E&O Insights: How Management Shapes an Agency’s E&O Culture

The phrase “you can’t judge a book by its cover” dates back to the mid-1800s. While that may ring true for the literary world, the opposite is true when it comes to an organization’s errors and omissions (E&O) culture. You can heavily determine its E&O culture by looking at the organization’s management. Sitting down for a discussion with the various levels of management for a few hours would give you a pretty good idea of “the good, the bad and the ugly” of things.

It is important to point out that when speaking of management, the reference is not only to the organization’s CEO and COO, although they do play significant role. Management includes all of the various divisions and line-of-business leadership that make up its structure.

Belief in the Clause

In virtually any organization, top management plays an important role in determining the overall culture. Insurance agencies are no exception, especially when it comes to establishing a strong E&O culture. Management must “walk the walk and talk the talk,” showing that they clearly believe in the E&O cause they profess. How do they do that?

Most E&O carriers can identify approximately 20 key issues that will play a significant role in minimizing the potential for E&O claims. No initiatives can totally prevent claims from happening because agencies can be sued for a variety of reasons, whether they were the agent’s fault or not. Some of these issues include:

• The effective use of an exposure analysis checklist.
• The manner in which coverages are proposed and the need for a standard template with the appropriate disclaimers.
• How declined coverages are handled and if the documentation is solely in the agency management system.
• The importance of prompt policy checking.
• The financial condition of the carriers an agency uses to place business.
• The handling of certificates of insurance, which generate upwards of 10 percent of all E&O claims.

Effectively (and Frequently) Communicate Expectations

It is critical that agency management, including department heads, clearly, consistently and frequently communicates the expectations related to each of the above examples. Expectations should be detailed to ensure everyone knows the expected procedure and be verbally communicated with the opportunity for staff to ask questions. Meeting with the staff to discuss is a great way to ask for the necessary commitment.

Monitor Compliance with the Stated Expectations

In the words of President Ronald Reagan, “trust but verify.” While management probably believes expectations were defined and the commitment was clear, this, unfortunately, does not necessarily mean the task will get done how it was intended. As a result, agencies must have an audit process in place where client files are periodically and randomly selected and reviewed to determine the compliance with the stated objective. Failure to do this could very well result in management being surprised when the agency is hit with an E&O claim that could have been prevented.

History has shown that not all staff members will meet management’s expectations. For example, producers are not always the best for ensuring good quality documentation or for the completion of an exposure analysis checklist. Internal staff may not be following through on the agency’s account-rounding initiative. Performing audits or developing reports that indicate the degree of compliance are fundamental measurements whose importance cannot be overstated. At times, some type of disciplinary action may be in order.

Interact with the Staff

Virtually all agency staff will comment how much they appreciate when management comes around to see how everything is going. Employees don’t want management that stays in the “ivory tower.” Management must ask questions when interacting with the staff with the intention of getting good, honest answers. Management must listen, too. Without a doubt, the staff knows the issues the agency faces and may have solutions worth considering. Find a way to make the staff part of the solution. Management may find a disconnect in the process that requires additional training or a stronger message about the initiative’s importance and benefit.

Reward for a Job Well Done

When the job is well done and results in the objectives hoped for, it is the perfect time to celebrate. There are many possible rewards to provide. The important thing is that employees will know the results were monitored and that they achieved the desired result. Providing rewards will lead to an increased buy-in for future tasks, too.

In summary, management plays a pivotal role in establishing the agency’s E&O culture and commitment. Demonstrating they believe in the cause, clearly defining and communicating the expectations and making sure they have the means to determine compliance creates a much better chance of the story having a happy ending. Without all of the above, it would not be unrealistic to expect discord among the troops and have the agency struggling to implement vital E&O measures.