Quality Counts!

How to Keep Problems From Turning Into Claims

We have all had experiences in our lives where we look back and realize our very life was almost extinguished. If not for the difference of a few seconds or inches this column would not be written or you would not be reading it.

Accidents and mistakes will happen, however, we can create a system to minimize them. That is the reason we have traffic laws, work safety rules and instructions to assemble a bicycle. It is also important to catch errors and correct them. Not only is the mistake corrected, but also it becomes a great learning experience. That is why great athletes become great; they learn from their mistakes.

An errors and omissions (E&O) claim can create that same adrenaline rush from a near-accident. Even if the claim is resolved in the agency’s favor, it can still have a devastating effect on the agency, its employees and the owners. Money and time are lost, along with getting a tarnished reputation, as well as a drain of mental and physical health. In the worst cases, agencies go out of business or criminal charges can occur.

The vast majority of E&O claims are the result of an error or a mistake. When an error is made the intent is to do the right thing. However, it was done incorrectly or incompletely. An omission is simply the failure to perform a certain task. Something that should have been done was not done at all (out of neglect or ignorance).

Typically, errors or mistakes are preventable. Some of the prime reasons errors or mistakes occur are due to lack of proper training, the lack of clear and adequate policies and procedures, inconsistency in performing tasks, being rushed and not completing tasks.

The typical E&O claim will come from an agency’s client. However, that is not the only source for claims. Many claims made today are also made by the agency’s insurance carrier!

Some of the typical E&O claims made by clients and carriers include:

• Failure to place requested coverage or increase or update coverage;
• Failure to recommend needed coverage or explain coverage limitations;
• Clerical error on forms or misunderstanding of information;
• A verbal extension of nonexistent coverage;
• Failure to advise of cancellation, non-renewal, or material restrictions;
• Failure to place coverage with a solvent insurer;
• Failure to following underwriting guidelines or exceeding authority.

Quality Control

There are four pillars to improve quality and prevent E&O issues. They are: 1) training and education, 2) uniform policies and procedures, 3) proper documentation and 4) performance audits. All four of these approaches to improve quality must be in place or the system will be ineffective. There is no sense in having great policies and procedures, if there is no review of the performance and compliance through an audit.

Education and Training

It is important for agencies to invest in training and education and it needs to be regular, extensive and well rounded. All of the staff should receive training, not just the service staff and producers. Training for the technical aspects of insurance is important and is required. However, training should also be done for computers and software, accounting, agency operations, customer service, as well as internal agency policies and procedures.

Uniform Policies and Procedures

Many agencies have some sort of policy and procedure manual that describes how the work is to be handled. However, too often the procedures are poorly written, out of date, or inconsistent. Also, some key tasks often have no written procedure and each staff member might handle the work differently. The worst case in a claims dispute is when an agency has written procedures and they are not followed.

Effective E&O prevention requires the agency to have written workflow procedures, as well as written policy standards for servicing accounts and writing business. An effective tool is the use of checklists, which should be used as much as possible. Many errors can be prevented by the use of a coverage checklist or a checklist for reviewing a policy.

Proper Documentation

Employees need to know that documentation is not an optional behavior. The first approach should be to document everything. The agency can later refine what needs to get documented after the overall system is reviewed. Documentation needs to be consistent and located in a logical place that others in the agency have access to. Ideally, documentation should be done right after the event by the employee involved and should effectively detail the information for others to understand.

Proper (and consistent) documentation can make the difference in an E&O claim. Notes should be put in a format that is not changeable, such as the agency’s automation system instead of Microsoft Outlook. This increases the reliability of the documentation. The client should sign checklists and proposals as a means of recording their acknowledgment of the coverages available and what they are getting.

Performance Audits

The only way the system can be evaluated is if it is reviewed and tested. Each aspect of the system needs to be audited for compliance and accuracy. The feedback from an audit can then be used to improve workflow procedures, identify training needs and clarify policies or standards.

An outside E&O auditor should be used every three to five years. They can look at the agency from a dispassionate position and compare the results to industry standards. They are able to ask the tough questions and not worry about any “sacred cows” in the agency.

The typical E&O audit will take a few days. The process followed by Oak & Associates is to first get some background information from the agency via a questionnaire and phone interview. The Oak & Associates consultant will then perform an on-site interview of owners and management plus some of the producers and staff on workflow, procedures, client service, sales and overall agency operations. This helps get a better understanding of what is actually happening in the agency. Interviews will also disclose how well the employees understand the agency system and if they follow proper policies and procedures.

The auditor will then review any documented policies and procedures, internal and external forms, and other operational documents. A select number of customer files are then reviewed to evaluate their completeness, accuracy, consistency and compliance to the system. The auditor will also track the flow of specific documents through the system. The auditor will analyze the agency’s results and compare it to the industry standard on best practices for E&O compliance.

Typically the auditor will prepare a comprehensive report on their findings with problem areas identified and recommendations for improvement. The auditor can also help with ways to improve workflow and productivity. E&O audit reports by Oak & Associates include a list that rates the areas reviewed along with an analysis of the key issues and solutions to problems.

A second type of audit is an internal audit that should be done every six months. One employee should review another’s work and client files for accuracy and compliance. This approach will help keep the system in check between audits from an outside expert. This review also works great for training new employees. Employees need to be clear that the audit process is to evaluate the agency for E&O compliance and not rate their individual performance. However, corrections that arise from an audit could include additional training for specific employees.

A Final Thought

Insurance agents can be subject to legal action if their client or another party believes that the agent has not upheld the accepted legal standards for professional conduct — and accidents and mistakes will happen. Keep in mind that the best defense is a good offense. It is imperative for every agency to have a quality and compliance system in place to minimize the frequency of errors, audit agency performance and learn how to improve the process.

Contact Oak & Associates if you would like to have us perform an E&O audit for your agency. Keep in mind that some E&O carriers will also offer a discount on insurance premiums if the agency gets an E&O audit.

Topics Agencies Training Development Professional Liability