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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Cyber Insurance – needed more than most believe

The following is an excerpt from a very interesting article that appeared on on October 24th. It speaks to the misunderstanding of many businesses on their cyber exposure and their perceived lack of need for proper coverage. The benefits of education has probably never been greater.

“The biggest challenge in selling cyber insurance is educating businesses about the need for cyber coverage, according to a new survey.

The survey of insurance professionals found that among carriers offering cyber insurance, 40 percent say businesses don’t think they need cyber coverage and 29 percent believe they’re already covered under existing policies.”

Continue Reading Cyber Insurance

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E&O Insights: How Important Is Your E&O Policy?

This is an excerpt from an Insurance Journal article that I authored in the November 3, 2014 edition.

“Errors and omissions (E&O) coverage: It’s one of the most important coverages you can secure. After all, your agency’s protection depends heavily on your E&O policy and how it works. Despite this, it is debatable how many agency owners truly know the intricacies of the coverage’s different elements. Without this knowledge, how confident can an agency owner be that when a problem arises, the agency will be well-protected and not financially devastated?”

Continue Reading E&O Insights: How Important Is Your E&O Policy?

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Does your documentation include abbreviations?

During the course of every day, producers and CSRs / account managers will be faced with the need to document the various client / prospect conversations. This can certainly be a challenge regardless of whether the conversations are face-to-face or on the phone. There just don’t seem to be enough hours in the day. Yet, the importance of the documentation of these discussions is probably one of the most important tasks that needs to be performed.

There are a few approaches to consider.

One approach that many agencies have found beneficial is to use abbreviations in some of the documentation as opposed to spelling every word out. Abbreviations such as “HO” for homeowners or “umb” for umbrella. Obviously the list would be more extensive than that. If you pursue this approach, work with the staff to develop the “official list of abbreviations”. The general rule should be that if the abbreviation is not on the list then the expectation is that the word is spelled out. If your agency is going to develop a list, be sure to keep some history of the acceptable abbreviations and their “meaning” as there is the possibility that down the road, you will need to produce this list of abbreviations to assist in the understanding of the specific piece of documentation.

Another approach is to utilize software / tools that “automatically correct” the abbreviation by spelling out the word completely. Thus if you have built in the software that “ins” means “insured”, then when you type in “ins”, the system would then automatically spell the word in its entirety. This is a great approach but it is suggested to proof the documentation notes to ensure that they accurately state the essence of the conversation. Sometimes the various software programs built in will do this but have you have ever tried to reference a conversation with CNA, the system thinks that you mean “can” and will automatically correct it to “can”.

Obviously documentation is the main key that will determine the direction that an E&O claim will go. The documentation should be promptly handled, professional and accurate. It is vital that agencies take a position that high level quality documentation is not an option, it is mandatory. Hopefully the use of abbreviations will help you achieve this goal.

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Exposure Analysis Checklists in Commercial Lines

This is an excerpt from an Insurance Journal article that I authored in the October 20, 2014 edition.

“For the last 25-plus years, the No. 1 cause of errors and omissions (E&O) claims has been “failure to provide the proper coverage.” In 2013, many E&O carriers reported that this accounted for more than half of their E&O claims. Typically, when your insured suffers a loss that is either not completely covered or not covered at all, the customer may consider bringing an E&O claim if he or she believes your agency was negligent. The most effective way for your agency to address this issue is through the use of an exposure analysis checklist.”

Continue Reading Exposure Analysis Checklists in Commercial Lines

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High-Tide Floods to Triple for Some East Coast Cities, Study Finds

The following is an excerpt from a very interesting article that appeared on on October 8.

“Flooding during high tides, which used to be rare, is now common in some places and could worsen to the point that sections of coastal cities may flood so often they would become unusable in the near future, according to a report by the Union of Concerned Scientists (UCS).

The Cambridge, Mass. group’s study, “Encroaching Tides: How Sea Level Rise and Tidal Flooding Threaten U.S. East and Gulf Coast Communities over the Next 30 Years,” looks at how often 52 cities flood have flooded in the past and are expected to flood in the future.”

Continue Reading High-Tide Floods to Triple for Some East Coast Cities, Study Finds

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When was the last time you updated your procedural manual?

It seems that the issue of procedural manuals receives a fair amount of discussion at most E&O classes and that is for good reason. Many advocate doing away with the manual since it is a discoverable document at the time of an E&O claim and that statement is true. It is a document that both attorneys (the one defending your agency and the one that is suing your agency) will have access to and can bring into evidence during litigation.

However, while there are some circumstances where a procedural manual can hurt you, there are definitely situations where it can help you. When defining what makes an agency a “good” E&O risk, typically you will hear the word “consistency” used a fair amount; consistency is how the various procedures are performed. Having (or allowing) each employee to do things “the way they want” is not a good thing and can certainly cause problems. Another benefit is for new employees to “get up to speed” quicker with a shorter learning curve.

As with most things in life, when there is an upside, there is also a downside. The downside is when the plaintiff’s attorney (defending your client in the litigation) is able to discover a lack of consistency or that individuals in the agency did not even follow their own procedures.

From time to time, I will be asked to review agency procedures and to compare them to what the staff is actually doing. Invariably I will find situations where the staff is not performing the task the way it is stated in the manual. However, frequently, the issue is not that the employee was consciously looking to vary from the stated procedures. Oftentimes, the issue is that the procedure in the agency had been changed and while everyone was consistently performing it, the manual had never been updated to reflect the change in the procedure.

As we approach the end of 2014, if your agency has a procedural manual, ask the staff in that specific discipline to take some time to review their section and update it. A staff meeting where everyone has a copy of the manual is a common approach many agencies use. This will result in an updated manual and a staff that knows what the manual states (yes, there are some employees that have probably never looked at the manual).

A procedural manual can be a very powerful tool and I have seen many E&O cases where the agency prevails because of the manual and the consistent adherence to it by the staff. Make the power work for you, not against you.

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