The Q&As of E&O

It is said that the teacher learns as much, if not more, than the student. As an instructor with the Florida Association of Insurance Agents, I am living proof of that axiom. One of the most valuable lessons I have learned is that there is the stuff we teach — the “never” and the “always” about office procedures and practices — and then there is the “real world” that agents face every day.

A current course, The Q&As of E&O, has been especially enlightening. The “Questions” posed include: Who are the culprits? What types of errors are they making? Are the errors stemming from new business, renewals, rewrites, or rounding of accounts? How can we know if communication between the producer and the customer service representative (CSR), the CSR and the account manager, or the insured and the staff is clear and understandable? The “Answers” are handled in the form of class discussion using case studies as well as information gathered from E&O carriers, Web sites, webinars, and interviews.

Although people come to the E&O class to get the continuing education credits and the subsequent discount on their E&O premiums, during the sessions they often open up about how things actually happen in their offices. They know how their offices really run, and they start to compare that “real world” process to our “textbook” office-practice suggestions.

During a recent class, I was trying to hammer home the idea that we should never get into the habit of calling clients if their policies are going to be cancelled for non-payment. This could result in missing that one client that one critical time, possibly opening the door to an E&O claim. An agent in the audience agreed with this, and went so far as to say he would not even tell his neighbor or his brother if he knew coverage was going to cancel. Others concurred, but noted that it was hard not to contact an insured, knowing cancellation could cause some trauma to the individual.

The next day, as I was again going over these points, someone in the audience commented, “In the real world, especially in these financially unstable times, we cannot afford to lose a client for non-payment. In fact, if the policy cancels, and we have to do a cancel/rewrite, there may not be a company available to write a new policy.” Again, several agreed with this point of view. These interactions point out interesting differences among agencies, their practices and procedures, and how volatile times may change what was previously accepted as the norm.

I asked this person what his communication process was and how his staff made sure they did not miss any insured that may be in cancel status. He stated that when his office receives its copy of the cancel notice from the carrier to the customer, his staff immediately sends a letter to the customer. Follow up measures include e-mail and phone contact to be sure the customer is reached. He said the extra effort is worthwhile, given the alternative of losing the client, not being able to keep the coverage with the current carrier, or not being able to find a carrier to rewrite the coverage after it cancels.

Also, he noted that his process ensures that there is always documentation in place to show contact with every client who fell into cancel status. This, he felt, would alleviate the specter of a future E&O claim. One interesting question he raised was, “If we truly profess to offer the best in customer service and client care, how can we let coverage lapse due to an oversight by the insured?” Food for thought, isn't it?

At another class taught on-site at a large agency, a participant mentioned that personal lines customers were always contacted about impending cancellations, but commercial accounts were not. This begged the question, “What if clients have both? What if you contacted them about their homeowners' but didn't contact them about their business? Couldn't this present a bit of a conflict?” The agency is now looking into its procedures.

During class time, I routinely ask attendees to write about an office procedure or practice that may have “saved their bacon” and prevented an E&O incident. Conversely, I ask them to tell me of incidents that caused problems. I have received hundreds of responses, and there is one thing I know for sure: We all attend E&O classes each year, and we tend to hear the same old lines about what we should and should not do. When reading the words of people who see what is happening at the office, it is no wonder we keep harping on the same old stuff!

Here is a smattering of real-world examples of how various Florida agencies handled different situations.

Client Amnesia. At our FAIA classes, we hammer home that documentation is truly the key to a successful defense. Customers tend to develop amnesia on the witness stand. Having proper documentation such as a signed piece of paper — the application, the rejection form, the coverage limits, dropping or adding coverage — can quash even getting so far as a courtroom. Some agencies create their own proposals, which include documentation signed by the insured. A real-life example submitted by a class member: “We created and use a proposal that lists disclosures and an E&S acknowledgement that is signed by the insured, listing minimum premiums, fees, protective safeguard requirements, etc. It saved my behind when an insured claimed they did not know their roofers' GL policy was 100 percent minimum earned and I was able to show them their signature right next to 'Your premium is 100 percent minimum earned; there will be no return premium at audit.'”

Stopping the Flood. One agent told us that his firm picked up homeowners' and auto from a client after the home was badly damaged from flooding. The former agent had told the client that he did not need flood insurance because hurricane coverage would cover the damages. The client is in a major flood zone right on the river and his home was completely destroyed by flooding during the 2004 hurricanes.

Can this really still be happening? How many weather-related catastrophes can Florida go through and still have agents telling people they do not live in a flood plain, or that some other coverage will bail (no pun intended) them out?

In another mind-boggling conversation, an agent reported that he got a phone call from a prospect who had just rebuilt his condo for $75,000 and was not interested in insuring with his current agent. “When I quoted $250,000 of federal flood insurance and $500,000 for excess flood, he said his agent told him that $250,000 was the maximum amount of flood he could get.”

Haste Makes Waste. Yes, everyone is in a hurry. But rushing through something can have dire consequences. Problems reported by time-pressed staff include letting a workers' compensation policy lapse because the accounting department did not pay the bill on time, and a CSR being unable to verify what happened with an account due to insufficient documentation.

Understaffed agencies create rushed environments that, in turn, create the possibility for errors to occur. All agencies have peak or rush hours in the day or times of the week, month or year. These should be monitored to make sure staff is not being overburdened. Being rushed is a recipe for a mistake.

Time Well Spent. Here are three agent examples of how taking that extra time and effort can save the day.

“We sent flood letters to all of our personal lines clients, requesting they purchase a flood policy and asking them to contact us for quotes. The letters were then placed in the client files. Curiously enough, two clients on the same street got the letters. One purchased a policy; the other did not. Eight months later, after 14 days of rain, the street flooded. The one client was thankful; the other only wished he had purchased the coverage. Thank goodness for the letter in the file.”

“One of our insureds did not have adequate driver safety training and their job was shut down. We had someone from the carrier in the client's office the next morning at 6:00 to do the driver safety training, and had the people back to work in three hours.”

“An insured came in to add a vehicle to the policy. The insurance company was already closed and we were just about to close up shop for the day as well, but the account manager took the time to send an e-mail to the underwriter regarding this change. When the insured left the office, he got into an accident. Because the account manager had sent the e-mail to the underwriter instead of just waiting until the next day, the insured had coverage.”

Studies show that pure negligence is rare; no one tries to make that little mistake. Having exceptional E&O coverage and putting processes in place to help the agency, the employee, and the client will alleviate many concerns about possible E&O problems. Additionally, it is important to have an E&O carrier that is a stable, long-term player and not one that is in and out of the market. Because of the Florida marketplace condition, it is also important to have a policy that gives broad coverage for insolvency. Finally, using a company that places a strong emphasis on loss control by providing agents with tools to accomplish that task is vitally important.

One agency owner summed it up best when he noted, “We put good practices into place — and then increased our E&O limits.”

Dawn Korzen, LUTCF, AIP, AIAM, is an instructor with the Florida Association of Insurance Agents. She may be reached at 850-893-4155 ext. 349 or dkorzen@faia.com.