How are you “approving” the various intermediaries you are dealing with?

Typically, every agency deals with a variety of intermediaries in placing or servicing of business. Those can include wholesalers, MGA’s, service type companies, stop-loss carriers, third party vendors, etc.

From time to time, to meet certain agency production / efficiency goals, agencies will look to add a new intermediary to their list. It is important that agencies realize that these intermediaries come in different shapes and sizes and have their own goals. As a result, when agencies are looking to add a new “intermediary” firm, they should have the proper “due diligence” procedure for approval. This includes knowing the key specifics (markets, commission levels, procedures, binding guidelines, etc.). It is also important that agencies secure proof that the firm is properly licensed and carries E&O (a minimum level of $5mil is suggested). As we approach year end, this is also a good time for agencies to verify that their current intermediaries are meeting these various key standards.

In most agencies, this “approval process” is managed by a member of Sr. Management, with the marketing department either taking the lead or heavily involved. The “proper” approval process in the beginning will hopefully result in no surprises down the road.



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What’s covered / What’s not

Recently, I came across an agency flyer / promotional piece that addressed a specific class of business (condominiums). It appears that the primary purpose of this document was to, among other things, detail to unit owners what was covered by the Condo Master policy and thus what coverage the agency could provide to unit owners / what coverage the unit owner should look to secure. In the world of condominiums, this is oftentimes, not a simple situation to work through.

While I understood the purpose of the document, from an E&O standpoint, I had some issues with it. Under the “what’s covered”, the document seemed to take a simplistic approach to the issue with no statement or reference to just because the loss is from a covered peril does not mean that there is coverage. Every policy has exclusions and I would have preferred the document to add a statement to the effect of “subject to policy exclusions”.

Under the “what’s not covered”, there were only a minimal number of exclusions cited. If I had to guess, I would bet there were more than a couple of exclusions in the policy. Since there were probably some exclusions that were not referenced in the document, the potential remedy would be to add a statement such as “exclusions include but are not limited to the following”.

As agencies provide documents of this type, it is important for them to understand that these promotional materials can and have been a key issue in a number of E&O claims. Agencies are responsible for what they say and what they put in writing. While I typically do not advocate putting out material that addresses “what is what is not covered”, if an agency feels that it is necessary to do so, be certain that the promotional material could not serve to “mislead” the public on the specific issue.

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Keep copies of old procedures / manuals

Typically once a year, many agencies will review their current procedures to see if t they are still applicable or are in need of change. Oftentimes, the introduction of new technology into the process will necessitate a change. A good example involves the introduction of electronic signatures as a means to get client signatures on important documents.

As procedures are changed, it is important that copies of older procedures / procedural manuals be stored in a safe place in the event they might need to be referenced in the future. If an E&O claim were to develop, both the defense attorney and the plaintiff attorney will want to see the manual or the specific procedure that was in place at the time of the alleged error or omission. By retaining these documents, you will be able to readily produce them for the necessary parties.


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E&O Insights: Where Is Your Agency in the ‘E&O Marathon?’

This is an excerpt from an Insurance Journal article that I authored in the December 1, 2014 edition.

“There are similarities between deciding to run a marathon and managing your agency’s errors and omissions (E&O) exposure. Very few people, if any, can wake up one day, decide to run a marathon and then, without training, run it. A plan must be established and then executed with a fair degree of precision. Having “reality checkpoints” is a good indicator as to where you are in your preparation. A similar approach has merit in the world of agents’ E&O loss prevention and the establishment of a strong E&O culture.

An appropriate question to consider is, “are you a better E&O risk now compared to last year at this time?”

Continue Reading E&O Insights: Where Is Your Agency in the ‘E&O Marathon?’

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Happy Thanksgiving to you and your families

At this time when we reflect on what we are thankful for, I would like to personally thank each and every one of you for what you do every day. As someone who was at the agency side at the beginning of my insurance career, I know that your job is not easy … the workloads are heavy and deadlines fast and furious.

You make a difference in people’s lives. When they suffer a loss, the professional job that you have done allows them to get on with their lives as best possible.

Be proud that you are in the insurance industry and for the difference you make!

Happy Thanksgiving to you and your families!

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Communication of audits results to the specific staff member is key

It is probably fair to say that when you mention audits to agency staff members, there will be a slight (or major) expression of fear. After all, who wants to get audited? Very honestly, more people than one might think.

Having been involved in a couple of E&O claims in my former insurance life (at both the agency and company side including time managing a wholesale operation),  I can attest that it is not the most pleasant experience in the world. If you are looking to lose weight, this will do it. Throughout the life of the E&O litigation, you will probably be saying “I would do anything to make this sure this does not happen again”. This is actually where the value of auditing comes in.

A big part of the auditing process is designed to verify to what degree the agency staff is following agency protocol and process. If a problem is identified, this presents the opportunity to get it “fixed” so that it does not happen again. Possibly there is a need for another round of training (or maybe a first round of training) or possibly there was a misunderstanding on exactly how a process was to be performed. Either one, I can assure you that any “pain” you feel regarding an audit finding is going to be a lot less compared to if an E&O claim develops. The key is that once the audit finding is known, if there is a problem, there needs to be a commitment to get it fixed so that future audits go smoothly.

The various staff members that are performing the procedures in accordance with the agency expectations want to get audited because the audits will speak well on their behalf. And as audit results get built into individual performance reviews, the positive audit findings may just earn that employee some additional dollars.

One of the keys is that as the audits are done, it is extremely important that the results be communicated not only to the department / agency in total but also down to the specific employees that were audited. This is a great time to reward and thank the solid performers for their efforts but to also let the employees whose results were not at the proper level what their results were and what needs to be done to fix them. Failure to communicate the results to the individual employees will leave them believing that they “must have done well because if they didn’t, someone would have said something”.   

The auditing / review process is extremely important but it will be even more beneficial if everyone truly sees the value of it, in total and for them personally. At the end of the day, “auditing” is really not a dirty word.

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What is the #1 most important objective in E&O loss prevention ?

This is a very good question and one that I am asked on somewhat of a frequent basis. Actually this exact question was asked on a recent webinar I conducted for my good friends at the PIA Western Alliance.

Developing a strong E&O culture is certainly easier said than done. It takes a solid commitment from senior management who “walk the walk” and “talk the talk”. The hiring and development of the “right” staff that know the importance of E&O prevention is also extremely important. Obviously education and knowledge are vital for the agency staff and it is also not a bad idea for the agency to have a strong focus on education of their clientele. Account reviews, newsletters, exposure analysis checklists can all play a very important role in the E&O culture. So when trying to answer the immediate question at hand – what is the #1 most loss important objective in E&O loss prevention, it seems that E&O loss prevention is like a puzzle consisting of a lot of pieces that are basically all tied into each other.

But what is the final piece of the puzzle that will complete it? The issue of documentation. Without a solid commitment to documentation, it is much more likely that should an E&O claim develop, the likelihood that the agency will prevail in that E&O litigation is significantly reduced. The various conversations, whether they be with prospects, current clients, carriers, wholesalers, etc., need to be documented. The documentation standard of 30 years ago was to document the conversation in the agency file. That standard is probably not good enough anymore. There have been so many underlying claims where it was discovered at claim time, that there was a misunderstanding between the respective parties. Without documentation, these scenarios developed into a “he said, she said” contest and the outcome of these are tough to predict.

The suggested approach is to document these conversations in the agency file but also with an e-mail / letter back to the client memorializing the conversation. This puts the responsibility on the client to advise you if their understanding of the conversation is different from yours.

So what’s #1? It really is good documentation…documentation that is prompt, accurate, detailed and professional and is restated back to the customer in some form of written communication.

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Are you listing exclusions on your proposals?

It is not uncommon for agencies to list exclusions on the proposals that they provide to customers. Essentially, this is designed to impress upon the customer / prospect that there are various exposures that are not covered. In addition, it also serves to prompt some discussion with that customer to indicate that some of these exclusions / exposures can be addressed through the purchase of a separate policy or endorsement. A great example is EPLI – Employment Practices Liability Insurance. This is typically excluded by a GL policy but coverage is available in the marketplace.

While listing exclusions does have some merit and serves a purpose, listing all exclusions might “scare” the customer or get them wondering what is actually covered. For this reason, many agents list those exclusions that they seem to feel are of particular interest or concern for that customer. This can be tricky since a producer may not know which exclusions / exposures are truly the most important to the customer.

There are a couple of approaches to consider. If an agent is going to list exclusions on the insurance proposal, it should be clearly noted that “exclusions include but are not limited to the following”. This lets the customer know this is a partial list and to consult the policy for the full list of exclusions. Not including this verbiage might suggest to the customer that the list of exclusions is the “full list”.

Another approach is to include a specimen copy of the policy (needs to be an exact replica) with the proposal. This allows the producer to advise the customer accordingly and to possibly review some of the exclusions.

Either approach should clearly demonstrate that there are exclusions that the customer should be aware of and they (the customer) should advise the producer if any of those exclusions are of concern.


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Secure specimen policies on your E&S business

The Excess and Surplus Lines segment of our marketplace fills a very vital role writing many specialized products as well as being a market for some tougher to place risks. However, despite all of the good things that E&S carriers provide, there are a number of areas where agents need to exercise some extra caution.

In the E&S market, carriers have a greater degree of flexibility for modifying the coverage they provide. Forms typically do not need to be filed; thus there is the tremendous likelihood that they will not resemble the policies written in the standard market. Take a GL policy - there is a very good chance that a GL policy in the E&S market is going to look much different than a GL policy in the standard market.

For this reason, it is not only important, it is CRITICAL that agents secure a full specimen policy (including applicable endorsements) when getting proposals from their E&S wholesaler. By receiving these policy forms, retail agents will now have the ability to review them to see what modifications / differences the E&S market has included. There is a very good chance that some exclusions / limitations will be included that can “take away” some significant coverage that the retail client is looking for. Actually after reading some of the “manuscript” forms, one may wonder what coverage is really being provided. In this situation, don’t hesitate to contact the E&S wholesaler to get a clarification on the coverage forms and what coverage is / is not being provided. Documenting these discussions (not only in the agency file but also with a note to the underwriter that you dealt with) is highly recommended.

When the account is then being proposed to the client, it is best to include these specimen policies / forms with the proposal and to review them with the client. There is certainly the possibility that the coverage being “taken away” is important to that client. It is obviously better to find this out before a loss occurs as opposed to after. In fact, it is suggested to have the client sign the various forms acknowledging that they have been reviewed with them and they are attesting to understanding what coverage is / is not being provided.

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