Based on your agency agreement with your carriers, there is no doubt that each and every day, your insurance agency staff uses that binding authority to write business. This is a very efficient means to transact business.
It probably goes without saying that there is little, if any, uniformity among your carriers on what risks you can bind without their knowledge. What is the process in your agency to ensure that the risks being bound are within that specific carrier’s underwriting guidelines?
Why is this such a big issue? Well in the world of Agents E&O, if your agency binds the carrier to a risk that is outside of their guidelines and that risk sustains a loss, there is certainly the distinct possibility that the carrier could pursue action against the agency for the claim damages. When I spoke with one agency owner recently on this issue, he commented “my carriers would never do this – they are my partners”. While this “partnership” is definitely a reality, I would suggest that a healthy dose of reality. Unfortunately, there have been a significant number of circumstances where the carrier sued the agent for “forcing them” to pay a claim on a risk that they contend that they would not written since it was outside of their underwriting guidelines.
Oftentimes, the issues involve the age of the risk or the limit request. However, some carrier guidelines address issues such as “cancellations for non-pay” or # of claims, whether paid or not. It is extremely important that each of the staff that are in a position to bind a risk clearly know the guidelines for that carrier and whether the account meets those guidelines.
If the agency is looking to bind a risk that is outside of the carrier guidelines, interact with the specific carrier underwriter to secure approval. Presuming that they grant your agency this authorization, this should be in writing, not only in your system but also via an e-mail back to the carrier underwriter confirming the conversation.
To ensure that your staff know the carrier’s guidelines, use the next staff meeting to review the guidelines and to discuss the importance of adhering to these guidelines. Also as they change (this is certainly a reality as the market hardens), be sure to promptly notify the staff on the changes.