Agents E&O Loss Prevention
Exposure analysis checklists
A useful tool in reducing your errors & omissions claims potential
By Curtis M. Pearsall, CPCU, AIAF, CPIA
For the last 25-plus years, the number one cause of errors & omissions claims has been failure to provide the proper coverage. In 2010, this represented the cause of more than 50% of the claims. If one of your insureds suffers a loss that is either not completely covered or not covered at all, the potential exists for an E&O action against your agency—especially if the client thought they had asked you to provide the coverage.
An effective way for your agency to address this issue is through the use of an exposure analysis checklist. There are a number of checklists available. Producer Online, available from The Rough Notes Company, is one such tool that definitely warrants a closer look.
Exposure analysis checklists provide many benefits. First and foremost, they are a tremendous source of solid information on virtually every imaginable class of business. This information will be helpful for your staff (producers and CSRs) as they look to better understand the risk and what exposures it presents. It can be especially helpful for an agency's newer producers. The checklists provide background information for each class, the general underwriting characteristics (by line of business) and the various coverage considerations. These checklists also include a list of markets available by state in case you need assistance in that area.
Many classes of business might have a large number of general liability and workers compensation codes that could apply. The checklist will help you determine the proper code(s) so that you can ensure a complete and accurate submission to the carriers, which the underwriters will greatly appreciate.
Using the category of schools as an example, there is a wide range of exposures to consider. There are private, public and charitable institutions, as well as academic, technical, vocational and special interests. While there will be some similarities, you can also count on some uniqueness. These checklists will be invaluable in identifying the exposures and putting together the information to send to your carriers.
A "silver bullet"
After your staff has done its homework and possesses the knowledge of the potential exposures for that risk, it is time to visit the risk.
Among the keys to the checklists are the Risk Survey Questionnaire and the actual checklists themselves. The questionnaire provides, in a logical and systematic manner, the critical questions that should be asked of your client/prospect. In fact, many consider exposure analysis checklists the "silver bullet" to avoiding E&O claims because they are designed to ensure that the various coverage options are not overlooked. If your client rejects certain coverages, the checklists will prompt your producer to require that the customer sign the document confirming that rejection. This document, with your client's signature, will be extremely valuable in your defense should a claim be made against you alleging that the client thought he or she had requested this coverage. Without this type of documentation, alleged conversations between the client and your producer will be hearsay, and this does not have the same impact as a signed document.
As you generate your proposals, it is highly recommended that you include the definitions of key insurance industry terms. Not only will this will help your customers better understand their coverage, but it will be beneficial should an E&O claim arise and the client alleges that he or she did not understand certain terminology.
Show your value and professionalism
Agencies must realize that these checklists, while predominately applied to commercial lines accounts, also have tremendous potential and benefit for your personal lines customers. Because it is probably not realistic to meet personally with your personal lines accounts, many agencies have combined the checklist with a well-written letter and mailed the material to customers, asking them to advise you of any change in their exposures. While this will serve as solid documentation if a customer brings an E&O claim against the agency, there is no doubt you will experience an increase in sales as well. Definitely a win-win scenario.
While there is a cost for these checklists, it is probably best to think of their use as an investment in your agency's future. Through communication and interaction with your customers/prospects, your customers will better understand the various coverages available for their consideration. Your increased revenue from the use of these checklists will pay for the costs of these systems many times over.
If your agency has acquired another agency or a book of business, these checklists are a great tool to use. Your firm was not handling the acquired accounts when coverage and limits were last updated. Definitely do not just renew "as is." Duplicating the prior agent's mistakes does not isolate your agency from the likelihood of an E&O claim if the customer has a claim not completely covered by the policy.
It is important to treat the account as if it were a brand new prospect or customer. Make the necessary effort to identify the exposures and provide your customer with the options to consider. Plus, if you have taken over an account through a Broker of Record, this is a great opportunity to show your value and professionalism by updating the exposures through a checklist.
Well worth it
Bottom line, if you are not currently using a checklist, it is well worth your time to explore them further. The solid information they provide and their ease of use could help stave off an errors & omissions claim.