In providing insurance agencies the various products and services we offer, including Internet Marketing and Social Media Marketing, we are well aware of the E&O exposures they face. We wanted to get additional insight on the agency errors and omissions landscape as well as to offer our agency customers some risk management advice on mitigating losses. We turned to Chris Burand, an authority on the subject, who frequently writes about agency E&O, and also provides auditing services to assess an agency’s exposures for errors and omissions.
Chris is president and owner of Burand & Associates, LLC, a management consulting firm that has been specializing in the property/casualty insurance industry since 1992. With more than 20 years under his belt, he is recognized as a leading consultant for agency valuations, helping agents increase profits and reduce the cost of sales. His services include: agency valuations/due diligence, producer compensation plans, expert witness services, E&O carrier approved E&O procedure reviews, and agency operation enhancement reviews. He also provides the acclaimed Contingency Contract Analysis service and has the largest database and knowledge of contingency contracts in the insurance industry. Chris is also a featured speaker across the continent at more than 180 conventions and educational programs. He has written for numerous industry publications including Insurance Journal, American Agent & Broker, National Underwriter and A.M. Best. He also publishes Burand’s Insurance Agency Adviser for independent insurance agents.
Annie George (AG): I recently did an article on real estate E&O claims and the fact that more and more claims are increasingly coming from banks that are suing real estate agents for alleged missteps. Have you seen any type of shift or new types of claims in the insurance agency E&O environment?
Chris Burand (CB): “One thing we’re seeing that most agencies may not be aware of is the fact that more carriers are suing insurance agents. The historical partnership that once existed between agencies and their carriers has broken down. That partnership doesn’t exist today to the extent that it did before. Companies in the past may have forgiven situations in which an agency breached its contractual duties. Today they may not be so forgiving. They may pay the claim to the insured, and then pursue the agency under its E&O policy to recoup their money alleging a breach in the company-agency contract. This isn’t occurring universally, but it is happening with some carriers.
“The bottom line: Insurance agencies today are being held to a much higher standard than ever before relative to their carrier relationships.”
AG: What are the most typical E&O claims against an insurance agency?
CB: “Common E&O claims involve Certificates of Insurance. Also, many claims are brought about alleging that the agency didn’t offer the coverages they’re supposed to. Additionally, there are claims in which agencies had certain duties but allegedly failed to perform them. The vast majority of claims by insureds, however, are won by agencies. In fact, many don’t even go to court. But agencies still incur a defense expense, which can be quite significant, even when they win hands down.”
AG: What types of risk management steps should agencies be taking to help stem E&O losses?
CB: “The very best risk management agencies can take fall into three internal areas and one external: Be diligent about conducting coverage checklists; have procedures in place and make sure everyone in the agency follows them, including your producers; and document your communications with your carriers as diligently as you do with your insureds. Externally, I firmly believe that an audit by a qualified E&O auditor is a phenomenal risk management solution. A qualified E&O auditor will go into an agency and audit their procedures and/or their files, identify exposures, help educate those in the agencies as to how they can help minimize their exposures, and give the agency a plan by which they can reduce their exposures.”
Chris explained that good documentation is key on the agency’s part. An agency needs to document which coverages they’re offering, whatever they may be. “In addition, it’s preferable that an agency has the insured’s signature on the documentation, stating that they have been offered those coverages and have declined them,” said Chris. “When this is done, it’s a lot more difficult for insureds to prove their case, although they can try – and they do try.”
When it comes to external audits, different E&O carriers will provide a list of qualified E&O auditors. If a list is not available from the carrier, agencies can go to their state association for assistance in identifying someone. Additionally, agencies may be able to receive a discount on their E&O insurance if a physical, on-site E&O audit is performed.
AG: What other issues should agencies be aware of?
CB: “There has been a great deal of concern related to agency’s exposures regarding social media and websites and privacy issues and cyber liability in general. Agencies unequivocally must read their E&O policies extremely carefully to understand what coverages they have and don’t have. There are significant privacy exposures excluded under agency E&O policies.
“Also, it’s a mistake to think that E&O standards applicable to insurance agents are the same for a captive agent, a wholesaler, or carrier. Depending on the individual state and the circumstance of the case different standards will apply to the various entities. I see too many independent agents who believe there is only one standard. Case laws are quite specific in terms of the standard of care, which differs by the type of entity (agent, wholesaler, etc.). For example, an independent agent may use a wholesaler for their insured. .Let’s say, the wholesaler didn’t deliver the coverage that the retailer requested. The agent may claim that he asked for the coverage and the wholesaler is at fault for not delivering it. But this is not necessarily true because the wholesaler’s standard of care is often less than the standard of care that the retail agent owes to the insured. In some cases, there can also be a difference between the standard of care a captive agent owes to his clients than that of an independent agent. A fair amount of variance exists from one state to another.
“There are courses with state-specific requirements on E&O available, and Westport and IIAA produce a monthly magazine that talk about the state differences. It’s definitely a valuable read.
“In the last five years, the E&O environment has become more complicated, and it requires more effort on an agent’s part to minimize his exposures. New laws and the way case laws have developed in addition to the breakdown of company-agency relationships have made E&O a more complicated area.”
For more information about Chris Burand’s services, including the performance of E&O audits, you can reach him at 719-485-3868. Also, visit his website at: http://www.burand-associates.com/.