The importance of ATTITUDE in E&O Loss Prevention

Ask 100 agency folks today about E&O loss Prevention and it might not be a surprise to get at least half of them stating “it’s a necessary evil”.  For someone that has spent the last 30 years involved in helping agents avoid E&O claims, this might sound like a terrible number. However, if one were to go back 20 years ago, it is fair to say that that the percentage of agents thinking “evil” thoughts on agents E&O would be at least 80%. So I guess you would say that progress has been made.

In actuality, personally I believe that a tremendous degree of progress has been made on individual’s attitude towards E&O. If one were to think back 20 years ago (we were probably just starting to think about Y2K), as procedures were developed within agencies, how often was the following question raised “is this a good procedure from an E&O standpoint”? Probably minimally. But today, this is virtually always a question that is involved in determining the final procedures and processes.

For some E&O carriers, the E&O claim frequency going back to 1990 was in the 14% area. Stated another way, this correlated to 1 agency in 7 across the country being faced with an E&O claim. Today, for some of those same E&O carriers, the number is 1 agency for every 20 (between 5% and 6%). Yet, when factoring in the legal climate, we are probably in more of a litigious society today than we were 25 years ago. Now that’s progress!

There is no doubt that Senior Management heavily determines the E&O culture of an agency by the manner in which they operate. Do they “walk the walk” and “talk the talk”? However at the end of the day, it is the agency staff that truly makes the difference since they are the ones that are, for the most part, handling the daily account servicing and sales activities.

Agents E&O is not an issue to be feared. As I have stated many times over the career, if after an Agents E&O class, the agency owner goes back to the office and puts a “For Sale” sign up, then I have failed. My goal is not to scare you (ok…maybe just a little bit). It is to hopefully enlighten you that Agents E&O is to be respected and embraced and that with the right culture and commitment, the vast majority of Agents E&O claims can be avoided.

“Agencies don’t make mistakes, people do”. This is a phrase I have used thousands of times…maybe I should patent it. Thus the E&O culture of an agency is going heavily based on the attitude of the staff. Do they fight the E&O process or do they embrace it? Developing a stronger E&O culture means having more staff each day understand and embrace the importance of E&O loss prevention.

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A simple approach to start Auditing

While more and more insurance agencies are performing some degree of auditing, there still are a number of agencies that either don’t see the value in auditing or possibly feel that they just don’t have the time or resources to do it.

Auditing is actually one of the most important components of a quality E&O culture and commitment. Without auditing, how would management within the agency really know to what degree the staff is performing based on the expectations that have been established?

Personally, I think the best approach is to get started and while the degree of auditing may be limited, it is still better than not doing any auditing. Consider this approach for getting the ball rolling…..

At an upcoming staff meeting with just the personal lines staff or just the commercial lines staff, go into the agency management system and pick a file, any file. The goal would be for the staff in the meeting to objectively critique the file and the manner in which it was handled. What was done well and what could have been done better. Actually to ensure that no one feels “picked on”, might be appropriate to pick a file for each member of the team attending the staff meeting. Also, it would be best for all files to be either new business or a renewal account.

The object would be review issues such as:

- How were the exposures of the risk identified or was the coverage simply duplicated based on what the customer had? If it is a renewal account, is there any evidence of the pursuit of a renewal questionnaire to get an update on the exposures?

What is the quality of the documentation? Does it tell a story? Was the documentation done promptly and accurately? Does it identify the who, what, where, why and when? How would everyone feel if that file had a problem and the documentation needed to strengthen the defense of the agency?

- How was the documentation of coverages rejected handled?

- Is there evidence that the policies were checked for accuracy?

All of the above are key issues that should be part of a strong E&O culture. One of the objectives would be to educate the staff on the benefits of each of the above items. It is important to state that the objective is to begin, starting today, to do things better that will help minimize the potential for an E&O claim to develop. There should be no “gotchas”. Hopefully everyone will see some files that were done extremely well and can serve to be an example of how things should be handled moving forward.

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Does the staff know that the agency has E&O?

Recently, in an E&O class I was teaching, the issue of the agency’s E&O policy came into the discussion. There seemed to be a perception that some of the agency staff questioned as to whether they should be buying their own E&O policy. The bottom line questions focused on 1) did their agency have E&O protection and 2) to what degree the staff were covered by that policy.

Since this E&O session had agency staff from over 25 agencies in the class, I was certainly not aware which agencies had E&O and which ones didn’t. Also, it would not be my place to comment on that issue anyway.

This questioning made me realize that the staffs of some agencies are not aware of this important protection. Should they be? Yes they should. They should not only be aware the agency has E&O, but also possibly what the deductible is, who is covered as an insured under the policy and what activities are covered. The proper manner in which incidents / problems should be communicated to management should also be discussed.

One other important issue - the agency staff should be strongly advised that the presence of E&O coverage should never be divulged to the customers.

It is suggested that the agency staff be made aware of this coverage and who is covered under the policy. This might be a good exercise for the agency management as well to ensure that they are aware of the issue. For example, the manner in which independent contractors are dealt with within E&O policies is certainly not consistent. A review of the “who is an insured” section of the E&O policy should indicate how this level of staff are handled.

E&O is important protection for the agency. As the medical professional has malpractice, so do insurance agencies. The presence of this coverage should not be a secret.

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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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