All good things must end

After 9 years of providing E&O tips to help agents, it is time to call an end. I have thoroughly enjoyed blogging and hope that I helped in some manner to enhance the E&O culture and commitment of your agency and other agencies around the country.

I am giving consideration to a new approach to assist agencies, possibly writing a book or two on the subject. In the meantime, please know that the 700 + postings that are on the site will remain there at least for the next year. Using key words in the search field will still enable you to easily find postings on a specific subject.

I thank you for your loyalty and interest in my blog.

To you and your families, the best of Holidays this season and for many seasons to come.

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Want to know your E&O Culture ? Ask your staff

As we approach the end of 2018, I encourage every agency to set a 2019 goal (or two) that will enhance their E&O culture. This will enable the agency to continue to make progress on building a stronger culture to minimize the potential for E&O claims to happen.

There is the possibility that some agencies may not be sure where to start or what issues to address. In other words, they don’t know what their weakness is. A good place to start is to ASK THE STAFF. Have a dialogue with them to assess where things need to improve moving forward. I have seen agencies do this one-on-one with each staff member, by division (personal vs commercial vs benefits) or in total.

In order to have some structure behind the dialogue, it is suggested to start with some key questions. Here are a few that should get the conversation started:

  • Is there inconsistency among the staff on how various tasks are performed? This might prompt the agency to develop a manual that details the expected procedures. 
  • What is the quality and promptness of the documentation in the files? Agencies should have a document that details what the documentation expectations are.
  • Where is the weak link in the agency from an E&O perspective? 
  • How diligent is the agency in getting updates on any change in exposures of the personal and commercial clients? If the agency does not utilize a renewal checklist for this purpose, this would be a great initiative for next year.
  • What is the level of consistency in the confirmation of the coverages the client purchased and which ones they did not purchase. Implementing a procedure requiring a confirmation of the client decisions would address this issue.
  • What areas of the agency or what tasks (such as the issuance of certificates of insurance) should get a greater degree of training?

I have been asking these types of questions for many years and very honestly, every time I always get a very thoughtful answer. Whether the staff member is a “newbie” or a 30-year veteran does not make a difference. It might be appropriate to give the staff some advance notice of the questions to encourage very thoughtful answers. Maybe even consider a recognition of some type for the issue of highest concern. 

I firmly believe the agency staff know the issues that could occur or are occurring in their area that concern them and may in some cases “keep them up at night”.

Ask the staff …you might just be surprised at the responses.

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Thank you….Thank you….Thank you !

When I joined the insurance industry 44 years ago, little did I know that my insurance career would be as rewarding as it has been.

While I hope that I have made a difference, for me probably the most rewarding is to count the number of great insurance people that I have had the pleasure of knowing and working with. These are folks that have worked very hard to refine their craft and to make a strong and concerted effort to be the best they can be.

As I reflect back on those past 44 years, this is certainly an appropriate time to give thanks to one and all. You can be proud of the difference you make in those you serve. Your passion for the insurance business is to be commended and honored. You have given me the honor of getting to know you better and for that, I am extremely thankful.

Be proud of the industry you serve!

Happy Thanksgiving to you and your families!

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Your aggregate E&O limit – are you giving it the proper attention?

Ask most agencies what their E&O limit is and they will typically provide you with the per claim limit. And without a doubt, this is an important number especially in light of the increasing severity (cost of a paid claim) that most E&O carriers are experiencing.

However, the per claim number is only part of the equation. E&O limits are typically expressed in a per claim limit and an aggregate limit. The aggregate limit states the maximum that the E&O carrier will pay for all claims paid during that policy year. Thus, a limit of 2mil / 6mil means that $2mil is the limit for any one claim made and the $6mil is the maximum for all claims made during the policy period.

It is HIGHLY suggested that the aggregate limit be higher than the per claim limit. Let’s use the following example for an agency with a $2mil / $2mil limit:

A claim is made against the agency resulting in a payment of $1.8 mil. For the agency with a $2mil aggregate, this now leaves only $200,000 for additional claims that are made during that policy year. If the claim payment would have been $2mil, this would equate to ZERO dollars left for other claims that are made. The agency is left with no remaining protection.

If the aggregate would have been higher than $2mil, there would be additional limits available. You may be thinking “what is the chance of my agency getting hit with a $2mil claim or getting hit with multiple claims?” Believe me, these scenarios are happening! Also, do you really want to take that chance?

Some tips for agency owners to consider:

1) Don’t hesitate to ask your E&O carrier (or whoever is your contact) for some additional limit options. If you have $2mil per claim, ask for limits of $3mil and $4mil at a minimum. This will enable you to see what the premium increase would be and to enable you to make an educated decision. Obviously one of the primary reasons why agencies buy E&O is to protect themselves should “errors or omissions” occur within their shop so making the determination on the “right” limit requires some research.

2) If the premium increase to go to the next highest limit is somewhat prohibitive, at least give some consideration to the aggregate limit of your E&O protection. To go from a $2mil / $2mil to $2mil / $4mil is not going to take much in the way of additional dollars.

Your limit is obviously one of the key issues regarding your E&O protection. If the cost to increase the limits is not within your budget, consider taking the next higher deductible and use the savings from that adjustment to buy the higher limits.

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How would you feel if one of your files was involved in an E&O claim?

First, it is important to point out that just because one of your files became the heart of an E&O claim, this does not mean you did anything wrong. An agency can do all the right “best practices” and still have a claim brought against them. As the saying goes “you don’t have to do anything wrong to get sued”. Actually, some E&O carriers openly state that in any given year, 60% or more of the E&O claims are closed for no payment. With the right level of E&O loss prevention, you have a greater chance of winning these cases.

Consider trying this exercise:

At a future staff meeting, access the agency system and bring up a list of accounts for each of the staff. Then for each of the Account Exec level staff in the agency, pick a file at random that was recently worked on. Maybe create a hypothetical scenario that this client has recently suffered a claim that was not covered. If you are in an area where floods have occurred with some degree of frequency, maybe use the flood coverage as an example. Another approach is to have the entire group do an evaluation of the file. Obviously, this exercise needs to be done in the right spirit and used as a learning experience.

Review the file and determine what are the positive elements of the file that will aid in the defense of the agency and what are the negative elements that will hurt the agency’s defense. Look at issues such as the level of documentation, the handling of communication with the client that would have identified new or emerging issues or other coverages for them to consider, and how were rejections of coverages handled. You can certainly include additional items.

With the agency now facing this hypothetical claim, what do you think the chances are for the agency to prevail in the claim? Add to the discussion – what could the agency have done better to enhance their chances of winning the case?

This exercise will hopefully help to identify some weaknesses that need greater attention and get fixed.

The other option is to wait for an actual E&O claim to occur and then be left with the lawyers sorting things out. I think if we were up to me, I like Option #1 the best.

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Do I have enough insurance?

How would you (or your staff) answer that question from a client? Hopefully you have given this issue some thought as your answer can have some significant consequences if a problem develops down the road.

Let’s look at the question from the perspective of the client. They are trying to justify that the amount of insurance (specifically the limits they have secured) are going to be enough at the time of a claim. Can you, as the agent, truly answer that question with any degree of certainty? Let me also ask you, is the client really expecting an answer they can rely on? I don’t believe so. However, if you give them an answer such as “you have more than enough” and they have a claim that exceeds their limits, your response could be very damaging to your defense when a lawsuit shows up at your office. And it will show up at your office.

There is a good chance that the client knows that there is no way to 100% accurately predict that their current limits are enough. Unfortunately, it seems that every day, the world we live in is redefining the “worst that can happen”.

Some agents provide benchmarking data which has value but how much can those numbers be totally relied on? They may provide insight into what other comparable industry specific firms are buying but that is certainly no guarantee that is an adequate limit for your client.

So how should you answer the “do I have enough insurance” question? Asking the client to describe “what is the worst that can happen” might have some value but there is a good chance that the “worst case” is so far-fetched that the client does not see it as a potential realistic scenario.

It is probably best to advise the client there is no way for you to state that the amount of insurance they have will be enough at the time of a claim. In actuality, for the client to purchase the limits they may need for the worst-case scenario may not be possible as the additional cost may have some serious business implications. It is a trade-off of cost versus protection.

The one response I would not suggest you provide is “you have more than enough”. You may be thinking why would anyone say that? Believe me, it happens and it may happen more than you realize. I am very familiar with one CSR advising a client that was looking for a quote for higher limits that the limits they had were plenty.

You can count on this question being posed to any of the agency staff that deal with clients on insurance related matters. This would probably be a good topic to discuss at your next agency staff meeting. You may find out the issue is more prevalent than you thought.

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A key issue in your legal liability standard

Many agencies are apparently not totally aware of the exact legal standard they are going to be held to. Unfortunately, the time they actually become aware of it could be the time that they are facing a claim from one of their clients / carriers.

The subject of the legal liability standard has been heavily determined by case law and the rulings from the courts. Without going into a lot of detail, essentially agents are considered order takers and thus responsible for securing the coverage the client has requested. There are circumstances that could raise this standard to one of a special relationship but that is not what I am looking to address today. I have spoken to this in other blog articles and agents would benefit by knowing more of what those circumstances are.

The issue that I want to address deals with one of the requirements / expectations that agents will typically be held to. As I briefly mentioned, agents are order takers and thus your objective, as the agent, is to secure that coverage requested. What if the coverage the client is requesting is not available in the marketplace or at a minimum, you don’t have a market that will provide it?

Take the following situation: The client requests a personal umbrella that includes the client’s two kids. The problem was that the two kids were not the best of drivers and the umbrella carrier agreed to provide an umbrella but with an exclusion for any auto claims involving either of the two kids.

The policy is delivered to the client but apparently with no mention of the exclusion. While client’s do have a duty (in most states) to read the policy, apparently the client took the position that since the agent did not tell him otherwise, it was presumed the umbrella policy provided the coverage requested.

One of the kids causes a horrific accident resulting in extensive injuries to the occupants of the vehicle they struck. When the claim was submitted to the umbrella carrier, they denied the claim because the son involved was excluded from coverage. The agency was subsequently sued.

A key issue of the trial involved the question of whether the agent advised the client of the exclusion. Part of the legal liability standard is that if you cannot secure the coverage the client has requested, you, as the agent, need to advise the client, preferably in writing. Counting on the client’s duty to read the policy should not be presumed. This duty of the client will probably come into play but it will probably, at best, just minimize the award.

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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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