For as long as the insurance industry has been around, the Excess and Surplus Lines (E&S) marketplace has played a key role in helping agents place a wide array of coverages. But with that value certainly comes some uniqueness and with that uniqueness comes some E&O risk.
To minimize the risk, it would be prudent for agents to include in their procedures manual specific references to the E&S industry. For those agents that don’t have a procedures manual, it is highly suggested that procedures still be established and submitted in writing for all agency staff to reference when handling this type of business.
Some key issues that should be referenced:
The app. While many carriers will accept an ACORD app to provide a proposal, there is the definite possibility that they may need their own app to bind coverage. Agents should look to determine this issue as early as possible. Often times, if the carrier is going to require their own app to bind the risk, this will be referenced on the proposal from the wholesaler.
When to submit the app. The timeliness of when the wholesale / E&S market can provide a proposal can vary based on the status of the marketplace. It is suggested to allow sufficient time (45 – 60 days is suggested) and then follow up for the status.
Review of the coverages proposed. Is the coverage what you asked for? This is one of the more common key issues that agents need to be aware of. There is a good chance that the coverage you requested is not the exact coverage the market quoted. There should be a thorough review of the proposal as it may contain some exclusionary / limiting type endorsements. If the reference to some of the endorsements does not really tell you what is actually being excluded (or covered), it would be best to secure specimen forms to review. Including these forms with the proposal is recommended.
The agency proposal. Since retail agents are technically not the agent of record (the wholesaler is), the retail agent does not have the authority to bind the risk. Thus, the retail agent is going to need some time to contact the wholesaler (who may need to contact the E&S carrier) to get the coverage bound. Many agents include on the proposal the date when a decision on the coverages needs to be made to allow the retail agent time to get the account bound before the effective date. It is important to note that in the E&S / residual market place, there is no backdating of coverage.
Binding the risk. As just noted, retail agents do not have the authority to bind the risk. They also do not have the authority to issue binders so if a binder is going to be needed, the wholesaler should be contacted to handle that.
The policy. The policy should be reviewed to verify that it matches the coverages that were agreed to. There is the possibility that a “new” endorsement could find its way onto the policy that could have a material effect on the coverage.
The E&S carrier. There are many E&S carriers that do a fantastic job. They may not be household names so due diligence should be exercised on these carriers (financial rating, length of time in business, etc.).
Bottom line, agents need to know the “rules” and do their homework when dealing with this segment of the marketplace. To ensure consistency in the handling of this type of business, the agency should establish and provide the staff with those written procedures.