Now is a good time to be thinking about your 2017 E&O goal

In most businesses, this is the time of year that goals and budgets are being established. While typically, those goals are primarily focused on income and expenses, serious consideration should be given to the establishment of the agency’s 2017 E&O goals.

It is always best to focus on a handful of initiatives as trying to develop and implement too many initiatives / changes could cause a fair amount of anxiety in the office. In addition, by selecting a smaller number, this should increase the potential for those initiatives to be more effectively developed and implemented.

Some items to consider include but not limited to:

Staff education. Ensuring that the agency has a technically proficient staff that possesses strong customer service and automation skills is recommended. The goals should be customized for each staff member to identify those areas that need improvement. The specific goals should be included in each employee’s annual performance review.

Customer accountability. This is a goal that every agency should strive for. In the various proposals, there should be statements relating to other coverages that should be considered as well as the availability of higher limits.

Customer signatures. A customer signature on a completed  application can be a solid defense if a problem develops. Agency’s should frequently stress the importance of requiring staff (producers, account managers, CSRs, etc.) to secure customers’ signatures on the various insurance applications.

Confirm of rejected coverages. A common expression in the courts is that “if it is not in the file, it didn’t happen.” Thus any initiative that strengthens the agency’s documentation culture and commitment is a good thing. A procedure should be implemented to require all rejected coverages are memorialized in some form of written communication back to the client.

Renewal questionnaires. Your client’s exposures will often change 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.

Customer education. Identify the key coverage issues by line of business and then develop a marketing/education campaign using the media that would be most effective. Embrace the position that “your best customer is an educated customer”.

Establish a strong quality control/audit process – or update your current one. The goal of an audit process is to verify that the staff meets the expectations established by the agency. An audit program is a great way to accomplish this.

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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Use the power of insurance periodicals

To truly be effective in the insurance industry requires a fair degree of knowledge, especially in the technical area. One of the great things about our industry (and one of the most challenging) is that it is always changing to address new issues and new exposures. Without a doubt, keeping up with these changes is easier said than done.

Personally for my 42 years in the business, I have always relied heavily on the value and the power of the various industry periodicals. Even today, I subscribe to 6 that I receive on a monthly basis (some paper, some digital) and yes, I read them based on my level of interest. These periodicals are a great way to keep up with what is going on in the P&C industry, the Benefits industry as well as claims, coverage issues, etc.

The insurance industry is blessed with a tremendous number of quality insurance periodicals. In virtually every issue, there is a significant amount of great material. The issues are of often of seasonable nature. They also address key topics such as account rounding, security and compliance issues, social media and a host of E&O tips (from a variety of solid E&O professionals).

Whether your agency staff is brand new or of veteran status, every agency should have a solid focus on ensuring that the staff is educated on those issues affecting their specific responsibilities and the industry as a whole. These periodicals (many of which are actually free) are a very effective means to accomplish some of this education. Give some consideration to using them as a topic for an upcoming staff meeting.

As these publications are received, do your best to peruse them promptly for articles that would be of benefit to your agency staff. While routing the publication through your agency is the easiest approach, at times, the periodicals may get “hung up” at a particular staff member’s desk. Whether the article of interest was transmitted in paper form or digital, it would probably be beneficial to make copies for all applicable staff members – this will then enable them to retain a copy for their future use and as a resource.

There are many excellent authors that are contributing to these publications. They offer great suggestions on a whole host of topics (E&O, coverages, workflow, evolving topics, etc.). Make sure that these publications don’t just get put in a pile to read “when you have time” as this has the potential to deprive the staff of some great education and knowledge. Each of the agency staff will greatly benefit from this great material and when they grow, the agency grows.

Actually using the “tips” in these periodicals may just help your agency sell more insurance!

Bottom line – there really is tremendous value to insurance periodicals.

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Binders on your E&S business

When binding a piece of E&S business, most agencies would probably generate a binder and send it on to the client. Technically, there is a problem with this. The problem is that in the vast majority of cases, the retail agent is not actually the agent of record – the wholesaler is. As a result, a binder from the retail agent would probably not be considered a valid document in the court of law.

So what should a retail agency do? Actually to answer that question, there are a couple of other issues that should be factored into the process.

In the vast majority of situations, the retail agency does not have any true binding authority in dealing with the E&S industry. As a result, every precaution should be made to ensure that a decision is made at least 3-5 days in advance of the effective date whether coverage is to be bound. This 3-5 day window will then enable the agency to contact the wholesaler and request binding. It is suggested that proposals include a statement for the E&S business that clarifies when a decision needs to be made to ensure that the coverage is bound at the requested time.

It is important to recognize that there may be times where the wholesaler does not have the authority to bind the coverage; they need to contact the actual E&S carrier. By requesting binding in advance of the effective date, this should enable the coverage to essentially be bound effective the date requested. Requests to bind coverage after the effective date can definitely cause some problems as most E&S carriers will not backdate the coverage.

When coverage has been officially bound, the retail agent should then request the wholesaler to provide a binder for the retail agency to send to the client. The wholesaler should be asked when that binder can be provided and if there is going to be a delay, will the wholesaler authorize the retail agency to generate and send a binder, with a copy to the wholesaler. If this authority is granted, an e-mail from the retailer to the wholesaler should be sent memorializing this conversation and understanding. There is no guarantee that the authority will be granted.

Bottom line, binders on E&S business are a different “animal” and they need to be treated as such. A special process should be developed and implemented to address the uniqueness.

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Just tell me what I need!

When meeting with a customer or prospect, if this is a phrase that you hear, some caution should be exercised. Essentially what the customer is saying is that they want you to make the decision for them. They will probably state that they don’t understand insurance so “just tell me what I need and I will buy it”. 

Actually this gets to the heart of a key issue that I really try to drill down to when I speak with agents, one on one or in a class room. I categorize it as a lack of client accountability; clients that don’t want to take any responsibility for their buying decisions. One of the key issues with this approach is that these are probably the same clients that after suffering a claim that is not covered will be the first to blame you, as their agent, for not selling them the insurance they needed. This is a fact pattern in many E&O claims.  

First off, in actuality, how do you really know what the client needs? How well do you know the client? This is one of the primary benefits of an exposure analysis checklist to better understand their exposures and their specific situation.

Even if the client / prospect is a good friend and states “Joe, you have known me for a long time, just tell me what I need”, can you honestly state that you know everything about this customer? Definitely not and that is why caution should be exercised when customers pose this type of statement.

Maybe the follow up question is “what limit do most people buy?” I have heard some agents state that they will advise a personal lines client that “most auto customers buy around 100/300 limits”. What if you were to tell a customer this statement and they bought 100/300 and then proceeded to get into an accident where the bodily injury damages were in excess of the 100/300 policy limits. Could the customer allege that they interpreted your comments to mean that 100/300 was sufficient? Quite possibly! Face it, 100/300 limits, while they are higher than the state minimums, are really not that high and it does not take much of an accident to exceed these limits. 

“Just tell me what I need” sounds like the customer is asking you to make a recommendation. The word “recommend” is a very dangerous word as it has the potential to elevate the standard of liability to potentially “an advisor”. “Suggest” is the better approach.

When a customer poses this type of statement, it is best to make them aware of the various coverages and for those coverages proposed, be sure to include a variety of limit options. By offering options, you are forcing the customer to make a decision. At the end of the day, this is making the customer accountable for their buying decision and that should be one of the primary goals for your agency.

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Execution is the key!

After watching a few of the NFL games yesterday, it was very evident that just because a team has the best talent and the best game plan, this does not always translate into a victory. There is an element that many times is the determining factor as to whether that team wins. That factor is Execution. If each player on the team performed their role based on the expectations, that team has significantly increased their chances of winning. In actuality, isn’t the same true of insurance agencies?  

Many agencies have a tremendous degree of talent; long time veterans that know the business and what it takes to get the job done. In most agencies, the staff have job descriptions to ensure each staff member knows what is expected of them. “Agencies don’t make mistakes, people do”. Thus with a quality staff that knows what is expected of them, the agency should be certainly headed in the right direction.

For those staff that are not 10+ year veterans, it is common for the agency to have a focus on training and education in technical areas as well as customer service, systems, sales, etc. So you have a strong staff that know their job.

That same agency has strong procedures, the way a team would have a game plan. The procedures include the use of exposure analysis checklists both during the new and renewal process. The agency has a document that clearly delineates the expectations for documentation. The agency also has implemented a quality proposal template that contains the necessary disclaimers, descriptions of proposed coverages as well as a list of coverages for the client to consider. When policies are received, there is a procedure that calls for those policies to be checked and delivered within a set timeframe.

This agency certainly sounds like a quality shop and on the surface, it is. In some respects, it is like the NFL team that has the players and the game plan. So why then does this agency have some E&O claims?

The key issue that will heavily determine whether the agency has truly enhanced their E&O culture and commitment boils down to execution. How well are the various procedures followed to the degree they should be. Are their shortcuts taken? Is the process performed but not very diligently? Is it like the NFL lineman blocking one of the opponents but just not blocking them very well or in fact blocking the wrong person?

The development of a strong E&O culture and commitment doesn’t just happen. Just like NFL teams, this requires a solid commitment from ownership and of every player on the team.

 

 

 

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This is how you win an E&O claim !

Ask most E&O carriers and they will probably advise you that with the right set of facts, you (the agent) have an excellent chance of winning an E&O claim should one be brought against you. In fact, due to the heightened focus in agencies in the area of E&O loss prevention, agents are winning over 60% of the E&O claim being brought against them.

In case how you are wondering how to win an E&O case, the following is a great true story:

An agent procured property coverage for a client who operated his business out of a warehouse. The limits for the building, business personal property and stock were based on numbers that the client provided. The agent documented in the file that this was the source of the limits. He also suggested in writing to the client that he have the replacement cost appraised by a qualified contractor to assure limits sufficiency and he reviewed stock and other property values to make sure the limits were adequate. The agent also pointed out the policy had an 80% co-insurance clause.

Shortly after, the agent was in the neighborhood and saw the warehouse. He could tell by looking at it that the premises were significantly underinsured. He immediately wrote again to the client and advised him to review his property limits. He also called the client, left a voice-mail and documented in the file that the call had been placed. He received no response. A short time later, the property was completely destroyed by fire. When the resulting claim was adjusted, limits were short by over $500,000 and the client sued the agent. The attorney defending the claim took the client’s deposition and the client admitted that he had received the agent’s letter and did not take action, although he claimed the agent should have been more persistent.

With the letters and documentation, the agent’s attorney filed a motion for summary judgment and the court dismissed the claim. Not only was there was no settlement, the case did not have to go to trial and legal fees were minimal. Documentation saved the day.

Yes, documentation saved the day. This was a tremendous job done by the agent documenting virtually every step in the process. So when the claim was brought against him, he was able to turn over a file that told a great story.

What type of story are your files telling?

 

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“My friend would never sue me”

Hopefully you really don’t believe this statement. As noted by the following actual E&O claim, friends do sue friends and they can win these suits.

A doctor working for a non-profit group was sent overseas to assist in establishing a medical clinic. The agent, aware that the doctor would not be living in the home for an extended period of time, advised the doctor that he should purchase a vacant home policy which would provide him full coverage in the event of a loss while the home was unoccupied. The agent procured a DP-1 for the doctor.  

During the winter, while the doctor was still overseas, the pipes in the house froze causing significant damage. Upon filing a claim, the doctor found out that he had no coverage under the dwelling policy for the loss, contrary to his understanding of the coverage provided. The doctor sued his long time agent friend for the losses he suffered and the case went to trial. The doctor argued that the agent failed to procure the proper coverage and further argued that the agent had advised him that the DP-1 would provide him with “all the coverage” he would need. 

The agent argued that the doctor was very cost conscious and that if offered, a DP-2 or DP-3 policy would have been rejected due to cost. The agent further argued that the doctor had a duty to read his policy.

The verdict was found in favor of the doctor. While the doctor had a duty to read his policy, the jury relied heavily on the position that the agent / friend had a duty to procure the broadest coverage or to at least provide options for the doctor to consider.

Whether the client is a friend or not, they should be dealt with in a consistent professional manner. It is important that agents don’t take their friends for granted or assume that they know the coverage being secured. In the above claim, by providing the client with options to consider with an explanation of the coverage afforded by each of the three dwelling forms, there is a good chance the E&O claim, if it was brought, would have had a different outcome.

 

  

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Is every one of your accounts getting a renewal proposal?

As agencies look to gain efficiencies in their processing, it has become very common to use the renewal proposal as the means to include a variety of topics. Some of the issues addressed include additional coverages that the client should consider or the fact that higher limits are available. On the Benefits side, a common issue included in proposals is the notification of other products and services the agency has available. For those accounts getting a renewal proposal, these notifications should serve to educate the client while at the same time adding an element of E&O protection for the agency.

But what if the client does not get a renewal proposal? It appears that more and more carriers are automatically renewing the coverage in advance of the effective date. Essentially, there is no renewal proposal; just the providing of a renewal policy.

So how are these clients being notified of the availability of coverages such as Cyber, Employment Practices Liability, Umbrellas, etc.? How are they being notified that on some of their existing coverages that they can secure limits higher than what they currently have?

If this scenario is occurring in your agency, give some consideration to an annual mailing, possibly 90 days before the renewal of one of their primary coverages, such as the BOP or Package policy. This mailing could include a renewal questionnaire or it may be best to have that document sent in a separate mailing.

One of the goals of this type of an approach is to educate the client. Education has been shown to be a very strong deterrent to E&O claims. The more educated the client, the less likely the client is to bring an E&O action against the agency in the event of an uninsured loss. In addition, the more educated the client, the more exposures they will probably have insured. A true win-win position.

So if your agency has some clients that are not getting a renewal proposal, look for a way to educate them on other coverages, higher limits, etc. With most agency systems, this process of mailing a letter can probably be automated. One other item: your agency system should include an activity indicating that a renewal mailing of some type was sent. This level of documentation could be important to verify that you did what you say you did.

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Reviewing client’s contracts

On any given day, agents are asked to review contracts/leases on behalf of their clients. The objective is to essentially determine how well the client’s insurance program meets the requirements of the proposed contract.  There are a number of areas for the agent to be aware of if they are going to undertake this role. To start with, if the agency has not done this type of work before, it is best that the person(s) to whom this task is assigned receive the proper training. There are many resources available to educate staff on what to look for including your local agent’s association. Some of the key issues include:

The review of the contract/lease should be limited to the insurance requirement of the contract. This is critical.

- When responding back to the client, the suggestion is to deliver the “findings” in writing only. However, if it is necessary for the response to be delivered verbally, a follow up written communication should also be provided. This will allow the inclusion of the proper disclaimers to be stated.

- On the subject of disclaimer language, the following is a sample to consider using:

“We have reviewed the contract for insurance purposes only.  We are not in a position to provide legal advice and thus our review is based on coverage in force at the time of the review.  The comments made in this review are not intended to be a substitute for a review of the contract by your company’s legal counsel and accordingly, it is recommended that your counsel review this contract.  We disclaim any and all liabilities arising from this review and any final contract language.”

Many agents do not want to get involved in providing a review of client contracts. However this may not be possible in light of market competitiveness. By following some basic steps, a contract review will not be as scary as one may think.

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Your Agent’s E&O app

As everyone knows, the common means to protect an agency from E&O allegations is through the purchase of errors and omissions coverage. To secure this requires an application. So far, so good.

With virtually all lines of business, the application is a critical piece in the equation. It is the means to communicate to the carriers the “honest and accurate” information required to evaluate the risk and determine the appropriate pricing. 

Recently, in doing a project for one of the E&O carriers that I consult with, I was asked to review a series of claims to assess what the agent could have done better to prevent or at least minimize the potential for the E&O claims to happen. To assist, I was provided with a copy of the E&O application that was completed and signed by the agency principal.

One of the issues that stood out dealt with the agent indicating on the application that they perform an annual exposure checklist. In reviewing the claims attributable to that app, those claims could have been avoided had the agent performed an annual exposure analysis checklist. The other issue centered on policy checking and clearly if the agent systematically performed a policy checking process, the missing coverage would have been identified and rectified. The E&O application indicated that the agent had a process to check policies.

Did the agent mislead the carrier in completing the application? I would like to believe that this is not the case. I would certainly hope so. Possibly the individual completing the app firmly believed that the issues of exposure analysis checklist and policy checking were being completed. But unfortunately, they were not being completed as religiously as was thought. This certainly demonstrates how important each of these processes is in minimizing E&O claims activity. 

The completion of an Agents E&O app is EXTREMELY important and when answering the various questions, it is critical that those answers are answered correctly. Depending on the nature of the specific questions, the E&O carrier may have grounds for a policy rescission if they could allege they would not have written the coverage had they known the correct information. This is not a road an agent wants to travel.

The individual completing the app may want to use that as an opportunity to communicate to the staff that they are advising the carrier that these procedures are being followed and if they are not being followed, now is the time to say so.

Many E&O carriers will after a claim, contact the agent and question them on how diligently the various procedures are being followed. Hopefully the answer isn’t “we must have missed that one”.

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