Probably over the last month or so, insurance agencies have received letters from their wholesalers / MGA’s, etc. requesting evidence that your agency has E&O insurance. They will typically require a certificate verifying this coverage. Ironically, it has not been common practice for agencies to be asking these same intermediaries for evidence that they have E&O coverage.
That should change. Agencies should have an annual process of requesting wholesalers etc. for two items:
- Evidence of E&O insurance (with an “A” or better rating per A.M.Best). It is suggested that agencies require wholesalers to have at least $5mil limit. This is not to say that the agency would not use the wholesaler if they had less than $5mil. However, what if the retail agency were to find out that the wholesaler does not have any E&O? Could this determine whether the agency would want to continue to do business with the wholesaler? It probably should.
- Verification that the intermediary is complying with the state licensing requirements.
For some agencies, this may be an arduous task. An option would be to build into the agreement / contract with the intermediary a requirement for the two items mentioned above.
There have been E&O claims where it was alleged the agency was responsible for placing coverage through, or sending clients to, a company that fails to meet its obligations. Securing evidence of E&O and licensing compliance would certainly help to alleviate these types of claims.