good idea of the definition of a claim. However, there are several coverages written on a “claims-made” basis including professional liability, employment practices, D&O, etc. How well do your clients know what constitutes a “claim” under these policies? Probably not as well as you may want to believe.

There are some potentially significant ramifications if claims are not reported when they should be. Many of the “claims-made” forms are actually written on a “claims-made and reported” basis which requires that the claims be reported during the policy period. Failure to do so could result in a lack of coverage.

For those policies written on a “claims-made” basis, it is suggested the agency include a document with the policy that spells out that the coverage is on a “claims-made” form and the importance of being aware of what constitutes a claim. If the policies are delivered, attention should be brought to this document.

While there are some similarities to the definition of a claim, it should not be assumed that each policy has the same exact definition. In many situations, the definition includes a “written demand for money or services”. However, there are some “claims-made” forms where an oral complaint is included in the definition.

Bottom line, it is important that clients understand the differences and the agency should consider providing a document that encourages a better understanding. The document should also include a statement that advises the client that if they have any questions on this issue to contact the agency claims staff.

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Policy Delivery – what is the best way to handle?

The proper handling of policy delivery is actually an important element in an E&O loss prevention program. Because of this, insurance agencies should have a written agency procedure to follow.

For many agencies (more specifically the producers), the procedure is to deliver / mail all of the policies when they have been received and checked. While this may sound logical, in practicality, there are numerous situations where policy deliver is held up waiting for that one “straggler policy” to come in. Unfortunately, by the time that “straggler policy” comes in, is checked and prepped for delivery, you could be many months into the coverage period for that client. Meanwhile the policies could be still sitting on a desk (or on the floor) in the producer’s office.

I am certainly not suggesting that every time a policy comes in that it should be delivered after being reviewed. It does make sense to hold some of the policies and then to deliver them together. The key issue is to recognize that if there is a policy (or two) that is not going to be received for a while, the producer should deliver those policies that have been received and advise the client that the outstanding policy will be delivered when received by the agency.

Policy delivery should not go like this – “here are your policies, everything is as per our discussion”. When delivering the policies, it is suggested that the producer go thru a brief review of the policies and to point out some key issues. These could involve a Protective Safeguard Endorsement or a Classification Limitation Endorsement or the fact that the deductible applies to defense costs. Producers should look at policy delivery as the means to help the client better understand the coverage they (or don’t have). To do this, the producer should definitely prepare for the client appointment by reviewing the policies and noting any issues that they would want to consider bringing to the client’s attention. Also, during the discussion at delivery time, this presents a great opportunity to remind the client of coverages they did not buy.

Agencies should require that the agency system reflects when the policies were delivered and any discussion that developed during that meeting.

If physical delivery of the policies is not realistic (and it won’t be for all clients), the same philosophy of timing should be followed. Also, it is suggested to include a cover letter encouraging the client to read their policies and to call the agency with any questions or comments. The cover letter could play a key role in the defense of the agency should a problem develop.

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Are “Drones” an item on your Exposure Analysis Checklist?

Over the last week, I have noted many excellent articles addressing the “drone” exposure and the insurance implications. These articles have appeared in a variety of sources including industry publications, LinkedIn articles, etc.

This appears to be the latest exposure facing the insurance industry and I can state with a fair degree of certainty that this issue is going to grow in numbers and usage. In commercial lines, the uses are varied including professional photography, construction site monitoring, safety and security consulting, etc. In personal lines, drones appears to be the latest “toy” with many retailers heavily marketing purchasing a drone as a Christmas present.

When evaluating what could really go wrong, many tend to think of the bodily injury or property damage exposures. However, there are additional exposures such as invasion of privacy, cyber liability (data that is stored within the drone) or a business interruption exposure resulting in financial loss.

Bottom line, every agency has an enhanced likelihood that they have both personal and commercial clients using a drone. A key question is how are you finding out about this exposure? Are you asking the question or waiting for the client to call the agency to advise you? While hopefully clients will contact the agency, it is more likely that the agency should be asking the question. Possibly through some education of the issues by the agency, this will prompt some clients to make the call.

Some initiatives for the agency to consider:

In both personal and commercial lines, the agency should include in their exposure analysis checklists, renewal questionnaires, etc. the issue of drones. Even a basic question such as “do you have a drone” would be of benefit. Adding some language that strongly notes that the current insurance coverage may not provide sufficient coverage would be advisable.

- Education. Including an article on the agency website, newsletter or other media such as LinkedIn certainly has value. If possible, including a link to articles on the subject in agency e-mails, letters, etc. would help to get the message out.

Another key issue deals with how the various insurance policies will respond to claims. Many of the articles I reviewed spoke to serious insurance implications especially dealing with “invasion of privacy” claims. This was primarily due to the “intentional” nature that could be alleged, a typical exclusion under most insurance policies.

How are your carriers addressing this exposure? It certainly would be appropriate to ask and to the degree that coverage may apply, don’t be surprised if their position changes as carriers look to underwrite / price the exposure.

The “Drone” exposure is not going away. It is time for agencies to build into their process the identification and understanding of the exposure.

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Producers – it is important to read the policies you are selling

Today, probably more so than in years past, the various policies don’t have the same degree of consistency. In other words, a GL policy may vary from one carrier to another. The same for umbrellas, property policies, personal lines, etc. While this is especially true when comparing a policy in the standard market with one in the E&S market, there can still be differences for policies in the standard market. While umbrellas are often thought of as “follow form” over the underlying, this is certainly not always the case.

Some of the differences can be coverage grants that make the coverage more expansive. However, there is no doubt that limitations and exclusions can find their way into these policies and some of these exclusions / limitations can be extremely significant.

For producers / those in the sales side of the business, how confident are you that you know what coverage the policies you are selling / proposing are really providing? Hopefully the carrier proposal outlined any “additional” limitations / exclusions but there is certainly the possibility that the proposal did not. This is one reason why it is SOOO important for producers to read / review the policies you are selling to note the coverage provided / not provided.

Imagine the producer selling a policy that had a significant limitation / exclusion that was an additional endorsement to the policy. Let’s say that the exclusion limited the coverage to only a certain type of activity. The producer visits the location and notices the customer performing activities for which there is no coverage. A loss occurs involving one of those activities and the customer finds out there is no coverage. There is a good chance that the client would allege that the producer saw those (uncovered) activities being performed and did not say anything. How that would wind up is anyone’s guess.

Producers should take the time when proposing an account either at the time of new business or renewal to review the coverage they are proposing for any issues. Also at the time of the delivery of the policies, the producer should review them again and point out the exclusions / limitations. Certainly encouraging the client to read the policy is always suggested but it is questionable how much overall weight that will carry.

Education of the customer is always a good thing. However it is fair to say that it is better before a loss than after it.

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