E&O, D&O, Cyber and EPL – what do they have in common?

The one major issue they all have in common is that there is no uniformity in the various carrier policy forms. Each carrier has their own issues which makes them different. The difference could be a good thing…it could be a negative thing.

When dealing with these various management liability coverages, extreme caution needs to be exercised especially when an agency producer is presenting the carrier proposals. Obviously, the last thing the client should focus on is the premium because there is certainly the possibility that the client will get what they pay for. There is a good chance that the premium is less because the coverage is less.

What should a producer do? A couple of suggestions to consider.

A good starting point is for the producer to make every effort to understand the actual coverages. If the agency is looking to aggressively market any of these coverages, they should consider asking one (or more) or their main markets to provide them with some solid product knowledge. In other words, what makes one form better than the other. If they are using wholesalers to access some of these markets, look for wholesalers that have a solid level of expertise. Many carriers are willing to come to the agency to do some product education.

Review the various policy forms. Yes, that means actually read the policy forms – a lost art among many in the business. You can count on the client asking some questions. Having some more in-depth knowledge of the form is certainly recommended. However just because you read (and think you understand) the coverage form does not mean that you should be giving your opinion on whether a particular scenario would be covered. These forms can be difficult to truly understand. If the client has a question, consider asking the carrier underwriter for their opinion.

When you present the various carrier proposals, include 1) any carrier marketing material for the coverage being presented and 2) the applicable specimen forms that would essentially mirror the coverage if the client orders the coverage. Give them time to read and digest the coverage. This may very well prompt some additional questions. Once again, get the carrier underwriter or carrier claims person involved. It is important to understand that they may not want to give an opinion either. Typically, carriers shy away from addressing hypothetical claims questions.

These coverages can be very complex. In addition, to properly answer a claims questions requires the facts and that is difficult with hypothetical questions.

Bottom line, exercise caution when dealing with these coverages. Another thing that is common with these coverages – the claims when they happen can be fairly large. The last thing you want is to make a mistake that results in an E&O claim against your agency.

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Are your clients vulnerable to social engineering claims?

With few exceptions, most businesses are vulnerable. What exactly is “social engineering”? In the context of information security, it is defined as “the use of deception to manipulate individuals into divulging confidential or personal information that may be used for fraudulent purposes”.

Social Engineering claims are occurring with greater frequency, so this is an exposure clients should be concerned about. But are they? Are they aware of the potential for some of these claims to be covered through insurance? Let’s look at a recent claim that became an E&O claim:

This claim involved a supplier of packaging for the electronics industry. An unknown tortfeasor hacked into a claimant’s email account and sent phony emails to the agency client’s employees instructing them to wire transfer $50,000 to an elderly gentleman in need of an operation. The next week, the hacker sent another email to the employees instructing them to wire transfer $100,000 to a business entity. The company did not have enough money in the account to cover this transfer, so an employee contacted the fraudulent company and asked if it would be okay to wire only $75,000 for the time being. The hacker agreed and the money was transferred.

The first activity in this claim is referred to as “Spear Phishing” – the fraudulent practice of sending emails ostensibly from a known or trusted sender in order to induce targeted individuals to reveal confidential information.

It appears that endorsing Social Engineering Coverage to a claimant’s commercial crime policy would provide some degree of coverage although it is important to note that there are exclusions. One is referred to as the voluntary parting exclusion (there is no insurance coverage for money lost when you voluntarily give it away).

It would be prudent for agencies to better understand the coverages and limitations of providing social engineering coverage. In addition, this should be a discussion with clients to determine their interest in getting a proposal for consideration. Agencies should consider adding this coverage as one of the various “coverages to consider include but are not limited to the following”.

These types of coverages can be somewhat complex with exclusions that could come into play so agency producers should exercise caution when discussing the coverage with the client. It is probably best to include specimen policy forms with the proposal to assist the client in better understanding what is and what is not covered. Also, it would be wise to include any marketing material the carriers provide to avoid misstating the coverage.

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What are your 2019 E&O goals?

As we start the month of October, this is the time where most agencies are giving serious thought to their goals and objectives for the upcoming year. While this will most certainly include those goals dealing with premium volume, new business, income and expenses, serious consideration should be given to the setting of E&O goals; issues and initiatives that will play a role in minimizing the potential for the agency to face an E&O claim.

Some initiatives to consider:

Client Education – based on various industry prognosticators, this is going to significantly grow in importance over the next 5-10 years. In fact, many are predicting that this issue will largely determine which agencies succeed and which ones don’t. If your agency is not where it should be in this area, 2019 is a great time to ramp up your efforts.

Staff Education – your clients are looking to your agency for knowledge and expertise. To provide that, the applicable staff need to possess that knowledge. The education objective should be customized for each staff member.

Advise clients of other coverages to consider – this definitely serves as an education tool. It is suggested to include a list of other coverage to consider on your agency proposals. Since it is not possible to list them all, a statement such as “other coverages to consider include but are not limited to the following” should be noted.

Securing customer signatures on applications – this issue is key as most courts will hold the customer accountable for the contents of the application if their signature is on that application. With electronic signature capabilities, there really is no excuse for not getting the insured signature on the app.

Confirmation of rejected coverage – every agency should have a procedure that requires all rejected coverages to be memorialized in some written form of communication back to the client.

Getting updates at renewal time on any change in exposures – To “keep up” with your client’s changes, design a form that is automatically sent to each personal and commercial lines customer 60-90 days prior to the expiration of coverage. The goal is to secure an update of any changes in exposures so that insurance discussions can take place.

For many agencies, the development of a strong E&O culture takes time. By establishing and accomplishing E&O goals each year, your agency will be closer to achieving the desired level of E&O commitment.

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Quality Customer Service can help your E&O loss prevention culture

Think back to a recent situation where you encountered a problem in your personal life. Possibly the issue involved the product you purchased or the service you were provided. Now think back to how the person you were dealing with handled the matter. Hopefully, they made the matter better. Unfortunately, more often than not, they made the situation worse.

On a recent drop off from a food service I subscribe to, I noted that one of the bags was split, exposing the food within. I immediately called to advise the company of this and was advised that someone would call me back that day. A week went by and no phone call, so I called again. Again, I was advised that someone from the customer service department would be calling me back by the end of that day. It is now over two weeks later and still no response. There is a good chance that I will be going with another food delivery company. If I would have received a phone call within hours on the first day, I would have been impressed but now, virtually totally the opposite.

Bottom line, the way you handle these situations will determine whether you keep that customer and whether the situation (possibly a client with an uninsured claim) decides to take the manner to the next level (E&O claim?).

One of the more popular customer service quotations is from the great Theodore Roosevelt – “People don’t care how much you know until they know how much you care”. How well are you showing how much you care?

When customers call to complain, the best response would be to thank them for taking the time to call. They could have just gone away and you never would have known why.

In most situations, look to show just some empathy / compassion. When this happens, there is a good chance that the customer will be impressed and will appreciate your level of concern. By showing an empathetic side combined with a solid level of customer service, the customer is probably going to respond in a positive manner. There is a good chance that you did not cause the problem, but you now must deal with it.

Does good customer service reduce the potential of an E&O claim? It would probably be difficult to prove it but there is one thing for sure – it sure doesn’t hurt. Always strive to provide a level of customer service that you can be proud of.

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Does the staff know the expectations for documentation?

Let me ask you a question: Has your agency experienced periodic issues with the timeliness and quality of documentation? Is there inconsistency among the staff (including the producers) in when and how some things get documented? This is a very common issue with many agencies.

What is essentially the problem and what would help to solve the problem?

Most often, the issue is that no one really knows exactly what the documentation expectations are. Possibly the expectations are verbalized and passed down from one staff member to another. In other words, if I came to work for your agency, how would you advise me of what those expectations are? How would I know the standards that you are asking me to achieve? If I had previously worked in another agency, you might expect that I would know the importance of documentation. This is an “error or omission” you don’t want to make.

Bottom line, documentation is one of the most fundamental and important aspects of a quality E&O loss prevention program and to ensure consistency, the agency standards should be actually documented in writing for all employees to know, understand and honor.

The documentation standards should include items such as:

– How deletions of coverage are handled and when the customer declination of a specific coverage or limit should be memorialized in a written document back to the customer. What should be included in the document back to the customer?

– The expected time period for when telephone conversations should be documented in the agency system. Probably best to avoid statements such as “as soon as practicable” as the meaning of this phrase could vary by agency staff member.

– The expected level of documentation of a phone conversation. This should involve a requirement that the actual name of the customer be included (as opposed to “insured”) as well as sufficient detail of the exact essence of the conversation. Ideally, the documentation should be such that another member of the agency staff could read the documentation and know exactly what was discussed and any next steps or open items. Also, another good rule for documentation is “don’t put anything in the system that a jury could read”.

– Regarding documentation in the system, what abbreviations are acceptable and which words need to be spelled out.

To the extent that the agency has an active audit process in place, by having your documentation expectations spelled out enables the “auditor” to measure the actual documentation against the standards.

Documentation is too important to leave it to chance or to believe that the staff knows what is expected of them. Put it in writing – it is easy to do and will pay huge dividends down the road.

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Claims handling – watch what you say

Now that Hurricane season is upon us, there is certainly a greater likelihood that Mother Nature could cause a more significant number of your agency customers to suffer a loss of some type. As the old adage goes “nothing brings out an agent’s mistake as quick as a catastrophe”. Unfortunately, with this potential for a larger number of claims, there is also the potential for some of these claims to not be covered. As the calls start coming into the agency, tremendous care and attention should be given to how the agency staff responds to these calls.

When a customer calls to report a claim, a variety of scenarios can occur. They include:

There appears to be coverage for the loss. While the agency staff handling the matter may feel certain the claim is covered, caution should be exercised when commenting. Why? Technically, the agency does not have the authority to approve or verify coverage; that is a carrier duty. A response such as the following is suggested – “While I am cautiously optimistic that this claim is covered, I do not have the authority to make coverage determinations. That is the role of the carrier. I will report the claim and advise you as soon as I hear anything further”.

The loss does not appear to be covered. A denial of a claim is also not within the authority of the agency. These claims should be reported and let the carrier make that determination. I am sure there have been claims that technically were not covered where the carrier decided to honor the claim.

The agency staff member feels “responsible” for the claim not being covered. This scenario can certainly occur. Imagine a client that has suffered a loss and is in dire straits. The agency staff may clearly see that if the agency had recommended that the client buy some specific coverage, the loss would probably have been covered.

First, the agency does not make the buying decisions for the client; that is the client’s responsibility. During many weather-related events, when the claims were being reported to the agency, the agency staff member responded with a statement similar to “what you are reporting is a flood claim. How did we not offer you a flood proposal?”. This clearly borders on an admission of liability; not something you want to do.

How the agency responds to these type of scenarios has significant potential to be a key element in the litigation process if the matter rises to the level of an E&O claim. Oftentimes, during a hurricane event, numerous staff are asked to take on the responsibility of taking claims from customers. This is a common time where problems occur. It is suggested that the agency develop a document detailing the “do’s and don’ts” of taking customer claims and then discuss this issue in sufficient detail to educate everyone that may be involved in the taking of those customer claims.

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Do you have established written procedures for your E&S business?

For as long as the insurance industry has been around, the Excess and Surplus Lines (E&S) marketplace has played a key role in helping agents place a wide array of coverages. But with that value certainly comes some uniqueness and with that uniqueness comes some E&O risk.

To minimize the risk, it would be prudent for agents to include in their procedures manual specific references to the E&S industry. For those agents that don’t have a procedures manual, it is highly suggested that procedures still be established and submitted in writing for all agency staff to reference when handling this type of business.

Some key issues that should be referenced:

The app. While many carriers will accept an ACORD app to provide a proposal, there is the definite possibility that they may need their own app to bind coverage. Agents should look to determine this issue as early as possible. Often times, if the carrier is going to require their own app to bind the risk, this will be referenced on the proposal from the wholesaler.

When to submit the app. The timeliness of when the wholesale / E&S market can provide a proposal can vary based on the status of the marketplace. It is suggested to allow sufficient time (45 – 60 days is suggested) and then follow up for the status.

Review of the coverages proposed. Is the coverage what you asked for? This is one of the more common key issues that agents need to be aware of. There is a good chance that the coverage you requested is not the exact coverage the market quoted. There should be a thorough review of the proposal as it may contain some exclusionary / limiting type endorsements. If the reference to some of the endorsements does not really tell you what is actually being excluded (or covered), it would be best to secure specimen forms to review. Including these forms with the proposal is recommended.

The agency proposal. Since retail agents are technically not the agent of record (the wholesaler is), the retail agent does not have the authority to bind the risk. Thus, the retail agent is going to need some time to contact the wholesaler (who may need to contact the E&S carrier) to get the coverage bound. Many agents include on the proposal the date when a decision on the coverages needs to be made to allow the retail agent time to get the account bound before the effective date. It is important to note that in the E&S / residual market place, there is no backdating of coverage.

Binding the risk. As just noted, retail agents do not have the authority to bind the risk. They also do not have the authority to issue binders so if a binder is going to be needed, the wholesaler should be contacted to handle that.

The policy. The policy should be reviewed to verify that it matches the coverages that were agreed to. There is the possibility that a “new” endorsement could find its way onto the policy that could have a material effect on the coverage.

The E&S carrier. There are many E&S carriers that do a fantastic job. They may not be household names so due diligence should be exercised on these carriers (financial rating, length of time in business, etc.).

Bottom line, agents need to know the “rules” and do their homework when dealing with this segment of the marketplace. To ensure consistency in the handling of this type of business, the agency should establish and provide the staff with those written procedures.

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Are you preparing for the technology of tomorrow?

The insurance industry will definitely look a lot different over the next 10 years as technology advancements and the greater application of artificial intelligence become more a part of the industry’s culture.

This is an excerpt from an article authored by Denise Johnson that appeared on www.claimsjournal.com on August 13 that spoke to how technology is going to impact the claims handling process.

“A March 2017 LexisNexis whitepaper on the future of claims technology defined touchless claims as “a process or workflow that is similar to Virtual Handling except no claims adjuster or insurance carrier employee is involved in the claims process at all. Technology is used to report the claim, capture damage or invoices, run a system audit and communicate with the customer electronically. If the claim meets approved criteria, the claim is automatically paid without human intervention.”

Continue Reading Bolstering the Claims Process With Touchless Claim Technology

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Is Education one of your 2019 goals? It probably should be.

Around this time of year, most agencies start to give some thought to their goals for the next year. There is a good chance that they will come up with several initiatives and since some of these may involve some degree of financial investment, the agency would probably want to budget for the anticipated costs. The same holds true for giving serious consideration to the establishment of a few E&O goals – issues that will enhance the E&O culture and provide a higher degree of E&O protection.

For every agency, the goals will probably be different based on where that agency is in their E&O loss prevention efforts. One that I want to focus on involves Staff Education.

In preparing for a speech I will be giving in Atlanta in September, I read a report by McKinsey & Company that addressed what insurance might look like in the year 2030 (it will be here before we know it) and the impact of artificial intelligence. One of the predictions they arrived at was “The number of agents is reduced substantially as active agents retire and remaining agents rely heavily on technology to increase productivity. The role of agents transitions to process facilitators and product educators”.

It is that last statement that I want to focus on – agents will have more of a role as product educators. Clients will want to better understand their exposures and how insurance can insure those exposures. This seems to strongly imply that those agencies that have a higher level of education focus will be the agencies that will survive and thrive in tomorrow’s world.

Every day, clients are looking to your agency for knowledge and expertise. To provide that, the applicable staff need to possess that knowledge. Growing in technical knowledge is certainly very important. Other staff education issues might include improved customer service skills and automation skills.

Without a doubt, staff and client education is today extremely important and will continue to grow in the level of importance towards the future survival of independent agencies.

Where does your agency stand on the issue of client education? Where does your agency stand on the issue of staff education? 2019 might be a good year to take the importance of this issue to the next level.

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Ever have a close call?

Many agencies go through their entire career without ever facing an E&O claim. For many others, they can count the number of E&O claims they faced during their career on one hand and probably have a finger or two left over. Certainly, kudos to those agencies; that is a tremendous accomplishment. However, just because your agency has had a solid track record over a long period of time does not mean that there aren’t some things to learn (and do) to enhance your E&O culture.

Virtually every agency has had a close call in the recent past. Possibly, you had a client that had a claim denied and alleged that they “were positive” they bought the necessary coverage. This happens often. Face it – if every client bought all the coverages necessary, the number of E&O claims would shrink considerably. “Failure to provide the proper coverage” is the #1 cause of E&O claims today and probably has been for the last 50 years.

These “close calls” are oftentimes, a situation where the client suffers a loss and finds out that they did not have the proper coverage or the proper limit. When these situations occur, agencies would be wise to dissect them to determine what the agency did right and what could they have done better. To be able to look at these scenarios in depth, it is important the agency have a culture that encourages these issues be brought to management’s attention. This cannot be overstated enough. I worked in an agency back in the 70’s where if you brought a problem to the boss’s attention, the pink slip was next. So, what do you do? You don’t say anything and hope the matter goes away. That is not a desirable E&O culture.

When a client’s claim gets denied, these are situations worthy of an in-depth review for a couple of reasons. One of those reasons is “what can we learn from this situation?”. Did the loss involve a type of coverage that was never offered to the client? If so, adding this type of exposure to your exposure analysis questionnaire (for new and renewal) will hopefully ensure that the situation does not repeat itself for that client or any other one. Possibly, the procedure in the agency is to “renew as is”. This is a very dangerous position to take especially in light of client’s exposures changing on a frequent basis. Addressing this moving forward, it is suggested the agency send out an annual renewal questionnaire to the client asking if any exposures have changed.

Very possibly on those situations where a client’s loss is denied, there is clear evidence and documentation in the file showing the offering and the client’s signature on the refusal of coverage. These are great situations to discuss with the staff as it shows the power and value of doing the right thing and following agency procedure. Face it, when a client suffers a loss and finds out it is not covered, who are they going to blame? You – After all, you are their agent. They may look to bring an E&O action against your agency until you show them their signature on the document refusing the coverage.

When a close call occurs, examine it to determine what went right and what could the agency do better. These are great opportunities to ensure the situation does not happen again.

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