Agents Mind Your Es & Os

As insurance companies face larger, more frequent catastrophe losses, they are increasingly playing hardball with their insureds. Hurricanes, wildfires, tornadoes, floods and earthquakes can put pressure on a company’s surplus, and ultimately, its solvency. Every claim denied, delayed or underpaid incrementally improves the company’s balance sheet. Conversely, insureds are paying higher premiums, and they expect a higher level of service and competence at the time of loss. These two conflicting trends intersect at the placing agent.

The insured rightfully expects a certain level of specialized knowledge from his or her agent. That expectation imposes certain duties on the agent that if breached are grounds for an errors and omissions claim.

For example, the agent must have knowledge of the types of policies available and their different terms. Agents must procure the coverage requested or provide a written explanation if that coverage is not available in the marketplace. They must assist in setting coverage limits adequate to cover the exposure and provide advice as to which coverage options may be suited to the customer’s needs.

The agent must have knowledge of the insurance company’s financial condition prior to placing or renewing a customer’s policy, and the agent must know the limits of their binding authority. The agent must accurately and promptly communicate underwriting information to avoid denials for misrepresentation. And the agent is expected to conduct an annual review of the insured’s situation to determine if changes in limits or coverage are indicated.

Quality Agents

In my home state of Florida, the recent hurricanes exposed the lack of attention many Florida agents have paid to their professional duties. Most agents believe their E&O protection is sufficient to cover the occasional mistake. That may be true in the circumstance of an isolated claim. Of course, a few E&O claims lead to higher E&O premiums, higher deductibles and more restrictive coverage. However, an agent with a book of business impacted by a catastrophe loss will be sued (and possibly put out of business) by desperate clients who discover their insurance doesn’t meet their expectations.

“Quality” agents (those who limit their exposure to E&O claims through their professionalism and attention to detail) have a better chance of surviving such catastrophes. Quality agents have a tendency to make more money. For example, a quality agent sells adequate limits and additional coverage where needed. The result is better protection for the customer at higher premiums (and therefore more commissions). When catastrophe strikes, quality agents are touted by satisfied customers and the world beats a path to their doors.

Certain characteristics are generally common with quality agents. They tend to advance their insurance knowledge by pursuing educational curriculum and designations such as CPCU, CIC, CRM and CISR. These curriculum focus on improving agents’ awareness of their professional duties, and they suggest strategies to help them become more professional.

Quality agents communicate honestly with their companies and their clients. Accurate representations to underwriters defeat any subsequent denial of a claim for misrepresentation that might be actionable against the agent. And they disclose both the advantages and limitations of their proposals, in writing, to their clients and prospects, thus avoiding any claim that the customer was given the wrong impression.

Quality agents know their product and their companies. They make it their business to become familiar with policy language, including coverage extensions and limitations. They stay current on their companies’ financial condition and they know the guidelines for underwriting and binding coverage. They maintain organized files so that information about the insured or their coverage is readily obtained and easily reviewed.

Lastly, quality agents document written communications to the client and maintain a phone log which provides a summary of topics discussed and decisions made. They have a system for periodically reviewing a client’s situation. By updating protection and the advice given, they insulate themselves from any suggestion of neglect. Without fail, quality agents enjoy the business of insurance.

E&O Compliance

Agents who want to survive and flourish will make somebody within the organization responsible for E&O compliance. That person should have the authority to implement procedures, review agency personnel for compliance with those procedures and look for ways to improve performance in all the areas previously mentioned. Agency personnel should periodically attend E&O loss control seminars.

Agents who are having trouble with E&O situations should consider bringing in an outside consultant to perform an agency E&O audit. That consultant should be given the opportunity to observe agency operations, review random client and company files and review procedures and communications related to client or prospect cultivation. The consultant should identify what the agency is doing well and make recommendations about ways to improve the agent’s general level of professional conduct.

Doing things well is always more profitable, and minding your Es & Os can mean surviving the most difficult times.

Topics Catastrophe Agencies Excess Surplus Professional Liability