Can your customers buy their insurance from you on-line?

Recently, there have been many articles written about the issue of new entrants into the digital age of insurance applications. Many of those articles have referenced that while this is a significant threat to the independent agent, many independent agents are committing significant dollars to meet the challenge head on. The objective is to enhance the customer experience; using technology to strengthen the agent’s value and ease of doing business.

So how does this affect the E&O exposures that agents face? If agents are allowing their customers to shop and buy their insurance online through mobile devices / apps / websites, does this increase or reduce their exposure?

First, it is appropriate to state the legal liability standards that agents are traditionally held to. Basically an insurance producer (agent/broker) has a common-law duty to obtain the coverage that the client specifically requests within a reasonable time or to otherwise inform the client of the inability to do so. The producer’s duty is defined by the nature of the client’s request.

In the typical face to face conversation between the producer / CSR and the client, there is usually some dialogue that explains some of the finer points of auto insurance and the various coverages afforded such as UM/UIM. However when a client shops and buys their insurance online without interaction with agency staff, are they getting this degree of knowledge? From my standpoint, this is a key issue that agents should be aware of and sensitive to in pursuing more of a digital approach.

To date, I am not aware of any E&O cases involving a client essentially buying online and then finding that they had inadequate coverage. Personally, I feel a key issue involves to what degree the online buying tool educates the prospect on the different coverages, the importance of those coverages (such as higher UM/UIM limits) and what options are available. As stated previously, in most states, the agent is held to the standard of providing the coverage that the client asked for. By buying online, the customer is making that decision for themselves. Is the online capabilities helping the customer know what they are buying?

Bottom line, structured correctly with the necessary education components addressed, my personal belief is that an online tool minimizes the E&O risk for an agent. It might not be a bad idea to include a statement that prompts the customer to acknowledge that they understand the insurance coverages referenced and if they have any questions, they will contact the agency. Sort of like a “terms and conditions” approach that is typical to many on-line buying approaches. 

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Broker of Record issues

The insurance industry has been dealing with Broker of Record situations since the beginning of time. Unfortunately, it has also been dealing with E&O claims from Broker of Record situations since the beginning of time.

Taking over an account via a broker of record letter occurs every day in our industry. While on the surface, the transaction appears fairly simple, agencies and the respective producers should recognize that, in reality, their work is far from done. Actually it is just beginning.

One of the first questions that needs to be answered is “What is the likelihood that the current policies reflect the current exposures?” There is probably a good chance that “they don’t”. In addition, there are no doubt some coverages that are available today (such as cyber liability, EPL) that have not been discussed with your new customer.

First off and one of the important issues that should be recognized is: Do not just renew the coverages as is. This is actually one of the worst things to do. Essentially, if there was a “mistake” in the way the prior agent wrote the coverage and the account was just renewed as is, that is potentially now “your mistake”.

Take for example, a building limit. The prior agent did not perform the necessary valuation and thus the building limit is not sufficient to satisfy the co-insurance requirement. The “new” agent renews the coverage with the same limit or a slight increase. A loss occurs and the carrier invokes a co-insurance penalty. The “new” agent potentially has the bulk of the legal liability for their failure to properly update the values. Thus, duplicating the prior agent’s mistakes does not isolate your agency from the possibility of an E&O claim should a customer have a claim not completely covered by their insurance policies.

Treat this new customer, personal or commercial, as if they were a brand new prospect. Look to conduct a comprehensive review of the account to identify the current exposures and then provide them a proposal noting coverage options to consider.

Unfortunately, there may be situations where the agency does not have enough time to do the proper exposure analysis prior to the effective date of coverage. A suggestion that has been used by many agents involves inserting into a letter to the new client some key language. The key language that should help (no guarantees as each case is fact sensitive) is that your agency is not responsible for any deficiencies in the present program and will not assume any responsibilities until the agency has had the necessary time to review the program and provide suggestions to be considered. This letter should be signed by the client stating their agreement to this position.

Take the necessary steps for Broker of Record letters to be a cause for celebration, not the beginning of an E&O headache.

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How well are you protecting customer information?

Most industry experts / agency principals would agree that this is probably the biggest issue facing our industry. Actually categorizing it as a threat is probably more of an accurate statement.

What is your agency doing to protect the integrity and confidentiality of the customer information in your various agency systems?

A great starting point is to better understand exactly where you are today. This can be done through an information security review. While there is certainly a cost to this, this type of review will identify agency deficiencies and what steps need to be undertaken to address those areas of deficiency. If that is not in your budget, consider the following best practices:

- Passwords should be lengthy and elaborate. It is suggested that they include at least 8 characters and consist of upper and lower case letters and numbers.

- Customer information / data should not be stored on a laptop, Smartphone, flash drive, etc. unless it is password protected. These types of devices are commonly stolen or “missing”.

Email should be encrypted. There are a variety of various e-mail security services in the marketplace.

Be current with various hardware and software upgrades as many of these upgrades contain the latest security protection.

- When using third party vendors that are in possession of the agency’s confidential information, ensure that these vendors have extensive security plans and procedures in place.

- Educate and Train the staff on their role in security protection and what procedures and practices the agency is adopting that they are expected to be in compliance with. The training should include extensive discussion on “phishing” as this is one of the more common ways that hackers are gaining access to agency systems and information.

Monitor the traffic through the agency systems for any unusual activity. Unique User Identification tracking should be implemented for all users.

- Automatic Log Off of electronic sessions based on inactivity.

- The agency management system should be set so as to only allow access to PII (personal identifiable information) and PHI (personal health information) based on the specific job position and responsibilities.

- Any paper containing client confidential information should be locked up at night to ensure that any other staff and / or potentially the cleaning crew don’t have access to the paper or the information on it.

- Discarding of Paper Containing Confidential PII / PHI information. The agency needs to have a specific plan on how paper of this type is to be discarded. The agency should either provide various commercial grade shredding machines or subscribe to a service that discards the agencies material through their on-site shredding service.

- To protect the confidentiality of information, determine specifically what information each person is allowed to access to be able to perform their function. Each system has “settings” which governs this issue.

Physical Safeguards / Facilities Access Controls. Public entrance to facilities should be monitored by Receptionist/Operator staff including visitor controls such as log in and access to private area via visitor badge and staff accompaniment.

While this list is lengthy, this issue really is that important.

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Identify a “Hotspot” of the month

The development of a strong E&O culture doesn’t just happen. It takes a solid and concerted effort from all of the staff especially including management.

A strong E&O culture also involves identifying and fixing the “things” that need to be fixed. As we finish up our first month in the new year, consider a slightly new approach to strengthening your culture. That approach involves identifying your hotspot of the month.

This “hotspot” could be a number of things. It could involve one of the following:

- A division of the agency. Assuming that your agency writes personal lines and commercial lines and benefits, etc., is one of those areas somewhat lagging behind in their E&O culture?

- A staff member (or two). Agencies don’t make mistakes, people do. So possibly your hotspot is a staff member. This does not mean that the staff member is a poor employee. Actually, there is the possibility that they didn’t receive the training that they needed or that they are struggling in their workload and thus cannot perform all of the tasks required.

- A procedure that is not being consistently applied. Consistency is an important element of E&O loss prevention and having employees doing “their own thing” from a procedural standpoint should be avoided.

I have found over the years that in most of the agencies that I work with that the employees know the issues. They know the areas where things are going well and they know the areas where there are problems. Agencies should give consideration to asking the employees (possibly anonymous) for their thoughts on the hotspot in the agency.

The goal is obviously to strengthen the agency and to develop a stronger E&O culture and commitment. By identifying a “Hotspot of the Month” and then taking the steps to fix it, the agency’s culture will grow. At the end of the day, the agency may actually also find themselves writing more business.



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But I didn’t do anything wrong !

If I had a nickel for every time I heard that….

Yet, it is interesting to note how many E&O claims actually wind up getting closed for no loss payment. While there is typically some defense costs (averaging probably around $15,000 per E&O claim), many of the E&O carriers report that they are able to close out between 60 – 70% of all of their Agents E&O cases for no loss payment. When you think about that, it is pretty amazing. Two out of every three E&O claims gets closed with no loss payment ! What does this really mean and why does it happen?

It could actually mean a couple of things. One, it certainly could mean that the agent did not do anything wrong but the agency customer, having just suffered a loss that is not covered, brings some form of E&O litigation against the agency in the hopes of receiving something. This is one area where the presence of quality documentation could really help the agency prevail in the matter.

It could also mean that there was application of the agency – principal theory. Essentially, this is a legal concept that holds the principal (for an agent, this might mean the carrier) responsible for the acts of their agents (provided that the agent holds that status). For example, the agency binds a homeowners risk that is within their binding authority but forgets to execute an application, etc. The home suffers a loss but there is technically no insurance policy in place because the carrier did not know that the agent had bound the risk. The insurance carrier would probably ultimately wind up paying the loss because the agent was acting within their appointed guidelines.

So what is a “take away” from all of this? When an agency is presented with an E&O claim (typically through a Summons and Complaint document), that document might make the agency and specific staff members sound like the worst insurance people in the world. Just because it is stated in a Summons and Complaint document does not make it true. The agency needs to stay calm and call their E&O carrier and let them do what they need to do.

So just because you were sued might actually at the end day show that you did not do anything wrong.

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Follow up post to: Can your customers bind coverage by simply sending you an e-mail?

After last week’s post on this issue, I received feedback from a number of folks providing their appreciation of my covering of this topic. They also commented that the issue was actually somewhat broader than I had originally commented on.

In speaking to the issue of using disclaimers on e-mails, what if the agency person is not using their laptop or desk top when communicating with the prospect or client?

Is there the chance that they could be using a mobile device? If so, is the disclaimer showing up on the message? Probably / possibly not!

A disclaimer should be included on the message as well. So if they are using multiple devices/solutions, they may need to put the E&O message in multiple places.

One comment that I received that clearly illustrated this issue:

“I see this all the time – a person sends me an email from their office and I see their disclaimer on the bottom of the email. But when they respond from their mobile device, all I see is that it came from their iPad or Android device.”

So be sure to advise agency staff that if they are communicating with clients or prospects, they should either use their office equipment or ensure that their mobile device contains the appropriate disclaimer language.


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Can your customers bind coverage by simply sending you an e-mail?

The overwhelming majority of agencies have a voice-mail greeting that advises the caller that they cannot bind coverage / make policy changes by simply leaving a voice-mail message. Typically the message is something like:

“Please be advised that coverage cannot be bound or modified without speaking to a licensed agency representative”.

What is the benefit of this? Essentially, this serves as a disclaimer that protects the agency. Obviously, there could be situations where the customer calls to notify the agency of a situation (such as the purchase of an item) where additional information is needed for the request to be properly handled. So the benefit of this “disclaimer” is to let the customer know that they cannot simply leave a message and expect that everything has been taken care.

If you don’t have this type of statement on your voice-mail system, it is highly recommended to implement as soon as possible.

How are your customers interacting with you? In many of the agencies that I visit, it appears that customers are not calling to the degree that they used to. They are now using e-mail as their more common mode of communication.

As a result, is it possible that your agency could have a customer that sends an e-mail (as opposed to calling) to advise your agency of a matter that needs to be insured? As with voice-mail, there is the possibility that additional information is necessary before the request can be resolved.

For this reason, it is also recommended that you place the same type of message on your e-mail system advising customers that they cannot simply send you an e-mail and expect that everything is taken care. Including the statement advising customer that on any policy or coverage modifications, it is necessary to speak to an agency representative is recommended.

Bottom line, these types of statements (easily implemented) could just make the difference if a problem developed.


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Have a focal person “in charge” of E&O

As we have all seen over the years, when there is a focal person that has the defined responsibility for a particular project or task, there is a much greater chance that the project is done on time and all of the objectives are met.

The same applies to enhancing the E&O culture and commitment of your agency. Enhancing the E&O culture does not just happen. In most cases, it requires some significant effort and persistence. By having someone “in charge”, a more positive outcome is much more likely.

This E&O Coordinator should be someone that “gets it” and already understands the importance of the objective. Someone that wants their agency to be described as “awesome” when it comes to their E&O culture. They should be someone that clearly understands the importance of quality documentation and consistency and the multitude of other issues that add up to a quality E&O culture. In addition, the Coordinator should possess solid communication and organization skills to be able to explain to the staff the overall project and to manage the various pieces that will be critical to the overall success. Having the support of management is critical to have push thru various initiatives where there may be some pushback. This management support should be evident throughout the organization.  

If additional training is needed, possibly to assist the Coordinator is affecting change within the agency, management should certainly be willing to see that the Coordinator receives the training they need.

Based on the size and complexity of the agency, there is the possibility that the agency  may need to have additional coordinators to handle the E&O implementation in their area. Thus for agencies that write P&C and Employee Benefits, having a coordinator for both the P&C and Benefits area is suggested. These two areas are very distinct and there is a definite need for the coordinator to understand that specific discipline.

Bottom line, a strong E&O culture doesn’t just happen. It takes a solid commitment from the organization. When that organization designates someone to spearhead that initiative, it shows that commitment and also significantly increases the likelihood of a positive outcome.

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Are you getting the entire app completed?

Recently in one of my on-site seminars, I was asked a question that dealt with the information that the agent was securing on a prospect. The issue involved a personal lines app for a carrier that was expecting the agent to upload the information.

The question was essentially, “when I complete the upload, it only involves a specific set of questions, much less than the number of questions on the actual application. Do I need to secure the answers to the “other” questions on the application that are not part of the upload”?

Let’s look at some of the issues:

- The carrier’s underwriting guidelines. The carrier is certainly expecting the agent to only bind business that meets the carrier’s underwriting guidelines. Is there the possibility that the answer to one of the “unanswered” questions could involve an issue that would result in the carrier not wanting the risk? Yes. In fact, this issue of failing to honor the carrier’s underwriting guidelines is one of the leading causes of carriers suing agents. The agent binds a risk that does not meet the guidelines, the risk suffers a loss and the carrier then alleges that they would not have written the account had they known the correct information. Typically, the carrier then sues the agent and with the right set of facts, the carrier oftentimes wins!

- The contract between the agent and the carrier. Many of the agency agreements (or the addendums to the contract) stipulate the information requirements. One of those requirements is a “fully completed application”. If the agency has the responsibility of securing and retaining this fully completed application, in the event of an audit by the carrier, the agency better be able to produce this “fully completed application”

- Sales opportunities. Actually by securing answers to all of the questions on the application, this may help to identify some potential sales opportunities. Possibly, one of the questions involves issues such as a home business or a day care center that the homeowners’ client is running. This presents a great time to advise the customer to what degree the homeowners policy does / does not provide the necessary coverage and for the agent to then advise the customer what specific coverage would be needed for the exposure presented.

Bottom line, I would contend that the agent secure the answers to all of the questions on the application, regardless of whether all of those questions are part of the upload.

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7 Simple Underwriting Questions Nobody Asks

In most cases, avoiding E&O claims is all about “the details”. The attached excellent article written by Christopher J. Boggs, vice president for education for Insurance Journal’s Academy of Insurance, identified a number of basic, yet insightful questions that don’t seem to find their way into the discussion. There is certainly the possibility that the failure to get this degree of detail caused an E&O claim or two.

Is your agency going into this degree of detail? 2016 might be a good time to start.

This article appeared on on December 14th.

Continue Reading 7 Simple Underwriting Questions Nobody Asks

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