Agents E&O Prevention
Writing employee benefits
Riddled with potential—pitfalls and opportunities
By Curtis M. Pearsall, CPCU, AIAF, CPIA
Whether your agency is a veteran in providing employee benefits coverage for your clients or just getting started, there are several areas to watch closely. Whether placing business goes smoothly or becomes an errors and omissions headache is up to you and your staff—and how much attention you pay to the details.
When thinking of employee benefits, health and life come to mind. However, there is much more to this part of our industry. The products and services available for agents to provide include prescription, dental, vision, cafeteria plans, short- and long-term disability, key-person life insurance, retirement planning, critical illness and wellness programs, and others. There's a lot to learn to be able to market these coverages professionally.
A great place to start is ensuring that the agency staff is knowledgeable about the various products. While personal lines and commercial lines are often handled by the same staff members, agencies writing employee benefits should involve a separate division dedicated solely to the multitude of products. Education will take on an even higher level of importance as the employee benefits industry goes through its anticipated changes. Without a focus on education, there is greater potential for clients to receive incorrect information and, thus, greater potential for problems.
Security is a significant issue because of the requirements for protecting client information, both personally identifiable information (PII) and protected health information (PHI). As a result, agencies must take heightened precautions, such as locking up at the end of the workday any papers containing this confidential information. How this confidential information is discarded is also critical. Shredding this material is a must.
As with any line of business, the quality of the information is essential. When working with a client, make clear the specific underwriting information the agency needs to secure a proposal from the carrier. Employers should be advised that all employees—active or on leave—should be included in any census data, and any employee changes from the time of the initial census data up to the proposed effective date should be communicated. Without this requirement, it is possible that employees could get left off and consequently not have benefits coverage.
As the agency provides the client with various carrier proposals, there are several issues that require tremendous attention to detail. The purpose of the proposal is to provide detail on the plans/products/services of specific interest to the client. Ensuring its accuracy is vital because the client will rely heavily on the information in it. For this reason, the proposal should be in written form.
Many agencies use the proposals generated by the carriers when meeting with the client. This is preferred and should serve as a level of protection if a problem later arises. The information presented should include the definitions of key terms and any necessary clarifications, to help avoid any misunderstanding of the plans or products. The goal is to ensure that the client clearly understands the material in the proposal in order to be able to make an educated decision that meets their corporate objectives.
Proposals should also include a disclaimer along these lines: "The rates quoted for these benefits may be subject to change based on final enrollment and/or final underwriting requirements."
Procedures, documentation and a checklist
Because the agency will likely present multiple options on plans, products or services, the agency should have a procedure in place to confirm what was purchased and what was rejected. Document the discussion at all levels of the process. This could involve a host of issues including a clarification of any commitments made, definitions provided or client administration responsibilities. Add this documentation to the agency file and provide written communication back to the client.
While you were awarded the business because you did a great job, agencies that have been writing employee benefits know there's still a lot of work to be done. The implementation of a plan can be involved, so it is suggested that the agency use an implementation checklist. This will help make certain that all tasks/action items are performed. The checklist, noting who performed the task and when, should then be part of the client file. Review all coverage booklets or summary plan descriptions (SPDs) for accuracy before the material is provided to employees.
Start in advance
Many things could change for your existing customer, so start the renewal review far in advance of the expiration date. For some customers, this could be as much as six months prior. To make sure your client is aware of the full array of products and services you provide, it is advisable to give them an updated list annually.
The following E&O claim points out how critical attention to detail is:
The agent procured a health policy for a bank's employees, with an $80,000 per-employee deductible. In 2009, the carrier notified the agent it was increasing the per-employee deductible for a particular employee to $300,000 due to heavy medical treatment for a condition. The agent missed the change. The bills in 2009 far exceeded $300,000. In 2010, the deductible for that same employee increased to $375,000. This was again missed by the agent. When the client became aware it had to cover an additional $220,000 in medical costs for the employee in 2009 and $295,000 in 2010, a claim was filed against the agent and the client was later awarded more than $500,000.
Providing employee benefits coverages for your clients is extremely involved, with numerous areas in which something could go wrong. However, through a solid commitment to educating staff and customers, and focusing on the details with quality documentation throughout the process, an agency can take important steps toward avoiding the development of a problem in their shop.
Curtis Pearsall, CPCU, AIAF, ARM, CPIA, is president of Pearsall Associates Inc., a risk management consulting firm that specializes in helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. He can be contacted at firstname.lastname@example.org or (315) 768-1534.