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E&O and Checking Policies

An agent asks, "With the advent of download from the carrier websites directly into our agency management system, do we need to check the renewal policy for accuracy? We are currently investing a lot of time and money into this process and rarely find that the company makes a mistake on the renewal policy."

"I would like some feedback regarding whether or not we should check renewal policies. With the advent of download from the carrier websites directly into our agency management system and most 'paper' being shut off, do we need to check the renewal policy for accuracy? We are currently investing a lot of time and money into this process and rarely find that the company makes a mistake on the renewal policy."

Quality control efforts can be expensive. However, mistakes in the form of E&O claims can be catastrophic. Below are a number of observations from the VU faculty, concluding with an article from agency management consultant, Al Diamond.

My experience is not as good at not finding errors. I have seen an insurer deny a claim on the basis of a mistake they made on a policy. They stated that if the mistake was not reported to them when the policy was issued, it is the agent's fault. I would not stop checking policies.

Not an easy one to answer. Unfortunately it depends if you maintain only electronic files and the agency management system allows for alerts and or exception reports providing for both the previous image and the new image to be retained then based upon your internal process you can evaluate the necessity. If you use transactional filing or you have a procedure for scanning documents identifying and attaching to the electronic file then again you can evaluate the necessity.

If, on the other hand, you maintain a separate and distinct paper file and you have bits of notes, correspondence, etc. in that file, then again you need to evaluate your internal processes. As an independent agency, you can operate under whatever internal and external processes you deem appropriate. It is not possible to provide the advice you are seeking based upon the information provided.

Agency E&O 101: Policy check, both new and renewals, is fundamental.

I'm sure that since the companies rarely make a mistake, that when they do, the agency will be held harmless by the carrier if it has a really good hold harmless agreement with the carriers.

Just because something arrives electronically doesn't mean it is more likely to be accurate. In fact, its chance of being wrong now means that it is IN YOUR SYSTEM WRONG and will affect mail merges, management reports, and information given verbally. While carriers make few mistakes on renewals, they certainly do make them AND items have been known to download incorrectly (e.g. into the wrong client), and downloads often overwrite agency-needed information or bring in carrier codes instead of plain-English field entries.

Moreover, automated renewals have caused many agencies to spend more time communicating with clients who don't pay their bills (via reminders that should not be done!) than with good clients who pay their bills and don't cause problems. The renewal gives the agency the opportunity, if they don't find it anywhere else, to stay in touch with the clients. Plus, rounding the account would be a nice thing to do, both from a revenue standpoint and also for E&O protection.

Your experience is better than others I’ve heard from. Many moons ago, ISO and its predecessors used to have audit departments that checked insurer policies. That was before the allegedly high level of automation we have today, but I recall the error rate running about 43%. I’ve heard claims that 25% or more of NCCI experience mod worksheets have inaccuracies and that’s a highly automated product.

I think checking renewal policies is a valuable service for your clients and your E&O exposure. If you do represent carriers who you believe issue highly accurate renewals you might consider this but only if you have an ironclad hold harmless in place. Still, I’d continue checking…I know of agencies that have been dragged through E&O lawsuits for what turned out to be insurer errors.

What kind of mistakes are you checking for? Some may not be a mistake, but could create major E&O problems. Are you talking personal and/or commercial lines? These are just a few thoughts. Check to be sure the insurer has used the same edition of the coverage form. If they have not, what were the differences in coverage? You should check to be sure no "strange" endorsements have been added, or requested endorsements omitted, that limits are as requested. For Business Auto, were the requested symbol(s) used? These are common omissions.

Yes. Always. Also check for wording changes and use of new forms. It is cheaper than an E&O claim.

Yes, stay vigilant. A very common error is an insurer’s failure continue an additional insured endorsement that had been requested mid-term. The courts are full of lawsuits by AIs.

Yes, you should check renewal policies in whatever format you receive them. A "rare" mistake can be just as costly (in every way, and possibly more so) as one that happens frequently!

Yes, I believe you need to check the renewal policies for accuracy. If you are an independent agent, you are the owner of your book of business and can be responsible for inaccuracies. While companies (and agents) rarely make mistakes, when they do, they can create major problems.

Mistakes aren't the only thing you need to look for. Often new endorsements are added to renewal policies which restrict or exclude coverage. For example, some companies writing contractors are automatically excluding coverage for work done on the insured's behalf by subcontractors. This is a major coverage reduction done by an endorsement you didn't request.

In his February 2010 column in Rough Notes magazine, Don Malecki discusses and E&O lawsuit where a roofing contractor's CGL policy included an endorsement that excluded claims arising from roofing operations. I'm not making this up.

The bottom line is, yes. However, the items that you need to check might need to be streamlined. You want to make sure that the name and address are correct according to your own records. You will need to check the limits of coverage to see if they have changed.

And, you should look at the premium...if it goes up and you do not take notice you could lose policies when the client goes shopping. I know of a case where an agent was sued for providing the same policy at a higher premium in one company of a group when the insured was eligible for the lower cost policy.

One other important item is policy forms. Are there any that have gone missing? Was there a special form on the original policy that does not appear on the renewal? Had you requested additional coverage that somehow disappeared?

Here is an article from Al Diamond:

PAY ATTENTION !!!

We serve on several advisory counsels in the industry to respond to agents’ questions about agency operations. We recently received a question that I will paraphrase below:

“Do you think we should continue to check policies? We have found our companies to be generally accurate and our clients are quick to point out errors when they are found. We are concerned that if we don’t check every policy we may open ourselves to E&O problems, even if we catch most problems. These days we must be ever-more concerned with expenses and we can better use our staff to process requested changes and to quote prospective clients and re-quote clients who question premium growth. We have found that we only check policies when we have the time, so many policies go unchecked during our busy periods.”

The first thing we did when we got this question was to call the source to see if this was just a bad joke. We didn’t want to offend an agent if he was actually asking this question, but we suspected that it was one of our consultant friends “pulling our leg”. What we found was an experienced, thoughtful insurance agent who was seeking every way possible to do more with less. He continues to face reducing commission rates and contingency contracts and feels he must choose how to service his book of business with less people. The question above was raised seriously, but without real consideration of the basics of customer service or of agency advocacy.

The agent was in the vast farmland of the Midwest, so I asked him if he had farming experience. He grew up on a farm and insurance for farms was one of his specialties, so I posed the following question, “Since the bulk of a farmer’s work is in the Spring and Fall when he sows and reaps his crop, why shouldn’t he save money and eliminate all employees and expensive activities during the rest of the year?”

The agent was surprised that I would ask that naïve a question (and told me so). He said that the work that a farmer does preparing the land for the crop and tending the crop to avoid disease and other sources of failure is as important as planting and harvesting to insure the maximum return on the farmer’s investment in his livelihood.

I told him that he just informed me that the farmer must PAY ATTENTION to his crop in order to assure maximum benefit. Similarly, an insurance agent must PAY ATTENTION to his clients in order to assure continuity and maximum return. The failure that we are experiencing in the agency business today stems from the conversion of insurance agents from customer service specialists to salespeople.

Many carriers would have us relinquish claims management responsibilities - they say that we just delay claims activities by our participation. They ask, even insist, on agencies using their Service Centers, claiming that they can more efficiently handle our client’s questions and issues regarding their policies. They would like us to concentrate on the Sales function of the job to become their pure sales arm. The carriers covertly threaten to use other means of customer acquisition (i.e. the Web and direct writing) if we cannot fill their Sales Funnels to desired capacity.

This attitude has converted a generation of historically strong underwriters and diligent customer relationship managers into just what the carriers want – sales teams that bring a constant flow of New Business to the carriers. Sounds like the Life Insurance industry, doesn’t it?

If so, please expect to be treated like the Life Insurance industry. Since little service is done by life agencies, their compensation programs are heavily front-end loaded with small residuals of limited lifetimes.

IF YOU WANT TO KEEP YOUR CUSTOMERS AND REMAIN THE OWNER OF CLIENT RELATIONSHIPS, PAY ATTENTION TO ALL OF THE DETAILS THAT ARE IMPORTANT TO MAINTENANCE OF THOSE RELATIONSHIPS.

When we do our customer surveys nationwide, we find the two most prevalent reasons that clients use independent agencies have both become antiquated and not pursued by the very agencies with whom they are insured. The primary reason people are insured with independent agents is that they feel that carriers are more concerned with paying as little as possible in a claim than with satisfying the needs of the customers. They believe that the agents act as the insured’s advocate on claims and will guide them through the claims process. DO YOU??

The second most prevalent reason that people go to independent agents is that they believe the independent agent has multiple carriers and many insurance programs from which to choose. The client thinks that their agent compares their rates and insurance programs with all those available in the agency every year to select the best one for the client. DO YOU??

The insurance companies want to control the claims process. Smart agents continue to manage claims without getting in the company’s way, but assuring that the client knows that the agent is overseeing the process. This action provides the very service that the customers want most in their agents.

Even agents with the automated capabilities to examine and re-rate policies each year don’t generally do so, feeling that it is a waste of time unless a large difference in rates occur from one year to the next. Yet the analysis of lost clients finds that most of the lost accounts stem from a lack of attention. Agents like to point out the customers who have died, retired, sold their businesses or have gone out of business. But the majority of customers churned from agency to agency or to the direct writers and institutional insurance entities are not in these groups. They are clients who were either dissatisfied or who felt little enough connection to their insurance agent that they entertained the barrage of mail, e-mail and direct solicitations for their insurance programs.

How do you build a relationship that is satisfying enough that customers have no need or desire to move from one insurance provider to another?

PAY ATTENTION TO THEM!!!

1. Pro-actively manage claims. Don’t wait for the customer to call you asking what has happened to a claim. That is too late. Even doing the right thing at that point appears to be reactive to the client and only being done because they initiated the contact. It is YOUR responsibility to monitor the claim and call the customer every few days to assure him that the claim is progressing and compare notes to make sure he knows that you are doing your job.

2. CHECK POLICIES! Whether new, renewal or endorsement (especially endorsements), carriers make mistakes. More importantly, the premiums and rates change. If the client catches it instead of your staff, they believe that you do nothing unless they initiate it. They ask why not just place their insurance themselves with a direct writer if they have to manage their program instead of their agent doing so. If you don’t have the capabilities yet of remarketing policies for coverage and premium on behalf of your clients, at least do so when a significant premium change occurs. Even if you can’t do better, it assuages your client to know that you have done whatever you could without his prompting to verify and ameliorate his insurance rate and are paying attention to him.

3. Maintain client contact – Depending on the commissions that are paid to you, clients deserve as much attention as you can afford. Relationships are based on on-going contact, not just on the initial sale. Your best prospects are the insurance clients of agents who sell them coverage then never see them again. If you don’t generate enough commission to justify personal visits several times each year, at least call them, or have your service representatives call the clients, to make sure all is well and that no changes in condition have taken place.

Personal contacts do NOT equate to mail, e-mail or newsletters. Even if they are opened, if they are innocuous junk mail, your clients won’t read them. They are as inundated with junk mail as you and I. Even if you recognize the name and it causes you to open an envelope or e-mail, you immediately discard it if it is not a specific issue to which you must respond. Personal contacts are visits or phone calls with specific agendas that are valued by the clients.

The more you pay attention to clients, the longer you will retain them and the more they will value your participation as their insurance agents. Don’t cut service corners in the attempt to manage your business.

Reprinted from the PIPELINE, the national newsletter for agency principals. The PIPELINE is published by Agency Consulting Group, Inc., a leading consulting firm for independent agents in the U.S. for over 20 years. Call 800-779-2430 for information about the content of any of these articles or PIPELINE subscription Information:

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