Making E&O part of the agency plan
Errors and omissions tactics and tools
By Dave Willis
As 2012 winds down, principals are cementing plans for next year—a year they hope will bring increased revenue and strong retention. As important as sales, marketing and customer relationships are, however, principals need to work on defense—maintaining a strong E&O focus—along with their offense.
“The first thing an agency or brokerage owner should do is conduct an assessment of where his or her organization is in terms of its E&O culture and commitment,” explains Curtis Pearsall, CPCU, CPIA, AU, ARM, AIAF, principal of agent E&O consultancy Pearsall & Associates. “A number of E&O carriers offer this type of self-assessment, which can show what the agency is doing well and pinpoint areas for improvement.”
For agencies that want to bolster their E&O focus and performance, he suggests a number of options, many of which will not cost much, if anything, to implement. “I have always been a firm believer that strong E&O loss prevention not only doesn't have to be expensive, but it can actually help drive increased sales,” adds Pearsall, who also is president of American Insurance Marketing and Sales (AIMS) Society.
The initial place to focus is inside the agency. “Managers should make sure staff is educated on various policy forms, and that they have procedure manuals and defined processes,” explains Linda Blechman, assistant vice president and insurance agents professional liability underwriter with Lee & Mason Financial Services, Inc.
“For staff to best assist their customers, they need a solid understanding of the coverages and E&O exposures they deal with,” adds Pearsall, whose free blog helps managers and employees understand relevant issues and better protect themselves.
“Continuing education classes that explain coverages are an important part of keeping up with the marketplace,” notes Bernie Geis, president of H&W Insurance Services. “Such education should include E&O seminars, to help agents and brokers understand where weaknesses may exist within their own organization and how to address them.”
Pearsall says outside experts can be a good resource for agency leaders. “Sometimes, the agency owner delivering the message may not have the same impact as an E&O instructor,” he explains. “Look for E&O seminars provided by agent associations or other organizations, or find Webinars that focus on E&O loss prevention.”
Couple such education with consistent reinforcement, Pearsall adds. “Periodic staff meetings present a great opportunity to ensure solid communication among the staff, and to reinforce expectations,” he notes. Meetings can contain an educational component that looks at a specific coverage or line of business, or they could simply offer a chance to review questions that employees field during a normal day and make sure responses are correct and professional.
Follow-up can pay dividends, as well. “Even with good education and training, it's wise to perform a monthly 'audit' or quality control check, to verify that staff members are performing their jobs in line with agency expectations,” he notes.
With the house in order, principals should focus on customer interactions. “There are the standard items: Don't let anyone bind anything over the phone, keep everything in writing, and so on,” says Glenn Clark, CPCU, president of Rockwood Programs. “These are the basics, of course, but they can't be ignored.”
Agencies would actually do well to educate their customers, notes Pearsall. “The best customer is an educated one,” he explains. “Instilling a culture within the agency to be one that 'wants its customers to understand how their insurance works' should yield solid benefits.” Paper and electronic newsletters, comprehensive Web site content offerings, and a focused social media or blog presence are ways to drive this client awareness.”
Policy delivery represents another education—and E&O loss prevention—opportunity. “When the agency sends a policy to its customer, or even when they deliver it in person, provide a cover letter that encourages the customer to read the policy and to ask questions or contact the agency with needed corrections as soon as possible,” Pearsall explains. “Most states make customers responsible for reading their policies; agencies should encourage clients to do so.”
An annual account review provides another opportunity to teach customers. “Not only can agencies educate clients on coverages they have,” Pearsall notes, “they can discuss those exposures that are not insured. This can definitely result in increased sales.”
Clark agrees. “Many agents get really focused on new business,” he explains. “Their best source of new business may well be in their existing client base. Failure to focus on existing customers could cost you. Someone else could steal them, or you could miss out on a chance to expand their coverage.”
A foundational element of a good E&O program is making sure employees thoroughly understand customer needs. “Too often we hear prospects simply ask us to 'match the coverage' they already have—or we see agents offer to do so on their own,” Geis notes. “Yikes! That should raise a red flag to any principal. You don't want to rely on an agent from another firm fully reviewing the exposures and obtaining the proper insurance to begin with.”
Geis has seen E&O claims arise from this practice. “The right way to try and bring on new business is to professionally review exposures and then align coverages with them,” he explains. “Often, in this process, the new agent can find coverage gaps, which can help them attract new customers.”
Certain coverage gaps are most common. “We really preach to agents to, for all of their commercial accounts, methodically quote employment practices liability, whether they ask for it or not,” Clark explains. “This applies to every piece of new business and every renewal. If nothing else, it tells your insured they don't have the coverage. Most insureds think they already do.”
“Another hot area these days,” says Blechman, “is cyber liability. Agents should make their clients aware of the exposure and offer the coverage.”
In situations where business may switch from one company to another, an E&O loss prevention approach Pearsall suggests performing is a mirror test. “Agencies should undertake this process whenever they consider moving an account from one company to another,” he explains. “A key goal is to identify any areas where the coverage with the new carrier is less robust than that of the incumbent carrier. Bring these issues to the customer's attention and get their sign-off.”
Such a test is especially important when switching from standard markets. “Moving coverage from an admitted carrier to a surplus lines carrier can open the door for an E&O claim,” Geis explains. “Many times the E&S carrier's policy form and/or endorsements are more restrictive. Always review the policy and the endorsements when a quote is obtained, and if the form has restrictions, always put in writing to the customer what those restrictions may be.”
Checklists and questionnaires
Clark suggests that agents consider reviewing coverages before it comes time to renew. Still, he suggests using a renewal questionnaire as a guide. “Agents can access these from a number of sources, or they create their own,” he explains. “Basically, you're conducting inventory of all the exposures your client faces and talking through them at a non-sales time.
“You're not pushing to sell them anything,” he adds. “In a consultative fashion, you're differentiating yourself from a lot of people who are just trying to court them. You're talking to them as an advisor. At the same time, you're identifying gaps.
“A renewal questionnaire is a good risk management tool for you and your insureds,” Clark adds. “If a loss occurs, everybody starts to point fingers. A signed renewal questionnaire helps clarify things.”
Agencies can protect themselves by using questionnaires or checklists with businesses and individuals, even those the agency has served for years. “In today's economy, we see an upswing in claims where claimants bring legal action for lack of coverage or too little coverage,” Geis notes. “Just because they may be an old and loyal customer does not preclude them from looking to the agency to cover an uncovered loss. A checklist is a must in any agency. It provides another layer of defense.”
Pearsall notes that exposure analysis checklists can serve multiple purposes. “They are great tools to educate agency staff members on the exposures,” he explains. “They also provide key questions to help agency producers better understand risks, so they can accurately present them to their various markets.” He notes that the cost of such checklists is outweighed by the increased sales that will likely result from their use.
Crossing your “t”s
Checklists and annual reviews are important tools, notes Blechman, and good documentation can complement their use. “The most important thing agents and brokers should do is implement or improve their documentation process,” she explains. “This won't prevent a claim, but it will go a long way to reducing the chances of one.”
Good documentation contributes to a good defense, she adds. “For instance, if an agent offered higher limits and the client turned it down, document the file and, if possible, have the client sign off on the declination. This will certainly help when it comes time to defend a claim.”
Pearsall also recommends making sure clients review and sign insurance applications. “There is tremendous power in having a signed app, as the customer will typically be held to the contents of an application they signed,” he explains. Staff meetings, which Pearsall mentioned earlier as a tool in the E&O prevention arsenal, provide good opportunities to review documentation procedures and reinforce agency expectations surrounding them.
The cobbler's kids
Finally, says Blechman, agents and brokers need to ensure that they have adequate E&O insurance. “Many agents put less thought into buying their own coverage than they do in placing their clients' coverage,” she explains. “While that may be good for the client, it's bad for the agent.” The agent should take time to compare E&O policies, as well as carrier experience and longevity in the line of business, she notes.
“Determine whether the carrier has sufficient experience in handling claims,” Blechman adds. “Too often, agents tend to focus on price and a few 'hot' coverage features. Just because a policy has defense outside the limit doesn't mean it's sufficient. If the basic policy is missing the required coverage, defense outside won't do any good.
“All policies are different,” she adds. “Subtleties in the language can change the scope of coverage. Some policies are so long and full of endorsements it's sometimes difficult to know what is covered and what is not.”
Finally, Blechman notes, pay attention to the E&O insurance application. “In addition to looking carefully at the coverage they are buying, agents and brokers need to take time putting their submission together,” she explains. “They rush to get it done, the handwriting is illegible, and the answers are often incorrect, incomplete or, worst of all, missing. A better application may indicate a better risk in the eyes of the underwriter, and that could translate to better terms for the buyer.”
As principals prepare for 2013, they need to remember the value of E&O loss prevention tactics, as well as adequate coverage. “You can never bulletproof yourself,” Clark notes, “but with a clear focus on E&O, you can reduce the chance of a claim, and you can better defend yourself when you are accused of something.”
Blechman adds, “While it's important for principals to incorporate E&O considerations into their planning, they really shouldn't wait until next year. If changes are called for, they should implement them immediately.”