E&O Insights: Producers Play a Significant Role in E&O

When reviewing errors and omissions (E&O) statistics, it is often alleged that producers cause the issue in more than half of these claims. However, because a producer is alleged to have made the “error or omission” does not necessarily make it so. Most E&O carriers report they are able to close out more than half of all E&O claims for no loss payment. Yet producers remain a target.

A producer’s job at an insurance agency presents tremendous challenges and responsibilities. For insurance agencies, the degree to which these men and women perform this job professionally and ethically can greatly determine not only the agency’s success, but its E&O risk, too.

To begin, producers must possess a high level of technical knowledge. As producers interact with prospects and customers, some of this knowledge will need to be imparted. As a result, producers must be strongly committed to knowing the various classes and lines of businesses, and what differentiates one from another. Relying strictly on licensing training is not enough.

Know Your Customer

Technical knowledge by itself is like a glass half-full. Having product and industry knowledge with no sales skills – or sales skills without knowledge – is insufficient. Learning the sales structure/process is critical, yet the sales process involves more than just making the sale. Organizations which provide solid training for sales and marketing typically break the training into three segments: pre-sale, sale and post-sale. How producers conduct themselves during the complete sales process will likely determine whether they are successful and to what degree they are an E&O risk.

Before ever visiting the potential customer, the producer should get to know the prospect and the risks to which the prospect is exposed. A great starting point is to use one of the various exposure analysis checklists. Checking the prospect’s website to better understand specific exposures is beneficial, too.

In many, if not all states, an insurance producer (agent/broker) has a common-law duty to obtain the coverage the client specifically requests within a reasonable time or inform the client of the inability to do so. Accordingly, producers must do a fair share of listening to what the customer/prospect wants.

Don’t Say It

Producers may use various promotional pieces or slogans to enhance their sales success rate. While this marketing message may enhance the ability to be successful, special attention should be given to the words and phrases used in promoting the producer and the agency.

For example, using words such as “expert” or “specialist” has the potential to impose a greater degree of liability on the producer and the agency should a problem develop. Using these terms can cause a “special relationship,” making the producer more of an advisor.

Producers also should avoid using the word “recommend.” It might sound harmless, but say you recommend that a client secures a $1 million umbrella. If this client has a loss well in excess of $1 million, you could face an E&O claim for “recommending” a limit that was insufficient.

Inherent in all of the interactions is the need for prompt, professional documentation. This applies whether producers are interacting with the prospect or the markets they are using. If a problem develops, quality documentation – or a lack of – will heavily determine the direction of the E&O claim. Documentation is not an option. It is mandatory.

Review the Policy

Presuming the producer gets the order, the policy is now requested. Once the policy is received, it should be reviewed to ensure it reflects what was ordered. The producer should have an active hand in this process. The policy should be delivered promptly – in person, mailed or sent electronically. In all but a few states, the client has a duty to read the policy, so producers should strongly encourage the customer to do so.

Being a producer requires tremendous knowledge, professionalism and attention to detail. This will go a long way to ensuring success. Without these attributes, you are an E&O nightmare waiting to happen. It’s your choice – and the right choice should be easy to make.