Reducing E&O Exposures: What Agents Need to Know
Insurance agents who fail to keep up with ever-changing legislation, regulations, policies and forms are opening themselves up to costly insurance errors and omissions (E&O) claims, and even the loss of an agent’s insurance license in some extreme cases, according to experts and insurance educators.
Certificates of Insurance
The fastest-growing area of E&O claims exposure involves certificates of insurance, which many agents and employees find confusing and frustrating.
Bill Wilson, associate vice president of Education & Research for the Independent Insurance Agents & Brokers of America and director of Big “I” Virtual University, has worked for many years educating insurance agents on certificates of insurance, including launching an online course about it through the Big “I’s” Virtual University and writing white papers. Despite the many resources focused on certificates of insurance, there is still a huge gap of knowledge on this subject, according to Wilson.
“Getting the information to the people in the trenches, the ones issuing the certificates, has been very frustrating,” says Wilson. “Every day I get questions from agents who haven’t read anything about certificates.”
A certificate of insurance is historically a summary representation of what the basic policy provides. But because companies ask for all kinds of information on these certificates, that has created a huge E&O exposure. The result is what the certificate contains may not reflect what the policy actually covers, according to Wilson.
That’s a big problem. According to Wilson, 15 percent of commercial E&O claims in the last four years have had to do with certificates of insurance and additional insured requests.
To compound the problem, ACORD has made significant changes to its certificate of insurance forms that agents can’t afford to ignore.
Chris Burand, founder and owner of Burand & Associates, based in Pueblo, Colo., believes the new forms make it even more important for agents to focus on certificates.
“Things are going to get tougher so agents need to pay more attention to it,” Burand said. “Agents need to have better procedures, better education and be more diligent than they may have been in the past.”
According to Burand, agents are typically given one year to begin using the new forms and those who use the old ones after that year are left open to claims.
“The E&O exposure for ignoring it is phenomenal,” says Burand. “Agents also have a greater exposure depending on which aspect they violate. They could be violating copyright law, violating insurance code, and changing the wording on policy forms.”
Wilson says the most significant change on the ACORD form is the removal of the cancellation provision, which was done in September 2009. He says this change was pushed by regulators and certain states and will be eventually required nationwide.
New Opportunities and Exposures
Certificates are not the only worry.
Technology has brought about new exposures for insureds and new business opportunities for agents, but at the same time it has resulted in new and sometimes hidden E&O exposures for agents who regularly handle a lot of personal information on clients.
Sabrena Sally, senior vice president and head of U.S. agents for Swiss Re’s Property and Casualty Division, says that while her company has not seen any data breach or privacy claims against agencies yet, the company is keeping an eye on this. Sally says agencies put themselves at risk when they offer online quoting or any interactive portal that accepts personal information.
“There seems to be a lack of awareness of the exposure and I say that because nine times out of 10 when an agency does online quoting, they don’t have security for these transactions,” says Sally. “It’s a great way to do business but agents could be collecting information that is personally identifiable information and there may be no security on their site.”
According to Sally, at least 47 states have laws about how companies must store personal data and insurance agencies must comply with these.
Swiss Re is also watching how recent federal legislation is changing the health care landscape. “Like everyone, we are keeping an eye on what the changes on health insurance might bring to the table for insurance agencies and what it might bring to their E&O exposures, but it is still up in the air,” said Sally.
With the economy the way it is, all businesses and agents are vulnerable to lawsuits. According to Wilson, this means that now more than ever agents must understand the markets they write.
“One thing I have noticed is a lot of agents trying to write accounts that are beyond their expertise,” he says. “I get a lot of agents asking me ‘how should I write this thing?’ and I tell agents if you aren’t comfortable that you understand the business then let it go. It’s not worth it from an E&O standpoint despite the commission.”