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Agents E&O: Do sweat the small stuff

Partner with intermediaries who "speak E&O"

Agents and brokers need to pay attention to their operations and to their coverage.

By Dave Willis

The agents errors and omissions insurance marketplace continues to be highly competitive, which means more options and better prices when it comes to buying coverage. But that doesn't mean that agents and brokers should ignore their exposures—or their policies.

According to Mark Lann, executive vice president of Rockwood Programs and an underwriter in its agent E&O unit, "For smaller agencies, the E&O market is still soft. We're seeing minimum premiums of under $1,500, and coverages are available that previously were granted only for large accounts."

Some markets are trying to raise rates for higher-limit policies, Lann adds. "They've generally had limited success doing this. Overall, the market will remain soft through 2014."

Deborah Dioguardi, vice president of NIF Pro, the specialty division of NIF Group, Inc., that handles professional and management liability insurance, tends to agree. NIF Pro acts as an intermediary broker for the placement of insurance agents and brokers professional liability insurance. The unit works with agents, brokers, wholesalers, and MGAs/MGUs that may not fit into national or state association programs—sometimes because they're start-ups or have had claim activity.

"We won't see much of a change in terms of coverages or forms for the next year or so," Dioguardi comments. "The market going into 2014 will be generally stable."

Focusing on details

To address E&O exposures, agents and brokers need to pay attention to their operations and to their coverage. "A key piece of advice I have for agency principals is to read their E&O policy," Dioguardi says. "Too often, I'll come across an agent's or broker's policy and see problematic exclusions."

Sometimes the definition of "professional services" is not broad enough and doesn't encompass everything the agency does. "For instance," she explains, "many agents operate as consultants, offering loss control and risk management services, claims adjusting, even notary public services. Some forms don't cover these exposures."

The definition of "insured" sometimes does not cover an independent contractor or producer. "In this situation, agents and brokers who operate as independents wouldn't have E&O coverage under the agency's policy," Dioguardi notes. "I'm also seeing that they don't have personal injury coverage under the policy or the definition of loss is very limited."

Some policies don't include punitive damages, and some don't have insolvency coverage, she adds. "Sometimes the forms limit the carriers that agents can place business with, based on their financial rating," she says. "For example, they're not covered if the policy calls for carriers to have an 'A' or better rating and they're working with one that's rated 'B+.'

"Too often principals don't realize what they aren't covered for because they don't take the time to read the policy," Dioguardi observes. "It's especially important to look at the 'exclusions' section of the form." She notes that specialists generally know what they're looking for when they review policy forms.

"If an agent is uncomfortable with what they're paying or if they don't know what they're getting, it might make sense to partner with an intermediary who can offer guidance and assistance," she adds.

"Specialists tend to know what the hot topics are and know what to look for," Dioguardi continues. "There's a lot more to good E&O coverage than a low premium. Both premium and coverage should be competitive." She points out that coverage is important, but so are strong carrier financial rating, experience in the market and good claims handling.

Glenn Clark, CPCU, president of Rockwood Programs, concurs. "Our approach to the entire agents E&O business involves markets, forms and rates that are competitive," he says. "But what's especially important, we believe, is having an established claims counsel. For more than a decade, we've partnered with the law firm of Wilson Elser as what we call the 'Rockwood Defenders.'

"Rather than assigning claims counsel on an as-needed basis after a loss occurs, we know who will handle our claims before a loss," Clark explains. "This lets us offer insureds access to pre-claim counsel, hotlines and loss control, as well as advocacy-type defense by E&O experts if the need arises."

To reduce the likelihood of claims, agents and brokers need to focus on internal processes. "Issuance of certificates of insurance has always been problematic," Dioguardi explains. "Even with technology that documents activities and wording, it's still important to make and keep actual copies of certificates. This can help with defense down the road."

"Other ways to help prevent claims include the use of specific procedures for doing business functions, the use of checklists, and careful explanations of coverages and exclusions in quotes," Lann says. "Doing these things consistently will help an agency and its E&O carrier respond to potential claims situations."

Dioguardi encourages agents to make sure their checklists are updated. "That's a big thing," she asserts. "There are new coverages out there that agents or brokers may not be presenting to insureds. Cyber liability is one that, while perhaps not required by contract, should still be part of a checklist at the time of quote."

Lann says agencies should adopt a policy of documenting every interaction with their clients, as well as interactions with their carriers. "Accurate favorable documentation can aid the E&O carrier in resolving claims," he notes.

Technology is another issue. "Better use of technology can be a big help." Dioguardi says. "If you're using it correctly, a good agency management system can help with documentation and workflow consistency. If you're not sure what the system offers, talk with your vendor or other users, or bring on an IT specialist to help."

Dioguardi says agents need to make sure their systems will be operational in the event of a catastrophe. "In our area, a number of agencies were hit by Superstorm Sandy," she says. "Those without a continuity plan in place were at a loss. You can reduce E&O exposures by having plans in place for weather-related or other unusual events."

Staffing and training also deserve attention. "Having the right staff—the right account execs—in place and having them trained in agency procedures can go a long way in helping reduce risks," Dioguardi says. "Properly licensed staff following the same guidelines ensures better outcomes."

Even with risks reduced and policy language understood, agents and brokers need to focus on one more area to be sure their operations are well protected. "Just as we tell our insureds to read and understand their policies, we also tell them to make sure their submissions are done well," Dioguardi notes. "To be honest, some of the worst submissions I receive are from insurance agents and brokers."

Lann concurs. "Agents and brokers should be doing what they recommend to their own clients: fill out their applications completely and accurately," he says. "Include additional information on anything out of the ordinary, such as claims, acquisitions, specialty lines of business placed or programs serviced.

"Giving your underwriter or broker a legible, well-written submission will help ensure that you get the best possible product, pricing and service," he concludes.

The author

Dave Willis is a New Hampshire-based insurance freelance writer and regular Rough Notes magazine contributor.

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