Author: Casey Roberts Why in the world would any insurance agency owner request an errors & omissions (E&O) audit? After all, if I haven’t yet experienced a claim – let alone a loss – why would I want to spend the money? I mean, I must be doing okay if I’ve made it this far without issues, aren’t I?
- Perhaps luck has been on your side
Regardless of your answer, there are many reasons to consider an E&O audit. Here are six ideas as your starting point:
- To avoid a future audit at someone else’s request and on their timetable
- To avoid a lurking claim or loss
- To catch your staff doing their jobs right
- To discover training opportunities for your staff
- To assure all employees follow current best-practices procedures and discover new procedures your agency needs
- To save E&O premium dollars and deductibles
As an E & O auditor, I have encountered multiple issues behind the scenes when all seemed well. Often, when something is missed at the agency level, it is not because the staff is poorly trained or that employee does not care. Suffice it to say that “sometimes, stuff happens.”
So, let’s look at the six areas mentioned above and see if an E&O audit makes sense to you?
1. To avoid a future audit at someone else’s request or timetable
Years ago, there was a television commercial for Fram oil filters. Their tagline was, “You can pay me now or you can pay me later.” A supposed car mechanic provided that line. The point behind their ad was that if one did not pay attention to the little things in car maintenance -- something as simple as changing an oil filter with regularity - that eventually one would need to pay the mechanic even more money for car repairs and deferred maintenance.
An E&O audit is akin to the timely changing of an oil filter.
Oftentimes as an auditor a client requests I perform an audit because something has gone wrong, and often more than once. The main driver behind this audit request is the agent’s E&O carrier. They have investigated a claim or two – or worse yet paid a claim or two – and now are instructing the agency to “Get an audit, or we will not renew.” Ouch!
This sort of edict can often come at the wrong time for the Agency. The E & O renewal is due in ninety (90) days and the underwriter wants to receive the audit prior to offering a renewal. This ninety-day timeframe happens to coincide with the Agency’s major renewal timeline. An auditor may not be available on short notice or, if they are, because of the short notice the price of the audit is now more than usual.
I have always thought that doing something on my timeframe because of my reasons is far superior to having someone hold me captive to their desires, wants, timelines, or needs.
2.To avoid a lurking E&O claim
Imagine that the auditor is in your office and discovers one of the following:
- A personal umbrella policy has underlying requirements for the personal auto policy of 250/500/100. The insured carries 100/300/100
- An insured has told the agency that one of their motor vehicles is laid up and non-operative. The insured has had this vehicle deleted from their policy and has told the agency that “I’ll let you know when I am driving it again.” This request occurred two years ago and there is no follow-up on the Agency’s Customer Management System.
- Someone called the agency and requested the agent delete a vehicle or a coverage from the policy. However, no one at the Agency knows who made this request. Was it the insured or some other unnamed party? Their agency management system again is silent on who made the request and there is no email or request form from the insured that details that request.
- A Certificate of Insurance has been issued promising delivery of the moon to the additional insured. Alas, the additional insured (A/I) was never named as an A/I.
I know, “Come on Casey, that doesn’t happen, you’re just making it up.”
I wish I were. Those are just four common issues that I have repeatedly seen over the last couple of years.
Question: Would you rather we discover these agency inconsistencies before a loss or after you pay your deductible or your self-insured retention?
3. To catch your staff doing it right
I learned a number of years ago that one of the best times to catch someone is when they are doing something the right way.
When one’s hand is in the cookie jar, and they are caught purloining a cookie – their first response is often one of anger or embarrassment at being caught. Neither reaction will normally lead to a positive conversation.
But what if we catch them doing something right?
Think of how positive a situation that is. Think of how that conversation will go. Think of how great it is to hold that person up in your Agency as a paragon of how things should be done. What a terrific teaching opportunity.
Also, when we catch people doing it right that provides us with something positive to include in their personal performance review.
You are providing scheduled performance reviews for your staff, aren’t you? Never mind, that is a topic for another day.
4. To discover training opportunities for your staff
Let’s assume you hold regularly scheduled meetings with all your agency staff. Let’s also assume that many is the time when you wonder “What will we talk about/train about this coming meeting?”
Auditing agency files allows us to see the variations in our organization between how different individuals manage their workflows and documentation thereof.
Unless an agency is regularly self-auditing the work of their staff, the way managers would normally find discrepancies is after a problem occurs. Hopefully, supervisors can manage the problem and does not cause an E&O loss. Then the investigation begins regarding “How are you doing it” and “Why aren’t you doing it the way we teach?”
As I stated earlier, I can catch someone doing it right or I can discover someone doing it wrong. This latter time is normally when a loss has occurred and now, we discover the shortcomings in our past training and continuing product oversight.
Remember one of the mantras of E&O land – Do it the same way, all the time, by everyone in the agency.
5. To assure all employees follow current best-practices procedures and perhaps discover new procedures needed by your agency
I know – we just covered this one under a separate heading. Yes, we did…but it is so darn important that I thought I would include it again.
This recapturing of saying something a different way – while essentially repeating the same idea – is not an unusual phenomenon. In fact, it is often the basis for significant and lifelong learning.
Many times, we tell (or teach) someone how to do a particular job or task and then assume that they’ve mastered the task. History will teach us that some learn quickly, and others do not. There is a Latin proverb, “Repetition Is the Mother of Learning.” Zig Ziglar reworked this concept to “Repetition is the mother of learning, the father of action, which makes it the architect of accomplishment.”
Regardless, if it was good enough for the Latin speakers and for Zig Ziglar, it’s good enough for me.
6. To save E&O premium dollar …and a bit more
Is your E&O carrier one of those who offers a premium credit or discount for completion of an E&O audit?
Many insurers provide discounts to their agencies for participating in an audit. Often the process for receiving the discount is quite simple.
- Provide a copy of the audit to the E&O underwriter in advance of the renewal offering
- Upon review and acceptance of the audit by the underwriter, the carrier issues a renewal credit.
In addition to saving premium dollars, consider one other potentially significant money issue – your E&O deductible or self-insured retention.
- Can you afford to pay for it?
- Do you want to pay for it?
- Do you have the administrative time it takes to handle an E&O matter from investigation to conclusion?
- How much revenue will you lose because of an E&O claim when that client goes to another agent or broker?
Doesn’t it make more sense to pay a little to potentially save a lot?
So, let’s cover one more thing and then call it a day.
What Is Included In an E&O Audit?
While I cannot tell you what everyone else does, I can share with you what my E&O audit procedure includes. Here are some of the steps that I take:
- Initial discussion with agency principals
- Review the reasons they want the audit (their concerns)
- Schedule and then perform the audit – normally a day-and-a-half to a two-day process
- Provide the initial audit results at the agency’s location(s). This includes
- Initially meeting with the agency principals onsite
- Interviewing various staff members of the agency
- Reviewing multiple agency customer files – this may include personal lines, commercial lines, life and health
- Reviewing the agency’s website and marketing collateral
- Provide a brief overview to the principals of what to expect in the report
- Writing the report and providing a copy of such to the Agency principals and their E&O underwriter if requested.
While it may seem like a lot, the agency audit is a relatively painless process. Most suggestions are evolutionary in nature and require simple tweaks to keep an agency out of harm’s way. Occasionally we may find a…” You’re doing what?” situation. But those are more the exception than the rule.
Don’t shudder at the thought of an E&O audit. Most auditors can assist you to develop stronger best practices, and in many cases, furnish forms and tools that make those internal changes much easier.
Originally Published: September 27, 2024
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