Agency E&O: In Praise of Those Who Know Their Coverages

I was conducting an errors and omissions (E&O) audit for an agency that needed improvements. The easiest part of the audit was drawing a bright line between the couple of producers who knew their coverages and the 10 who did not. I find a 1-to-5 ratio to be common in agencies with 15 or more producers. In smaller shops, the ratio often is less.

At 1-to-5, those producers with coverage knowledge rarely have E&O claims in my experience. When they do incur a claim, the situation is often unusual. Sometimes the claim really was not preventable. In other cases, fraud on a party other than the agent might be a consideration or it might be driven by a third party suing anyone and everyone. Only rarely do these coverage knowledgeable producers incur claims out of true, preventable mistakes.

I am not suggesting either that they always follow procedures. Some do better than normal, and some are worse in this regard. But even those that do worse usually have a system worked out with an account manager. (This is often a point of friction with other producers who do not have the same quality of account manager or a system worked out. But they do not understand that without coverage knowledge, building such human systems is far less likely to happen.) I find that producers who truly know their coverages have respect for doing things right, so they make sure to follow procedures or that their team will do so on their behalf.

Coverage Knowledge

The ancillary benefits of knowing coverages are fascinating. True producers who know coverages often outsell those producers who do not know their coverages — usually by a lot. One reason is that people who know their coverages normally sell more coverage. When more coverage is sold, insureds are less likely to have an uncovered claim. If they do not have an uncovered claim, they are less likely to sue, regardless of whether the producer followed procedures.

Why does knowing coverages well yield more sales? First, this education does not always transfer to sales. I know many industry professionals with CPCU and CIC designations that could not sell a sandwich to a starving millionaire because they cannot ask for a sale. They just cannot sell. Some even hide behind their professional initials to avoid selling.

The ability to sell must come first. Coverage knowledge comes second, and absolutely no reason exists to think these abilities are exclusive to one another. Even if the person has sales ability but is unable to learn coverages, the team approach can work wonders. Obviously, a producer who can sell but does not know coverages is worth less than a producer who can sell and does know coverages, so pay them less.

What happens when a client purchases insurance from a producer or a producer’s team who truly knows their coverages? They get it. They understand and appreciate that the producer has actually taken the time to learn about them, learn their exposures and learn what is important to them, their lives and their companies. In other words, they know the producer cares. They begin listening to the producer’s advice, and the relationship builds further.

For all of those producers who think clients will not give you the time for a coverage discussion, much less the time to go through a coverage checklist, consider whether you have earned the client’s respect. When people respect you, they likely will give you more time.

Job Requirement

When you get to know a client well, the result is always that their exposures are greater than they knew and more than their existing policy covers. The producer can offer a solution, and the client is happy to buy more coverage. The sales process is completely changed, resulting in increased sales and decreased E&O exposures. In my experience, producers who know their coverages can outsell the others in the same agencies by 3-to-1!

In the agency I was auditing, the other producers did not know their coverages. A few made the mistake – a mistake common and likely to lead to an early grave – that they only needed to study one policy: the one most commonly taught in coverage classes. The tell-tale sign is always, “Doesn’t the HO/CGL/BOP/Whatever policy cover those exposures?” No such universal policy exists! To which HO/CGL/BOP policy are you referring? Only about 1,000 exist. Good producers know their coverages and read the policies, too.

Reading policies is hard work, but it’s work required of a professional agent. Not reading the policies is arguably a characteristic of lazy producers and amateurs. Professionals or their teams read the forms. They may even read other forms to find better coverage. They do not make coverage assumptions. They read coverage forms. A shortcut does not exist, and the pros do not hunt for shortcuts. Reading forms is a job requirement.

Reading policies is often a friction point because for many producers, reading forms is not within their skill set. They like sales because it fits their skills, but reading forms is the antithesis. Agency owners may need to accommodate people with these issues or better, producers with these issues need to identify a specific solution that works for them whether it is coaching, partnering with someone else in the agency or another solution, because forms need to be read.

The demarcation line between the producers in the agency I was auditing was clear. The pros sold three times more, but somehow found time to read forms and had time to explore coverage needs with clients. The pros had not incurred the E&O claims. The pros represented themselves and their agency well. It is always good to be a professional. Why not aspire to be a true professional agent? If you are not already doing so, begin by reading the next applicable form on your desk and assessing whether that client has the coverages they need and whether another form might just be even better.