A report issued last year by Marsh & McLennan warned of agrowing gap between insureds' liability risk and theircorresponding levels of insurance coverage. An article in the Sept.8, 2003, issue of Insurance Day stated, “According to the report,companies covered in the survey reduced insurance limits by anaverage of 9.4% over a 12-month period ending in January 2003.”

Since the number and size of claims do not appear to bedecreasing, companies that reduce limits are taking a gamble. Somewill win. Others will roll snake eyes. In the latter case, it's notjust the companies who lose; many agencies will inherit problemsand incur E&O claims as a result. Firms that gamble, lose andend up with uncovered claims may look for someone to bail them outand decide to sue their insurance agents. After all, they havenothing to lose by doing so.

Agencies may not be able to prevent lawsuits from occurring, butthey can improve their odds of winning with good E&O preventivemeasures. Here are a few recommendations:

? When a prospect does not accept your proposal, send a letterstating that your agency has not placed the coverage per theprospect's request. This prevents the prospect from later claimingit asked the agency to ar-range certain coverage, but the agencyfailed to do so. Such a scenario may seem far-fetched, but it hashappened.

? Do not accept any oral requests to decrease coverage. Insistthat all such requests be submitted in writing. E-mail willsuffice.

? Review exposures regularly. Do not depend on clients to giveyou accurate values or schedules.

? Use coverage checklists to ascertain which coverages a clientneeds, and have the client sign the checklist. This measure placesresponsibility on the client, rather than the agency, for acceptingor declining recommended coverages.

Coverage checklists are great tools for decreasing E&Oexposures, but few producers use them. Risking E&O claims byshunning coverage checklists is like walking into a burningbuilding without a fire suit even though one is readilyavailable.

One reason agents may choose to face the flames unprotected isthat they perceive their risk to be low. A producer may experiencean E&O claim only once or twice, if ever, and thus may reasonthat the slight risk involved does not warrant the time it takes tocomplete a coverage checklist, especially if his or her employer,rather than the producer, is responsible for paying any claims thatmight arise.

When interviewed, many producers say they fear that clients willrefuse to take the time to complete a coverage checklist. With someclients, this may be true. However, insured surveys indicate thatthe majority of commercial clients will give producers the time togo through a checklist. In fact, most insureds consider the timewell-spent and appreciate the agent's added-value service. Also,since it is in a client's best interest to carefully review itscoverages and assess its insurance needs, a producer should thinktwice about continuing to solicit clients who refuse to do so. Acoverage checklist signed by a client can help stave off futureE&O claims-as can walking away from a prospect who won'tcomplete one.

Some producers do not use coverage checklists because they fearthe documents will prompt clients to ask coverage questions thatthey cannot answer. Insurance is a complicated subject, and fewagents have in-depth knowledge of all available coverages. Insteadof hiding from this fact, when faced with a question to which youdon't know the answer, simply say, “That is an excellent question.I'll research it as it pertains to your situation and get back toyou.”

Using coverage checklists is a win-win solution for both clientsand producers. It helps ensure that clients obtain the coveragesthey need and allows producers to minimize their E&O exposureand often to sell more insurance. (When insureds are asked to signstatements acknowledging that they've declined certain coverages,they often realize how important the coverages must be and decideto buy them after all.) Remember the Marsh & McLennan studyshowing insureds are not buying as much coverage as they need?Unless clients are presented with coverage checklists and asked tosign off when declining coverages their insurance agents recommend,they may feel, consciously or subconsciously, that if theyexperience an uninsured or underinsured loss, they can always suetheir agents. On the other hand, a coverage checklist makes themface the fact that the responsibility for buying all the coveragesthey need is theirs, and insureds tend to better protectthemselves.

Let's face it. Losses occur whether or not insureds are covered.As long as insureds resist buying all the coverages they need,agents' E&O exposures will continue to increase. But if youtake preventive measures to protect yourself and your clients, youcan avoid getting burned.