AOA News, Views, Tips & More 

E&O Tip

By Curtis Pearsall, CPCU, AIAF, CPIA of Pearsall Associates Inc.

Also see his article this month, 

Does your staff know their E&O exposure?

Bottom line, virtually every agency staff level has the potential and actually is "causing" E&O claims. Producers are # 1 (approximately 50%) followed by CSR's / account execs and then "the rest of the staff". Help your staff understand their E&O exposure and what steps can be taken to address it.  

Starting with producers, they have tremendous responsibilities with most having some element of E&O exposure. Essentially, the manner in which producers conduct themselves is the key. While honesty and integrity are probably obvious, unfortunately, that is not always the case. In addition, it is critical that producers don't over promise or make statements that could potentially cause a problem. Statements such as "we will make sure that you are covered for whatever can happen to you" or that your agency is an "expert" could raise the liability that your agency would be held to. 

For many years, the # 1 cause of E&O claims is "Failure to provide the proper coverage". To address this and to ensure that the producer understands the risk, it is highly recommended that they perform an exposure analysis of the account. 

Next are the agency CSR's. These staff are typically the focal point for dealing with customer's questions and issues and this requires solid technical skills. It is critical that these conversations with customers and carriers be documented promptly and accurately not only in the agency system but back to the customer / carrier. This additional documentation will alleviate any potential misunderstandings. 

Does your receptionist have an E&O exposure? Most definitely. Obviously, they are the 1st person that your customers will interact with and although they no doubt want to be helpful, they need to understand when to hand certain issues off to a different level within the agency.

For example, when a customer comes into your agency to pay their direct bill premium, the receptionist should not be part of this transaction. Instead, they should require that the CSR interact with the customer to verify the current status of the account. 

Lastly, the claims staff. There is no doubt that E&O claims from the agency claims staff are on the rise. The manner in which claims are handled by the agency has tremendous potential to cause an E&O claim and thus it is very important that claims handling be performed thoroughly and timely.

There have been a number of E&O claims when the agency improperly denies a customer claim without sending it to the carrier. They were totally convinced that the claim was not covered. Unfortunately, they were wrong. In addition, when a claim is submitted, all policies should be reviewed to determine possible coverage. 

In conclusion,no one in the agency is immune from causing an E&O claim. Take the time at an upcoming staff meeting to discuss this issue with your staff and make them aware of their exposure. This practice will help to enhance the culture and commitment within your agency and may just save you from an E&O claim.

For additional information, contact Curtis at curtis@pearsallassociates.com or visit Pearsall Associates.

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Financial Tip of the Month 

By Mike Brady of the Brady Financial Group, LLC.   

The In Trust calculation is a ratio that every agency owner needs to be familiar with. I have found this to be one of the most important measurements in the industry and also the one most overlooked. This ratio measures whether an agency is using trust money, client premiums they have collected in a fiduciary capacity, to pay agency related items. At all times this ratio (Cash + Accounts Receivable/ Premiums Payable) must be greater than 1.0. A ratio lower than 1.0 indicates that the agency is out of trust, which violates agency agreements with carriers, would have a negative impact on agency value and can also result in legal issues. Visit Brady Financial Group.

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Insurance Coverage Tip 

By Kristin Toto of Martin & Company

A Novel Approach to Promoting Safe Driving Habits

While the invention of smart phones and savvy technological devices has brought about great innovation, it is also creating less-than-safe driving habits that are becoming an increasing concern for carriers writing Private Passenger Auto Insurance.

Unitrin Direct conceived a novel approach to promoting safe driving habits among this more technology-centric generation of insureds. Unitrin's "Network Discount" allows an insured to receive an additional 10% off their Private Passenger Auto Insurance if they: 1) agree to the "My Network Safe Driving Pledge" and 2) get a friend to sign-up and agree to the safe driving pledge, as well.

The "My Network Safe Driving Pledge" consists of 5 statements that encourage drivers to follow all law and traffic safety rules, to drive safely and responsibility, to avoid distractions while driving (i.e. texting/eating/smoking while driving), to maintain the vehicle in a safe condition and finally to encourage "Network Mates" to carry out these safe habits too.

Unitrin believes that the combination of having to accept the Safety Pledge and the necessity of having a "network" in order to maintain your discount provides an appropriate amount of peer pressure to encourage safe driving habits.

To view more "hot trends" in the Property & Casualty Insurance Marketplace, visit: Martin & Company's Market Trends & Updates. 

Insurance Product Research & Development * Martin & Company

Tel: (610) 325-4455 * Fax: (610) 325-4405 *www.martincompanyus.com.

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E&O Loss Prevention Tip

Description of Claim:

Hidden Dangers with New Client/New Business

The Agent was approached by a new client to procure patent infringement coverage for his business. The underlying insured developed, patented, and manufactured a product that was to be marketed to dentists throughout the world. The agent had very limited knowledge of the client's operations and failed to adequately uncover the client's needs. The agent procured a commercial general liability policy that provided coverage for the underlying insured for instances when a third-party alleges that the client infringed on a third-party's patent. However, the client alleged to have requested that he wanted a policy that would provide coverage that would provide legal dollars to pursue third-party's for infringing on his patent (offensive patent infringement coverage). The client alleged that the agent failed to procure the coverage that was requested and that the agent misrepresented the coverage that was actually procured.

The underlying loss:  The client discovered that another company had manufactured a product that was identical to his which was cutting into his profits. He sought to have a patent attorney initiate a suit against this third-party and recover his losses.

Damages:  In excess of $100,000

Brought to you by:  CalSurance Associates - A Division of Brown & Brown Program Insurance Services, Inc. - Email: info@calsurance.com, Phone: (800) 745-7189

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RiskSmart Solutions - Risk Management Tip

By Charles T. Wilson of RiskSmart Solutions®

See also his article, "Help Your Broker Make You Look Good"  

How many policyholders know how to work closely with their broker - to make both sides work easier and more productive.

Brokers would do well to teach their clients some steps and point out the benefits that can accrue to the insured.  Here's the start of savvy client checklist:

• Ask your broker for a pre-renewal strategy meetings 90+ days in advance
• Come prepared with revenue and payroll estimates
• Update values for buildings, inventory, vehicles & equipment
• Understand the difference between RC and ACV for declared values
• Be ready to report claims-made policy "incidents" or possible claims
• Start a "story" about the lessons learned from past claims and how you're now more prepared to avoid similar losses in the future

From your experience, what else should be added?  Please let me know!

Contact Charles at charles@risksmartsolutions.com | 510-685-3883 or visit www.risksmartsolutions.com. 

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Result From Last Month's poll question:  (New Feature) 

What would your firm consider to be the most important item in making a change to a new E&O Insurance Carrier?

• Price 70%                                                

• Coverage 18%    

• FinancialStrength/AMBestRating 12%

This month's poll question: