Soft Market For Agent/Broker E&O Cover Doesn't Mean Producers Can Ignore Risks

Probably the primary key to getting better terms and conditions, he said, comes down to an age-old adage–an ounce of prevention is worth a pound of cure.

"Documentation is the most important word" when it comes to controlling E&O exposure, noted Mr. Schneider. "It's fine if you have a conversation with your client. But if you have to prove what was said, the only way you can prove it is by keeping it all in writing." (For more on documentation, see related story on page 20.)

E&O for insurance producers has continued to exhibit the same soft market trends as the rest of the commercial market, confirmed Sabrina Sally, senior vice president for Swiss Re Insurance Corp. Ms. Sally heads Swiss Re's Westport Insurance Corp. E&O program for producers, sold through the Independent Insurance Agents and Brokers of America professional liability program.

In these hard economic times, she said agents need to be on the lookout for fraudulent claims. The concern agents should have is that such activity could suck them into claims disputes, taking up precious time and resources to resolve.

Avoiding shady clients, she acknowledged, is difficult. But some signs of trouble to watch for include someone who is constantly late with payments or experiences a lot of insurance cancellations for non-payment. Another warning sign is a customer who is constantly late with payments, then suddenly seeks an increase in insurance coverage.

Whatever action an agent may take to protect their business, Ms. Sally advised that agents need to have consistent standards in place for accepting and rejecting accounts–either commercial or personal lines. Whatever that trigger may be, it should not be tied to the amount of premium or commission, she said.

"Steer away from any distinction where it could be said you treated this customer differently because you make more money off of them," she warned. "It is not something you are going to want to hear in a courtroom."

One major area of emerging E&O concern–not just for agents and brokers, but also other professionals who handle personal information–is data breach security or identity theft from hackers or misplacement of records, according to Harvey Goldenberg, senior vice president for Farmington Hills, Mich.-based insurance wholesaler Burns & Wilcox, and Angela Williams, San Francisco brokerage manager and vice president of California for the firm.

More carriers are offering coverage for such exposure, noted Mr. Goldenberg, who said privacy risks appear to be an area of growing interest for underwriters.

Ms. Williams suggested that while getting such coverage is important for agents and brokers, it is an equally important growth area of business for producers.

The broadest coverage is available from surplus lines carriers aimed at large accounts. The retail market, on the other hand, is often not as strong, but coverage may be adequate for small accounts, she said.

When asked about technology security issues, Ms. Sally recommended that agents check out the Agents Council for Technology Web site, which has pulled together helpful information on the subject.

With the economic crisis, some agents may find themselves under pressure to write business they are not familiar with, noted Ms. Williams, creating a higher risk of an E&O claim. If a producer does branch out into new areas of business, she advised that they consult with a specialist to avoid E&O problems down the road if they overlook a critical exposure for the buyer.

Mr. Goldenberg stressed the need for covering all the bases, offering clients coverage they may not have considered.

"In such a litigious society and economy, when so many insureds are hurting, brokers need to protect themselves from E&O claims with documentation," he reiterated.

When it comes to loss control advice, Curtis M. Pearsall, special consultant and former senior vice president for Utica National's E&O program in Utica, N.Y., said his carrier has formed a strong commitment with several state Professional Insurance Agent association affiliates, primarily east of the Mississippi. In that capacity, Utica has worked with the PIA affiliates to provide members with "the tools to be a better E&O risk."

These tools include a lot of loss control information and advice, he said, and those agents who are serious about the subject do reduce their claims.

The information is not one-size-fits-all, he continued, and the insurer is not attempting to tell agents how to run their business, but the company does want them to know "what issues they need to be cognizant of."

Utica, Mr. Pearsall said, is seeing a number of trends, some of which relate to the growing dependence on technology and the issues streaming from its utilization.

One notable trend comes from the way application information is transmitted between agents and carriers. Because so many applications are now being done online, there is a growing exposure to a failure to get signed applications. This becomes an issue when misrepresentation is alleged, he warned.

Typically, because a carrier cannot rescind a policy without a signed application, the carrier will pay the loss and then come after the agent for the paid damages. "Unfortunately, without a signed application, the agent is then somewhat left holding the bag," he said.

To avoid this situation, he said agents must develop a process to verify information being sent electronically. He said one approach may involve having an application completed and signed for the file.

Because of the increased issuance of certificates of insurance by agents, a problem may arise where an agent may attempt to indemnify a party the insurer never intended. "Don't put anything on the certificate that wasn't there," advised Mr. Pearsall, adding that if an agent needs to add anything, "make sure the carrier is okay with that."

Another exposure agents need to consider is when the insurance market eventually turns around and even hardens. Mr. Pearsall warned that agents can open themselves up to exposure when they begin moving their clients' business around to other carriers for better pricing in response.

If there is a claim, and it turns out the coverage was not as broad as the client thought it was under the expired policy, the agent is open to an E&O claim if they did not document the client's agreement to the changes in terms and conditions.

The same caution needs to be exercised when placing risk with excess and surplus lines carriers. With the ability of E&S companies to manuscript policies, agents need to review whether the new policy matches the old one. If it doesn't, and the client accepts the policy, agents should get a signature from the buyer agreeing to those changes, he emphasized.

Agents should also be concerned with their personal lines business–for example, being certain clients have broad enough coverage when it comes to jewelry and collectables. A typical homeowners policy will not cover theft or loss of such hard-to-value items, so agents need to get the client to purchase a separate inland marine floater.

Again, Mr. Pearsall suggested, advise the customer and document the decision if they refuse to buy the coverage suggested.

"It takes time, and time is precious, but by taking the time, [agents] can minimize the time they have to spend on claims against them, but they also can sell more coverage," he pointed out.

"Make the client aware where the coverage is lacking and sell more insurance. It is the job of the agent to make sure your client is properly protected," he concluded.