Parental advisory: apply childhood lessons when purchasing agent E&O insurance.
Here are some lessons from our childhood that may help.
Do as I say, not as I do
Insurance agents and brokers pride themselves on their abilities to sell the proper coverage to their clients that will cover all of their exposures. But for themselves, too often agents settle for insurance that is adequate, but may not offer coverage for all of their exposures. This is not due to carelessness. The market is ever-changing and as a result, insuring agreements are updated and sometimes new exclusions are added to the forms list. This makes it imperative to read every form thoroughly and never take renewals at face value. Otherwise, a policy that has remained silent concerning a particular exposure for years may suddenly exclude it on the current policy with no notice, leaving an agent inadequately covered.
Conversely, enhancements may be made to forms or endorsements, adding on coverage that may be available by carriers not currently covering the agent. These enhancements or endorsements may cover small exposures the agent has, but does not currently have coverage for. This also leads to inadequate coverage, leaving the agent with the possibility of paying outof-pocket on a claim for an exposure they thought they had coverage for but didn't.
If your friends jumped off a bridge, would you jump, too?
Every insurance agency has unique exposures. Some primarily handle commercial lines of business, some handle personal lines and still others may specialize in specialty lines. Some act as a third-party administrator while others may employ a notary public. Because of those differences, a one-size-fits-all approach to E&O is not a good one. Each insuring agreement carries its own definition of what should be covered under an agent's E&O policy, so it is important to read the insuring agreement for each quote offered.
Exposures also are reviewed by carriers to assist in determining premium. Carriers weigh different lines of business heavier than others, but not all carriers weigh them the same. While one increases rate on a specialty line of business, others give a rate credit. Some offer coverage to MGAs. Some include independent contractors at no charge and some charge an additional premium. A carrier that has a form that may work for one agent may be an ill fit for another.
Don't talk to strangers
Insurance agents and brokers know their clients well, but how well do they know the insurers that supply their own E&O insurance? Just as an agent will go the extra mile to ensure every aspect of the business is covered for a client they know well, the agent's agent or carrier will do the same if they have a good relationship. When it comes to E&O coverage, the insurance agent is someone's client. And just as the agent needs to become familiar with his clients to provide service to the best of his ability, his agent or carrier will need to do the same for him.
Communication is key. It provides a clearer understanding of the agent's exposures, leading to a selection of the best coverage available. Without it, the agent's exposures remain unknown and his servicer will operate on minimal information, potentially leaving the agent with expenses that could have been covered if the communication channels had been opened.
Wear clean underwear in case you get into an accident
Claims happen to even the best agents, so be prepared. Knowing exactly what is covered by a policy is important, but knowing the protocol for reporting the claim is equally as important. Each carrier handles claims differently. Are claims made, or claims made and reported? This is not information that is foreign to agents, but they often apply it to their client, not necessarily to themselves.
Often overlooked, know where to send notice of the claim. Some carriers have an email address, some a post office box, and others request notice be sent to the agent or wholesaler instead of directly to the carrier. Are the claims handled by an adjuster? Or is each policy and claim reviewed by counsel? Carriers vary on claims handling, so this should factor on the coverage choice. Some carriers even have claims professionals that are dedicated to different types of insurance, making it easier for the claim to be understood by the person handling it.
Look both ways before you cross the street
Agents need to be aware of their surroundings. Staying abreast of the ever-changing information in the insurance world is important. The market is fluid and carriers move in and out of certain spaces almost on a weekly basis. Agent E&O has not seen many carriers bow out at this time, but as the market hardens, that will change. Markets with staying power are less likely to move in and out of the E&O space. Look to these markets for stability and to prevent replacing coverage each year as markets bow out. Being caught by surprise by a market closing a division or non-renewing all policies of a certain line of business can cause huge headaches at renewal time. The goal is to contrast and compare terms to obtain the best terms possible, not to replace out of necessity.
Don't run with scissors
Being careful is one of the best things an agent can do. First, agents need to carefully fill out the application. Every agent knows questions will follow if an application is not fully completed. In addition, some carriers warrant the application to the policy. If inconsistencies exist between the agent's true exposures and what is listed on the application, the agent may not have adequate coverage. Second, agents need to sit down and carefully read the forms included with the E&O quote. If none were provided, request them. This may seem like a no-brainer, but skimming a policy can lead to missed information such as exclusions and enhancements. Finally, after coverage decisions have been made and bound, the agent must read the policy to make sure it matches what was quoted. This step simply cannot be missed. Policies may have mistakes that could prove costly to an agent if a claim were to arise.
Clean your room
Organization is an important step with dealing with E&O coverage. Not only do agents need to enure that their businesses are organized, they must ensure that their policies are as well. Insuring agreements, state forms, endorsements, exclusions and warranted applications can get out of hand if an agent is not careful. In addition, some policies are easier to read and contain less erroneous information. The last thing an agent wants to do is sift through pages of endorsements and exclusions to see if something is or is not covered when a claim is knocking on the door.
Many carriers have become skilled at minimizing and cleaning up their forms and insuring agreements. This gives them the advantage of knowing exactly where to direct agents in case of a question. It also assists the agent in finding information, which builds confidence in the carrier. The more concise the carrier, the more efficient they can appear to policy holders.
You get what you pay for
Sometimes you have to pay for the right coverage. When times get hard, insurance is often one of the first things to suffer. For insurance agents, insurance is not something they can go without, but it may be tempting to buy less expensive coverage, even though it may not cover all the exposures or have sufficiently high limits. The temptation is even greater when the agent has not had any claims or circumstances that could result in a claim. This sense of security is false. Every insurance agent knows the purpose of insurance is to transfer risk--so why transfer part of it back by under-insuring an agency? Claims can happen when least expected, and may happen in an area of business that is neglected by insurance. For the average agent, a $1 million loss, if not adequately covered, could bankrupt the agency and result in a business closure.
It is imperative to weigh each additional cost against the enhancement offered, bearing in mind what it will do and how it will respond in the worst-case scenario. Is a small increase in premium too much to adequately cover the independent contractors at an agency? Is the less expensive quote worth leaving out coverage for a third-party administrator when an agency provides those services? The answer is yes, only if the intent is to self-insure those exposures instead of transferring the risk to a carrier.
More on the Web:
* Broker E&O Risk in Surplus-Lines Agreements
* How Agency Claims Staff Can Cause E&O Claims
* Avoid Humpty Dumpty's Demise
Read these related articles at PropertyCasualty360.com
Bree Cullum is an underwriter in the Burns & Wilcox Professional Liability Center of Excellence and has worked in the industry for more than 10 years.
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|Title Annotation:||FEATURE STORY: AGENT E&O INSURANCE|
|Publication:||American Agent & Broker|
|Date:||Sep 1, 2012|
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