How many times over the last couple of years has your agencyfound it necessary to move a personal lines or commercial accountto a new carrier? Due to the soft market, it has probably happenedfairly frequently. In most of these situations, the premiums wereprobably lower, resulting in a happy customer and the retention ofthe account.

The next question is: How confident are you that the coveragewith the new carrier was at least equal to the expiring policy—orif it wasn't, was the customer aware of the fact and did he or shesign off on the differences? If you didn't identify the differencesand a loss occurs that would have been covered by Carrier A but wasnot covered by Carrier B, your customer will not be happy and mayconsider bringing an E&O claim against you and your agency.

This process, referred to in the industry as the “mirrortest,” is critical to avoid future problems down the road.Actually, although many carriers are reporting claims frequency asbeing down compared with a couple of years ago, agencies failing toperform the mirror test is an area that by itself could cause claimfrequency to rise. As carriers look to differentiate themselvesfrom their competitors, it is likely that if your agency remarketedan account to three additional carriers, there is definitely thepotential for differences between the incumbent carrier and theseadditional markets. When looking to move an account to a newcarrier from one carrier to another, the key is to identify anycoverage differences, bring them to the customer's attention andseek their direction.

What is the likely scenario? You move the account to anothercarrier and the insured suffers a loss that would have been coveredby Company A but is not covered by the new carrier you placed themwith. The customer now faces an uninsured loss and unless youadvised them of the coverage differences, they may question whyyour agency moved the coverage. It is likely that that they willsay that they never would have approved you moving the account ifthey knew that they were giving up coverage. If you stated verballyor in writing to the customer that the coverage is the same when itwas not, this could have negative implications; so the words yoursales staff use must be chosen carefully.

The differences between the various proposals can besignificant, involving sub-limits, the coverage grant, specificendorsements, definitions for areas such as “who is an insured,”exclusions as well as the rating of the carrier. I am aware of oneE&O claim where the account went from agency bill to directbill and this was not explained to the customer. When the carrierpremium pay notices went ignored (the agency producer also advisedthe customer to not worry about them), the coverage was cancelled.When the customer realized after a significant fire loss that theyhad no coverage, they proceeded with bringing an E&O claimagainst the agency. Guess who won?

The most recommended approach is to take all of the carriersthat you are considering and put the details down on a spreadsheet,noting all of the pertinent issues such as limits, sub-limits,coverage grants, etc. Consider sharing this spreadsheet with thecustomer and bring to her attention the details she needs to beaware of. This will allow her to see the differences and to make aneducated decision. At a minimum, bring to the customer's attentionthe differences between the expiring policy and the other carriersthat you are strongly considering. While some of the differencesmay be subtle, invariably this is where the loss occurs.

When a final decision has been made, secure the customer'sdecision in writing. This document will be key if an underlyingclaim occurs down the road and they then find out that they didn'thave the coverage that they thought that they had. If they chosethe lower price with the lesser coverage, that is okay—just get itin writing that they realized they were giving up somecoverage.

While this detailed comparison is important on all coverages, ifyou write professional liability and/or D&O, where no twopolicies are the same, there are probably more things to examine.An issue as subtle as an exclusion on one policy that was not onthe other (the expiring) has resulted in a claim being denied whichsubsequently triggered an E&O claim—all because the customeralleged he was not aware of the difference.

For more than 20 years, the No. 1 cause of E&O claims hasbeen failure to provide the proper coverage. In 2010, it was morethan 50 percent. There is no doubt that a significant percentage ofthe claims that fall into this category would be eliminated if theproper analysis and comparison was completed, communicated to thecustomer and the customer signed off acknowledging the differences.