Filed Under:Agent Broker, Agency Management

Record-Retention Policy Helps Insurers, Brokers Avoid Exposures, Assure Clients

The abundance of documents--from contracts to e-mails--generated each day in the insurance industry creates a dire need for agents, brokers, insurance companies and consultants to find effective and cost-efficient ways to store critical information.

As business grows and new policies are dictated by regulatory and governing bodies, hardcopy and electronic files increase exponentially. The costs of storing data, electronically and physically, can become exorbitant.

As data continues to multiply, the need for an insurance agency, brokerage or company record-retention policy increases. Plan ahead to make sure your documents, your customers and your company are safe.

A record-retention policy categorizes all physical and electronic documents, specifies the length of time that the documents must be stored and, more importantly, the date that they are no longer required to be retained, and therefore, may be destroyed.

The policy takes into account all applicable laws and regulations, the business purpose of the document, any future use of the document, and the role the document may play in future litigation.

One of the most valuable reasons to have such a policy in place is that the policy can reduce business risk by protecting the company in the event of litigation, audits and coverage disputes. In such an event, the insurance company or producer who follows an appropriate record-retention policy is protected. If a proper policy is in place and implemented, the company will have less information to review and search if served with a document request.

For example, this streamlined data process will expedite an audit or the discovery phase of litigation, mitigating the effect such action has on a company's time and employee morale, as well as the costs associated with the audit.

A record-retention policy that includes the use of a centralized storage system optimizes the use of space, both electronically and physically, and decreases the time and cost associated with retrieving the data.

Implementing and following a record-retention policy will ensure that an organization is adhering to applicable legal standards and regulations.

All 50 states have enacted "insurance law" statutes. Many states require insurance brokers, agents and companies to implement record-retention policies. If a party fails to comply, the penalties include fines, sanctions, suspension or revocation of a license, and having the action be considered an "unfair or deceptive trade practice."

Compliance with the regulatory record-retention laws not only prevents costly penalties but also demonstrates to the public assurance of compliance with all insurance laws.

Building goodwill, both internally and externally, can offer a company a powerful business advantage. In addition to offering public assurance of compliance with laws, record-retention policies contribute to client confidence.

Privacy issues are a growing concern among the public. The proper storage and disposal of proprietary information demonstrates the commitment by an agent, broker, insurance company or consultant to safeguard that information. The policy demonstrates good business practice while at the same time fostering client confidence.

It is imperative that the policy put in place is a properly designed and executed record-retention process, as a poorly created or implemented policy can do more harm than good.

For example, a leading investment banker was fined $15 million by the Securities and Exchange Commission for failing to properly retain and produce e-mails related to several investigations.

Recent media events that focus on companies' poor practices surrounding record-retention have resulted in a backlash, with some companies concluding that they should archive everything forever--just to err on the safe side.

This is not appropriate, either. In addition to being expensive and exposing the company to litigation risks, you also risk violating privacy and other regulations.

Some practical advice for insurance producers and carriers, whether you and your organization are in the inception stages of adopting a record-retention plan or are currently operating under an existing plan:

o Determine what constitutes a record that needs to be retained for business or legal reasons.

This step involves input from legal advisers, financial advisers and management. Remember, one size does not fit all, and there are no easy answers, so adopting a policy that "makes sense" and complies with applicable law will involve time and resources.

Analysis will include a "data map" of the type of records that your company needs to retain, where the information is stored, record-retention time periods, and the person or department responsible for keeping the records and ultimately destroying them.

o Coordinate the retention policy with your intellectual technology systems.

Manpower may be necessary for paper records, but computer programming can cut down on human error.

o Consider your company's culture when implementing a policy. It is vital that your organization adopt a policy that can be followed and enforced.

o Establish protocols for how to destroy records and periodic reminders of when and what records need to be destroyed.

o Adoption of a record-retention policy is not a one-time event.

Updates should be provided regularly and ramifications for non-compliance should be enforced.

Ignorance of the law is not a defense. It is your responsibility to train and educate your company about new developments in the law and to update your policy accordingly.

o If your company learns that it is going to be subject to an audit or litigation, consult with a lawyer before destruction of any further records.

It is clear that implementing an appropriate record-retention policy is sound business, economic and legal practice.

Not only will it make many processes easier for employees, but it will boost client confidence and protect the company, now and in the future.

Jennifer Vergilii is a partner with Calfee, Halter & Griswold LLP, a Cleveland-based law firm. She specializes in business transactions, including record-retention policies in the insurance industry. She can be reached at jvergilii@calfee.com, or at 216-622-8568.

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