How well do your clients understand their insurance program?

If your answer is “I don’t know, I never asked them”, you are potentially missing a very key element in the sales process.

In the commercial world, most clients probably understand their respective business and the various components necessary to generate a profit and achieve success. In most cases, those same clients do not possess the same level of understanding of insurance and how it works. Agencies have the power to change that.

If I were to tell you that a significant number of your clients would tell you that they really don’t understand their insurance program, what would you do? Chances are you would look to find opportunities to educate them. Imagine having as your marketing slogan “the agency that works to help you understand your insurance”. Sounds powerful to me!

While I am not suggesting you give your clients a test, there are approaches to consider to get a handle on the level of their insurance knowledge. Some initiatives to consider

1)     Ask your clients to complete a survey. This can be done via phone, e-mail or paper. Some agencies may question this approach, but it was interesting to note that when some agencies surveyed their clients, a common response was “don’t assume that we know everything you are talking about”. Most of us live and breathe insurance so we understand it and we probably believe that our clients understand it as well as we do. They don’t! A good opening survey question to consider: “what do you look for from your insurance agent?”. This could determine how you deal with that client.

2)     The proposal. Most agencies draft their proposals using terminology that the agency staff understand. Words like “Replacement cost”, “Co-insurance”, or “Time Element” are used. The agency understands these words / phrases but does the client? Ask the client to explain back to you what “co-insurance” means and you may just get a blank expression. Don’t be afraid to “dummy down the proposal” using definitions and claim examples.

3)     Ask questions of the client. When production staff are communicating with the client (face-to-face or on the phone), don’t be afraid to ask questions such as “do you understand what I just said…I will be happy to re-explain it”.

Helping your clients more fully understand their insurance program (how it works, what’s covered, what’s not, etc.) can be a very powerful tool to achieving a greater level of customer satisfaction. Isn’t customer satisfaction a key indicator of your current and future success? Helping clients understand their insurance program will probably also lead to increased sales of additional products. And lastly, this approach could play a key role in the event of an E&O claim being made against your agency. Actually customer education has been shown to minimize the potential for E&O claims to even happen.

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Happy Thanksgiving to all !!

For 43 years (and still going strong), I have been blessed to work in the insurance business. From my early days as a door-to-door salesman to the 6 years at an agency to the carrier side to today, I can honestly say I have enjoyed every minute.

As I reflect back on those years, I want to give thanks to all of you. You have made a difference in my life and in the lives of those you serve.

The insurance industry has many thousands and thousands of very dedicated folks like yourselves that have a true passion for this business and for the people and businesses you serve. I have been fortunate to meet my fair share of insurance professionals – you have given me the honor of getting to know you better and for that, I am extremely thankful.

With Thanksgiving just two days away, I would like to personally thank each and every one of you for what you do every day. Your job is not easy …if it was easy, anyone could do it.  

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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One of the biggest misconceptions on E&O limits

Recently, I saw the results of an E&O survey conducted by Insurance Journal with one of the questions focusing on the E&O limit that agencies bought. Roughly half (49.4% to be exact) had E&O limits of $2million or less.

If I had to guess, there is a strong likelihood that many of the agencies that fall within this $2mil or less category are the smaller size agencies. They are probably of the belief that due to their size, there is no real need for higher E&O limits. This, my friends, is one of the biggest misconceptions on E&O limits. Bottom line, the size of your agency is not an indicator of the probable or potential size of E&O claims that your agency could face.

Virtually every E&O carrier could bring to your attention some significant multi-million dollar claims that customers had where the amount of insurance was not enough. Actually, when you look at E&O claims, the # 1 cause of claims involves “Failure to obtain the proper coverage”. So essentially, the key issue for E&O is not what you sold and not what the client bought but instead what coverage / limits the client did not buy.

It is what is not covered that generates probably well over 90% of all E&O claims.

Another question on the survey asked if the agency had purchased higher limits at renewal time. Approximately 85% of the agencies indicated that they had not done so.

It is critical for agencies to realize that renewal time is probably the only time that agencies will be able to secure higher limits on their E&O coverage. This is an area where agencies need to be proactive. You cannot wait until you need the higher limits to buy the extra coverage.

With January being one of the heavier months when E&O policies come up for renewal, agencies would be wise to look at some limit options. What is the cost for that extra million of coverage? It could very well be a lot less than you think. If the cost is more than you can absorb, consider increasing your deductible to the next level and using the savings to buy the next highest limit.

When was the last time you really did some research on your E&O protection? It probably is one of the most important buying decisions your agency will make.

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Do you have specific procedures for handling of claims–made policies?

It is certainly fair to say that claims-made policies have a tremendous amount of uniqueness to them. One of the key issues inherent in virtually all claims-made policies involves the issue of a “retro date”. This date will basically determine whether an error or omission can even be considered for coverage.

For coverage to potentially apply, the date of the “error or omission” must be after any applicable retroactive date as noted on the policy. In other words, there is no coverage for any wrongful act that occurred prior to the retroactive date. For the customer to have coverage for all prior wrongful acts, “full prior acts” coverage should be secured.

There can actually be times where a policy may contain both full prior acts coverage and a retro date. This will often occur when the client is securing higher limits on the coverage provided by the claims-made policy. For example, a client could have a policy for limits of $2,000,000 with full prior acts for those limits. If the client wanted to increase the limits to say $5,000,000, it is conceivable that the insurance carrier would provide those additional limits with a retro date applying to the additional limits. If that were to occur, the agency should take extra caution to make sure the policy was issued correctly. There have been E&O claims where the insurance carrier issued the policy (using the example above) with the retro date applying to all $5,000,000 of coverage. If this is not caught and promptly brought to the attention of the carrier (and fixed), there is a significant possibility that an underlying claim would not be covered.   

In the world of claims-made policies, retro dates are one of the most critical issues that agents need to be focused on. When remarketing a claims-made account to a new carrier, the new carrier should not be allowed to change the retro date. If they insist on doing so, moving the coverage to that carrier should not be considered. It is vital that retro dates NEVER be advanced.

For agencies dealing in claims-made coverage, the staff should be fully trained in detail on the various key issues and the impact on coverage applying at the time of a loss. In addition, the agency should have procedures requiring extensive review of carrier proposals and policy review. This degree of detailed analysis could just make the difference on avoiding a potential E&O claim.

When agents provide the clients with a proposal involving claims-made coverage, consideration should be given to providing on the proposal additional detail to help the clients better understand the coverage as well.

Claims-made coverage is very unique and should be treated as such especially on the application of retro dates.   

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Are you making notes on your proposals?

Typically, when producers review the proposal with the prospect / client, as the discussion evolves, and decisions are made, the producer will make notes on the proposal. The notes could involve requests for additional information, coverages accepted / rejected, etc.

It is probably fair to say that these notes may not involve full sentences; they are probably words that at the time of the discussion, the producer knows what they mean by the words noted.

Fast forward 6 months and let’s presume there is a question on what was meant by the notes, how confident is the producer going to be on what was meant on a conversation that occurred 6 months ago? Unfortunately, this occurs with some degree of frequency and when the issue turns into an E&O claim, the manner in which these issues get resolved can have a HUGE impact on the direction an E&O claim takes.

Here is a recent example I am aware of:

The proposal indicates a variety of other coverages for the client to consider and the producer is reviewing those coverage to find out whether the client would like a quote or policy on any of those available coverages. For 9 of the 10 coverages noted, it is clear what the intent is. However, on one, neither the “yes” box or the “no” box were checked (let’s assume the coverage noted was Employment Practices Liability). There was simply a notation of “$300,000”. What did this “$300,000” mean? Well that is where things took on different variations. The resolution was critical because the client had suffered a claim involving this coverage.

The producer’s version was that the client had Employment Practices coverage already with a limit of $300,000. The client’s version of the discussion was that he asked the producer to get them a policy for a limit of $300,000. How this will ultimately get resolved is not clear at this time.

The key issue for producers to be aware of is that at any point in time, they may have to explain what is meant by virtually every handwritten note made on the proposal form. There is a good chance that it will be an attorney asking them these questions. So, if you are making notes on the proposal form, make sure the notes are clear. The best practices option to consider is to have a document (e-mail / letter, revised proposal, etc.) that is sent to the client that memorializes the discussion the agency producer had with the client. This will go a long way towards addressing any potential misunderstandings.

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Are you checking your Personal Lines Downloads?

It seems that over the years, as automation has kicked in to a much higher degree, agencies have developed a corresponding higher level of trust on the quality of the work product from their carriers. It is almost like “it’s automated so it must be perfect”. Believing this is a slippery slope to disaster.

As the old adage goes “garbage in, garbage out”. As a member of the personal lines staff in your agency, you entered the information but does that means it is right? How stressed were you when you entered the information? How many other jobs were you trying to do “at the same time”? So, is there a chance that you uploaded incomplete or inaccurate information? Without a doubt, this situation has occurred oftentimes so if you entered the information incorrectly, the end product will now not be accurate. In addition, how confident are you that what you entered is the way that information will show on the dec page?

Recently, during a discussion with an agency I was working with, the manager of the Personal Lines division (a very capable person) admitted that when she entered the information on a change of auto for her own policy, she forgot to put comp and collision on her replacement auto. A very simple error because she was trying to multi-task and was in a hurry. Sound familiar?

The typical best practices on the issue of checking your personal lines downloads is to:

–        Check all new business. The checking should be more than just a check of the premium. Are the named insureds / drivers correct, is the address correct, are the vehicles and the coverages for each of the vehicles correct? Are all the requested endorsements (and specific detail) included on the policy?

–        Check all endorsement requests essentially addressing the same issues as with the new business check.

There is a key reason why new business needs to be checked. If it is not checked but the policy contains an error, what will happen when the renewal policy is generated? That policy will also be wrong.

Bottom line – don’t assume that because the policy issuance is automated that the information is correct. Agencies should have a checklist indicating those items to be checked. There should be an activity noted in the agency system to verify who checked the policy and what the findings were.

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What is your 2018 E&O goal?

Virtually every agency establishes goals and objectives they plan to accomplish with most of those goals probably dealing more with premium volume, new business, income and expenses. While the establishment of these goals is important, 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.

For every agency, the goal will probably be different based on where that agency is in their E&O loss prevention efforts. Some initiatives to consider:

Staff Education – your clients are looking to your agency for knowledge and expertise. To provide that, the applicable staff need to possess that knowledge. While growing in technical knowledge is certainly important, other staff education issues might include possessing stronger customer service skills  and automation skills. For this reason, the education objective should be customized for each staff member.

Advise clients of other coverages to consider – this initiative heavily deals with customer accountability. It also serves as an education tool. Oftentimes, a list of other coverage to consider is included on the new or renewal business proposal.

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. Thus, if there is a misstatement on the application that the client signed, this could play a key role in the defense of the agency if a problem were to develop.

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 – face it, your client’s exposures can change drastically from one year to another. To “keep up” with these changes, many agencies have designed 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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Those crazy Certificates of Insurance

Where would you think the “improper execution of certificates” ranks among the leading causes of E&O claims? After all, it is just a piece of paper that clearly states the certificate is issued as a matter of information only and confers no rights upon the certificate holder. It is also stated that the certificate does not affirmatively amend, extend or alter the coverage afforded by the policies listed.

In reality, the “improper execution of certificates” is generating close to 10% of all E&O claims. Why is this number so high? It certainly appears that certificate holders are relying upon the certificate as a factual representation of the coverage in effect. Imagine that!

I recently became aware of an E&O claim where the agency provided the certificate holder with a certificate that listed the BOP, auto and umbrella policies. The problem was that the coverages had never been placed.

Was this just a simple, yet very costly, mistake? Probably and it could have been avoided so easily.

One way to significantly minimize the potential for the above scenario to occur is to have the certificate generated from the Agency Management System.  This practice will ensure that the certificate is consistent with the policy.

Other issues involve agencies issuing certificates showing business placed thru their E&S wholesalers. The problem with this is that technically, the wholesaler is the agent of record, not the retailer. As a result, certificates issued by retailers may not be considered valid.

Several years ago, I spoke at a conference on the latest issues involving E&O. At the conclusion, an agency owner, in front of around 250 people, stated that in his agency, you put on the certificate whatever is necessary to keep the customer happy. Needless to say, this is not sound advice at all. The certificate should only reflect the actual coverage provided and should not include any statement / coverage that is not consistent with the policy. This could present a legal risk, including violation of insurance regulatory requirements.

The issuance of certificates is serious business and failure to follow some basis “rules” could cause some real E&O headaches. Those crazy certificates – much more of an E&O issue than many realize.

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Hey Producers – how good is your note taking?

In virtually every agency, producers / sales staff play an integral role in the current and future success of the business. Producers are typically responsible for new business sales and retention of accounts, especially the medium to large accounts.

In virtually every agency, producers also play an integral role in minimizing the potential for E&O claims to develop. Most E&O carriers will advise that producers generate around half of all E&O claims. So, establishing a strong E&O culture certainly requires a strong buy-in and commitment from the production staff.

When producers are meeting with prospects or clients, it is key for the discussions that occur to be memorialized. A primary reason for this involves the legal standard of agencies and their staff. Agents are heavily responsible for providing the coverage the client has specifically asked for. If they cannot provide that coverage, there is direct responsibility for the agency to advise the client.

To increase the chances of meeting this legal standard, it would be prudent for the producers to be taking notes either during or soon after the meeting has concluded. The notes should include who was at the meeting, where the meeting was held, what was discussed / resolved and any open items that need to be addressed.

It is not uncommon for these notes to be shared / memorialized in a letter / e-mail to the client. This should hopefully ensure that there is no misunderstanding between the respective parties. At a bare minimum, the notes (handwritten or typed) should find their way into the agency file.

Producers need to make a strong effort towards meeting this requirement. For whatever reason, producers do seem to struggle when it comes to note taking. A producer’s “DNA” seems to be more geared towards sales and “when you are taking notes, you are not selling”. That excuse is what I normally hear but not an excuse that I buy into. Producers need to be diligent in their note taking. There are apps that provide many hours for dictation. Dictating the information and then transcribing it later is certainly an option and the benefit of this approach is that the information of the discussion is fresher in the producer’s mind.

However it is done, producers need to be taking notes and ensuring that those notes find their way into the system. Anything short of this is not acceptable and going to cause some real problems if an E&O claim develops.

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