E&O Insights: ‘Just Duplicate What I Have’

From a producer’s perspective, the words in the headline are dangerous when spoken by a customer or prospect. Simply duplicating what the insured currently has, whether the account is commercial or personal, can and has caused more than its fair share of errors and omissions (E&O) claims. In essence, what is the account really saying? Probably something to the effect of: “I’m paying too much. Just give me the same coverage I have now, but at a lower premium.” It sounds like the customer’s focus is primarily on the price, not the coverage.

What’s the Problem?

There are a number of problems with a producer/account manager “honoring” the customer’s wishes in this case. One of the more significant issues when duplicating what the customer currently has is that it heavily assumes the prior agent has done a professional job of performing an in-depth evaluation of the various exposures of the account — and has provided the customer with options, for both coverage and limits, to consider. It probably also assumes that the customer understands his or her insurance program in sufficient and necessary detail. These are assumptions fraught with problems.

Consider the scenario that your agency is asked to “quote” or “write” an account based on the customer’s current coverages and limits. Suppose the customer has a building insured for $1.5 million at 80 percent co-insurance, along with business interruption coverage. Your agency quotes the account using the same building and business interruption limits. A major fire occurs and the carrier determines that the building was significantly underinsured and, thus, there will be a substantial co-insurance penalty. In addition, because of the growth of the business, the business interruption limit is significantly less than what it should have been. Your customer is irate. Who is the customer likely to blame for this shortfall? You and your agency! There is tremendous likelihood that because the policy did not respond the way the customer thought it would, he or she will pursue legal action against your agency.

You may be asking, “What did I do wrong? I was simply asked to duplicate the prior coverage.” If you are thinking the problem is not yours, well, think again. The plaintiff’s attorney, representing the customer suing you, will look to prove that because this is now your account, it is now “your mistake.” Clearly, duplicating the mistakes of the prior agent does not relieve you and your agency from any liability.

A Tremendous Investment

How can this situation be avoided and, therefore, minimize the potential of facing some type of E&O litigation? To begin, advise the customer you will not simply duplicate what he or she has now and that you are not a “quoting machine.” Then, advise the customer you will treat him or her as a new customer, do the proper job of evaluating the customer’s exposures and will make various suggestions and recommendations of how his or her program can be strengthened. You will also review the customer’s insurance program with the customer to assist him or her in better understanding how it works. What’s the best way to do that?

This is where the effective use of exposure analysis checklists comes in. Consider using products or software that most often easily integrate with your agency management system. These tools provide the basis to assist agents in many areas. Among them:

• Checklists provide a tremendous amount of knowledge/information on more than 650 SIC codes and all of the applicable lines of business. They will enable the agency staff to significantly enhance their knowledge on virtually any class of business you can think of. For newer producers, this will allow them to get up to speed more quickly and, thus, achieve greater success for themselves and your agency.
• Checklists will identify coverages that may not currently be in the customer’s insurance program — coverages such as cyber liability, employment practices, business interruption, etc.
• Checklists include the definitions of key insurance terms. It is highly recommended that these be included on the proposal as these definitions will help the customer to better understand his or her insurance program and how it works. It’s also a great E&O loss prevention initiative.
• Checklists provide an efficient means of gathering and organizing the data. Some of the systems will then enable the application to be pre-filled with much of the necessary information.
• Checklists will provide a record of your agency offering of the various coverage options and what the customer ultimately decided. If the customer declines certain coverages you proposed, the proposals will prompt you to secure the customer’s signature acknowledging his or her decision. If an uninsured claim were to arise in the future, this could certainly aid in the agency’s defense.

These checklists are a tremendous investment in your future, are a great E&O prevention tool and will pay for themselves many times over in increased sales. Not a bad combination!

Selling More Insurance

When providing the customer with a proposal, it is always best to offer options, especially for liability/umbrella limits, as this will essentially force the customer to decide which limit he or she wants and, thus, he or she does not want.

Bottom line: don’t look to duplicate what the customer currently has.

As an independent agent, this approach heavily removes the value you provide. Take a fresh look at the customer’s insurance program and identify ways to help the customer better understand the coverage and how it works.

You may just find yourself selling more insurance along the way.