Have a great Thanksgiving holiday !

For 41 years (and counting), I have been blessed to work in this great business. As I reflect back on those 41 years, there are many things that have made this business very special.

#1 is you, the people.

I have met thousands and thousands of very dedicated folks that have a true passion for this business and for the people and businesses you serve. You have given me the honor of getting to know you better and for that, I am extremely thankful.

With Thanksgiving just a few 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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Ensure that your new staff attend an E&O class in 2016

As you give serious consideration to your 2016 E&O goal, if I may, let me make one suggestion that should be included.

With the aging veteran insurance work force, there is a good chance that agencies will need to bring on some new staff in 2016 and beyond. Some of the “new” staff may have some insurance experience but many agencies seem to be going outside the insurance industry to hire new employees choosing to train them “their way”.

While one may believe that most insurance agency professionals have attended an E&O class in their recent past, unfortunately, this is not true. In my classes, it is surprising how many folks have never been to an E&O class.

So whether the new staff is a current insurance professional or a “newbie”, look to get them to attend an E&O class in 2016. Preferably, the class should be one that addresses more of the fundamentals of E&O and the importance of issues such as documentation, policy checking, etc. This will enable these new employees to better understand the legal climate that insurance agencies face and what preventive measures are necessary in risk avoidance.

Your local state associations are a great resource for this so be sure to check with them on what their E&O class schedule looks like in 2016.

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Don’t bet against Mother Nature

I was recently reading the November issue of Best’s Review, specifically the article on the recent flooding in South Carolina. One of the things that really caught my attention in this excellent article was that the rainfall that caused this unprecedented and historic flooding in Charleston and other areas of the state was a once in 1,000 year rainfall.

1 in 1,000 !!

Most folks would probably agree that they would feel comfortable living in an area where an event has a 1 in a 1,000 likelihood. Well unfortunately Mother Nature decided that 2015 was going to be that year.  

There is certainly the possibility that homeowners make their decisions on whether to buy flood insurance based on the likelihood of that event happening. After all, why spend the money when the chance of the event occurring is 1 in a 1,000?

I remember a number of years ago a story that a customer asked a bank official in Minot, North Dakota “do I need flood insurance?”. The apparent response was something to the effect of “probably not, we haven’t had a flood here in 100 years”. As a result the customer did not buy flood insurance. The probably was that the town was devastated by a flood the following year.

Statistics are great for baseball games and predicting presidential elections. I am not convinced that they should be used when conferring with customers on their insurance needs. Just because the chance of a significant rainfall occurring is 1 in a 1,000 does not mean it won’t happen tomorrow. Just ask the folks in South Carolina.

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Do you want to stop “following up” on direct bill cancellation notices?

Over the last number of years, it seemed that many agencies were following up on their direct bill customers reminding them of late payment notices. In fact, in one survey back about 5 years ago, over half of the agencies that responded indicated that they were performing this follow up.

I sense that the tide is turning. Part of this is probably due to agencies seeking a greater degree of efficiency and with the limited talent pool, agencies are looking for tasks that they have been performing that they just no longer  have time for. I have received a number of inquiries recently from agencies stating “we don’t want to do it anymore but how do we stop?”

First, going “cold turkey” is definitely not an option. When agencies undertook the duty to perform this follow-up, that created a standard that your customers are expecting. If you simply stopped and didn’t tell them you were going to stop, there is a chance that your customer would think that everything is fine since you didn’t call. They may believe that your agency paid the premium for the customer. Don’t laugh as I interacted with one agency that actually pays the premium for the customer if they are late.

So once you assume the duty, it is yours. If you want to stop, you need to notify the customer. To ensure that there is no misunderstanding and that your intentions are extremely clear, this notification should be in writing (sent certified if possible). The notice should state that you are going to cease contacting them and when this “new” procedure is going to take place. The notice should be sent to all customers.

Then it is up to the staff to be certain that they honor this new procedure – no exceptions.

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When discussing E&O loss prevention initiatives, explain the “why”

Over the last 41 years, I have had the honor of working with insurance agency personnel in a variety of venues and on a variety of issues. One of the more common scenarios deals with my E&O loss prevention seminars. There is a particular approach that I take in my classes that I feel makes a big difference.  

For some reason, when some folks hear of E&O loss prevention, they tend to get a little nervous, (scared may be a better term). There are many E&O loss prevention “best practices” that can be implemented in agencies. It is important for the agency staff to not be scared of E&O and one approach that I personally feel is critical is to explain the “why” behind the loss prevention initiative. To tell the staff to “document, document, document” may not resonate with some of the staff and as a result, may not get their full level of attention. But when you explain that in the event of an E&O claim, the entire file is now discoverable and admissible and their level of documentation could make the difference between winning or losing the case, hopefully the staff will better understand and provide a stronger “buy-in”.  

For producers, explaining that you are looking for them to secure a written confirmation of declined coverages may get some folks wondering why this is really necessary. Explaining that having a written document (as opposed to a verbal discussion) that memorialized the conversation between the producer and the client could significantly strengthen the defense of the agency in a E&O matter hopefully will help secure a commitment. Will the customer be able to contend that they didn’t want the coverage deleted if there is a document signed by them in the file? 

Explaining that including a cover letter with the policy could play a significant role in the defense of the agency as customers have a duty to read their policy helps the staff understand the “why” behind the initiative. 

Holding customers to a higher degree of accountability is a great overall goal for an agency to have. When agency staff understand the “why” behind “customer accountability” initiatives, there is no doubt that they will be able to understand that these initiatives make a significant difference and that their “buy-in” is an extremely important part of that difference.

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Documenting is more than just putting words in the system

Documentation is one of the most important elements of a quality E&O culture and commitment within an agency. However, for an agency staff member to state that he or she documented the conversation in the file may not be good enough. What does the documentation say? What story does it tell? A number of components are essential for documentation to possess its true value

-     The documentation should be performed promptly. This does not mean at the end of the work day or “when I have a minute.” Ideally, it means as soon as the conversation has concluded. For those that can multi-task, documenting the discussion while you are having it is great as it enables you to accurately note the various items/topics being discussed.

-     The documentation should include details such as with whom you spoke, what was discussed, whether there are any open items and who has what responsibilities and duties moving forward

-     The documentation should be professional. This may fall into the “common sense” category, but there is the possibility that the discussion was emotional in some manner. The agency staff should be careful to ensure the documentation does not reflect this emotion. In other words, “don’t put anything in the file that you wouldn’t want a jury to read”.

-     The documentation should tell a story. If the customer calls back and the initial staff member is not available, the staffer helping the customer will be able to read the documentation, know exactly what was discussed and determine what any “next steps” are.

-     At times, the file should reflect some form of written communication (e-mail, letter, etc.) that memorializes the conversation. When a person documents a conversation, he or she is, in essence, documenting his or her version of it. Is it possible there was a misunderstanding or that the customer didn’t provide the information he or she thought? This does happen, so documenting the details of the conversation back to the customer is a solid E&O loss prevention tool. The goal is to make the customer accountable for his or her insurance decisions.

Documentation is key. If agencies followed these straightforward concepts, there would be fewer E&O claims and a greater percentage of E&O claims that did develop would be closed for “no pay.”

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Who is authorized to sign for your customers?

There are many defenses that agents can potentially use if they face some form of E&O litigation. One involves that the customer is responsible for the contents of an application that they signed. Unfortunately, there may be situations where getting the application to the customer is not possible although the use of electronic signature technology is a very positive step in the right direction.  

Other situations may involve customers who are physically or mentally not able to sign the application and have entrusted their insurance program to another party. This could involve a sibling that is handling the insurance for a parent who is in a nursing home or a sibling that is away at school and looks to their parents to handle the various insurance matters. Who is authorized to sign for your customers? The following is not to be construed as legal advice as I am not a lawyer (and don’t want to be!). 

One key statement that needs to be addressed involves the agency. As a producer or account exec, can you sign your clients signature to a document? I never advocate that an agency staff member should sign an application. Obviously, in the event of a problem, the fact that the client did not sign the application could become a key issue in the litigation. While some agency personnel believe that they can sign for a client if the client has authorized, this is still a situation that agency staff should avoid at all costs.  

Part of the issue is “what constitutes an authorization?”. If the customer verbally authorized the agency to sign for them, is this ok? “No” as at the end of the day, if there is a problem, the customer potentially may deny giving this authority. What if there is a document that the client has signed authorizing the agency or another party (such as family) to sign on their behalf? Is this okay? From my non-legal perspective, I would question whether this “authorization document” is considered a legal document. In other words, will it hold up in court?  

For a party to delegate / designate another party to act on their behalf, I am of the opinion that this document needs to meet the level of a power of attorney. A power of attorney is a legal document that gives someone you choose the power to act in your place. Each state has laws and regulations on what constitutes a power of attorney so state laws /attorneys should be consulted. The type of power of attorney document will depend on the condition of the party (are they incapacitated or not). Obviously, these forms need to be properly completed and witnessed / notarized.

Someone other than the named insured signing a document pertaining to insurance is a very serious matter and should be only be allowed if the proper legal authorization has been established and properly executed. Without this authorization, only the named insured should complete the necessary forms.

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What’s your 2016 E&O goal?

As 2015 comes to an end, most agencies are reviewing their results and looking to establish their 2016 goals. Included in the goal setting should be the development of your E&O goals for 2016. It is best to focus on a handful of initiatives, at most as trying to launch too many has the potential to result in doing an “okay” job on a significant number, as opposed to a solid job on a more manageable number. Here are some items to consider: 

Enhance your staff education. A strong focus on ensuring that you have a technically proficient staff that possesses strong customer service and automation skills is recommended. Work individually with each staff member to identify those areas that need improvement. Each employee’s annual performance review should include the specific goals that were agreed upon. 

Raise awareness of options and limits. Make sure your customers are aware of limit options and that higher limits are available.  

Secure customer signatures. Be a fanatic about requiring the staff (producers, account managers, CSRs, etc.) to secure customers’ signatures on the various insurance applications. 

Confirm in writing all rejected coverages. There is a general feeling in the courts that “if it is not in the file, it didn’t happen,” so any initiative that strengthens the agency’s documentation culture and commitment is a good thing. Implement a procedure that requires that all rejected coverages are memorialized in some form of written communication back to the client.  

Do an annual mailing to clients to determine any change in their exposures. 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.   

Educate your customers. 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. Without this type of a process, how can any agency feel confident that the various tasks and requirements are being met? 

A strong E&O culture doesn’t just happen. As you finish up 2015, dedicate some time and thought to how you can enhance the E&O culture in your agency moving forward.

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Don’t ignore the value of the aggregate limit on your E&O policy

A recent survey among US agency execs on the subject of the agency’s E&O policy indicated that policy limits are not being increased to any great extent upon renewal. In fact, it appears that the predominant limit is in the $2,000,000 per claim arena. This is somewhat surprising with E&O claims severity on the rise.  

A couple of 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, ask for limits of $3mil and $4mil at a minimum. This will enable you to see what the premium increase would be. 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. There are typically two E&O limits on every policy. The first limit is the per claim limit for any one incident that develops into a claim while the second limit (referred to as the “aggregate”) is for all claims made against the agency in any one policy year.

While agency owners would agree that it is certainly possible a single E&O claim could occur in a policy year, most would find it unrealistic to believe that more than one claim could occur. While, I am here to tell you that it happens and it happens with more frequency than one might believe. 

This is why giving careful consideration to the aggregate limit is important. If an agency had a $2mil per claim and a $2mil aggregate limit, a $2mil claim would wipe out the per claim limit AND the aggregate, leaving the agency with no further protection for any other problems that could occur.

Aggregate limits are typically a multiple of the per claim limit so it would be common to have options such as:

1) $2mil / $4mil or

2) $2mil / $6mil

The additional premium to increase the aggregate is minimal as compared to increasing the per claim limit.

The advantage of choosing an aggregate that is HIGHER than the per claim is that it would enable the policy to continue to respond for any covered E&O problems during that policy year.

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E&O Insights: How Well Are You Managing Your Agency’s Commercial Lines Accounts?

This is an excerpt from an Insurance Journal article that I authored in the October 19, 2015 edition.

“Ask errors and omissions (E&O) carriers about their results when dealing with commercial lines shops and most, if not all, would comment that heavy commercial lines agencies definitely generate their share of E&O claims and when those claims occur, they can be extremely significant. In commercial lines, $1 million-plus E&O claims can and do occur.

When analyzing E&O results, there are typically four commercial lines of business that are generating the bulk of the activity. Those lines of business include commercial property, commercial liability, workers’ compensation and professional/management liability. These four lines of business need to be well managed in an agency’s office to avoid an E&O nightmare.”

Continue Reading E&O Insights: How Well Are You Managing Your Agency’s Commercial Lines Accounts?


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