Proper documentation is the best defense
Your agency management system can help protect your business against E&O claims
By Kim Opheim
It all "went south" the day the crematorium lost the ashes of a dearly departed someone.
The crematorium believed its basic liability policy covered professional liability so, needless to say, the crematorium owner was surprised when he contacted his agent, only to hear: "Didn't you get our message? After the carrier issued the policy, we discovered that E&O coverage was not included. So we located another market for the coverage.
"We sent you a letter explaining the situation and providing a premium quote," the agent continued. "When we didn't hear back from you, I came to your office with a copy of the letter and left it with an administrative assistant."
Continuing, the agent asked, "Do you remember that letter?…What's that? The assistant is the person who misplaced the ashes, so how could you expect her to keep track of…a letter? I see the predicament."
Not surprisingly, the dearly departed's family sued the crematorium for obvious reasons, and the crematorium, in turn, sued the insurance agent for failure to provide coverage.
On the witness stand, the crematorium owner testified that he never received the agent's letter. The agent had nothing in the client file to show the letter had been mailed. The jury sided with the insured, and the agent wound up on the losing end of a $256,000 judgment.
The agency could have avoided implication by mailing the letter with return receipt requested. But the best preventive for E&O exposure on all fronts would have been a clear notation—including mailing date and time—on the agency copy of the letter or in the agency's automated management system.
Experts agree that great documentation is the best tool in defending yourself from an E&O claim. In spite of conscientious efforts to provide professional, thoughtful insurance advice, you could find yourself defending your agency against charges that you didn't provide the coverage an insured expected. For instance, agents often have to rely on documentation to prove that the insured declined coverage that was offered.
If you're shopping for an agency management system, pay special attention to how each system handles client documentation. Does it date- and time-stamp client interactions as they are entered into the system? Are these notes locked down against tampering?
This point is really important: Be sure the system allows sufficient space for CSRs and producers to enter detailed notes. Have a look at some of your own agency's client activity notes. Are there some that resemble text messages between BFFs? Perhaps the CSRs are in a hurry. Or perhaps your automated management system doesn't allow ample space for clear, complete notes. CSRs might conclude that they have to abbreviate words, truncate thoughts and otherwise condense their notes.
Problem: Months or even years down the road, when an E&O claim might come to light, those abbreviations won't make sense. Worse yet, they will create ambiguities, and a plaintiff's attorney will pounce on those.
Experts tell us that 90% of E&O claims start with a breakdown in communication. As part of your quality control audit, print out and review records that document conversations between customers and your CSRs and producers.
These abbreviation-free zones should tell a consistent, linear story detailing the customer's interaction with your organization. Any gaps indicate poor documentation. It's an early warning sign of impending trouble if your audit reveals less than clear, concise communication between staff and customers.
A related note: To get the most out of your technology investment, be sure your staff is well trained in using the technology tools you provide them. Thorough training pays huge dividends in productivity as well as loss prevention. Check with your agency management system vendor for training tools and opportunities, and look to your user group for additional training resources.
With good documentation as your best defense strategy, you should also employ these key technology measures to prevent E&O exposure:
Consistent workflows. The greatest incidence of E&O claims—43%—involve new business, according to Swiss Re, a leading provider of professional liability insurance. So how can agents use technology to minimize this risk?
Liability experts say that having consistent workflows is crucial to claims prevention. To perform a workflow the same way every time, a procedures manual is essential. Using readily available technology, it's no longer necessary to print a hard copy for everyone's desk.
In its simplest form, your procedures manual can be a word processing document showing detailed workflows built on industry best practices. The finished document can be stored on your network for sharing and easy revision. Your manual can also be stored inside your agency management system as an attachment or a help file.
Some agency management systems have the more sophisticated capability to create custom workflows that guide an employee step-by-step, screen-by-screen through a workflow. Imagine how helpful this is, especially for a rarely used workflow. It's also an excellent training tool to make new employees more productive sooner.
Checklists or risk assessments are great additions to your procedures manual. Using checklists is a powerful way to make sure you don't miss any essential information; you have all the information you need to provide proper coverages, and you can document everything in client files.
Use these tools to be sure you and your staff thoroughly understand a property or liability risk as part of the professional services you provide to your customers.
To develop your own checklists, create document templates in your agency management system. You can also request risk assessments from carriers, or use the exhaustive selection of checklists available from The Rough Notes Company's own Producer Online sales and marketing resource.
A final thought: Employee workloads have certainly increased in many organizations over the past couple of recession years. This situation in itself increases risk, as liability experts warn that overworked employees are prone to make mistakes. Use your agency management system's reporting capabilities to analyze current workloads and adjust as necessary. Workload reassignment utilities make it easy to adjust the number of customers your CSRs service.
Try a checklist
It's tough to consistently manage a daily volume of complex information. A former commercial pilot blogs this warning from his old flight instructor: "If you assume anything, it could kill you."
The instructor was stressing the importance of a pilot's checklist, a device developed after Boeing lost a bid to provide bombers to the U.S. Army in 1935. Boeing's "flying fortress" had crashed in a test because the pilot forgot to unlock the tail rudder. Since then, checklists have become critical in countless everyday workflows, including those in insurance.
• Do you have a consistent procedure for gathering comprehensive information, allowing you to document which coverages you recommend and which ones your clients accept and reject?
• Do you always ask if a customer has a home-based business, a fine arts collection, race horses on the north forty?
• The human memory can fail. Mundane, routine matters are easily overlooked under the strain of more pressing business.
• It's dangerous to let yourself skip steps that you think don't always matter.
• One day, perhaps when an E&O lawsuit threatens your business, every step will matter, and you'll be glad you have a checklist to document customer interaction.
Well-designed checklists can improve outcomes, even for experts, writes surgeon and author Dr. Atul Gawande in The Checklist Manifesto: Doing Things Right.
"When we look closely, we recognize the same balls being dropped over and over, even by those with great ability and determination. We know the patterns. We see the costs. It's time to try something else. Try a checklist."
Kim Opheim is manager of Product Strategy for Applied Systems, Inc., developer of agency management solutions including TAM®, Epic®, Vision® and DORIS®. For more than 25 years, he has worked in life and property/casualty insurance in Canada. Kim has served as broker principal and IT manager as well as VP of Business Development for one of Ontario's largest P-C brokerages. He has led private research for an industry think tank on broker management systems for the exclusive use of some of Canada's most prestigious insurance brokerages. For more on this month's topic, visit http://us.appliedsystems.com/simplytech/.