How Agencies Can Reduce E&O Risk Across the Policy Lifecycle

Brenda serves as Senior Solutions Specialist at ReSource Pro with over 35 years of experience in the insurance industry.

Strategies and Best Practices for Minimizing the Risk of Errors

Errors and omissions (E&O) can come at a huge cost to an insurance agency, even when they do not rise to the level of an E&O claim. Errors can lead to the loss of valued clients, reputational damage, friction with insurance company partners, or difficulty placing E&O cover due to “incidences that may give rise to a claim.”

Policy checking is already an essential part of many agencies’ E&O risk reduction strategy, but there are many other steps agencies can take to ensure accurate policies and satisfied clients. Let’s discuss best practices for avoiding E&O in five key aspects of the policy lifecycle: risk assessment, coverage design, proposal preparation, binding coverage, and policy checking.

1. Risk Assessment

Have a risk-focused, not sales-focused mindset. A risk assessment is about understanding a client or prospect’s operations, workflows, dependencies, and other details to determine exactly what their exposures are. This stage is not the time for agents to focus on selling an insurance product but to learn how coverage can best be tailored or how risks can be mitigated.

Research the client or prospect thoroughly. Pay close attention to the client or prospect’s website, social media, where they appear in web searches, and the comments or reviews people have about their operations. During your meeting with them, you can follow up on any questions that may have come up during your research.

Avoid assumptions about existing clients. A subtle change in the client’s operations or a new location can create coverage ramifications a client may not understand. Agents should not assume that clients will inform them about these changes.

2. Coverage Design

Avoid the “apples to apples” approach. When an agent wins by price, they will likely lose by price. Not only that, but they could be perpetuating the mistakes of the previous agent and leaving a policyholder at risk. If a client wants the best price, agents should challenge them by saying, “I want to do risk analysis and make certain your coverage is adequate.”

Don’t just focus on current risks but also emerging risks. It’s good practice for agents to stay up to date on emerging risks by subscribing to insurance news publications. Agents can share the info they discover with their clients and determine if the client is at risk.

Continually provide options to improve the client’s program. Even if the client has declined certain coverages in the past, agents should continue to offer them every year and provide a quote every few years. This discussion should also be documented so that agents have proof they discussed an uncovered risk with the client and the client decided not to cover it.

3. Proposal Preparation

Develop standardized proposal templates. Proposals should include disclaimer language, most importantly that the policy is the source of truth, and the proposal is only a summary. Risk mitigation suggestions should also be included in proposals where possible.

Have clients sign off on options selected and declined. When an agent provides their client with new coverage options, they should consider having the client sign off on what was selected and declined. Another option is to send a confirmation email to the client that clearly documents what was offered, selected, and declined.

Consider peer review auditing. “Copy and paste” information from a previous year may be inaccurate or out of date. A third party may be able to point out discrepancies better than the agent who already “knows” the client.

Be cautious about what you include and what you don’t. Including only “key coverages” or “key exclusions” can confuse the client. If an agent decides to include these items, they should also include disclaimers which clarify that these are only some of the client’s coverages or exclusions and that the client should look at the policy to see what else is being covered or excluded.

4. Binding Coverage

Consider creating a binding template. Agents often provide instructions to account managers over the phone, but this risks information being lost or misinterpreted. A template should be designed for agents that enables them to easily provide written instructions to their support team and outline the coverage options the insured has selected. The support team should be trained to require this documentation rather than verbal instructions.

Include the latest quote and outline any changes in bind orders. When binding coverage with a carrier, an agent should include a copy of the latest quote or refer to it, as well as outline any changes. For example, “Please bind coverage as outlined on the quote dated April 1 and outline any changes.” In the bind order, your agents should also confirm their binding authority and ability to issue certificates of insurance.

Define what is being bound in the confirmation letter. If the carrier issues a binder, the binder should be included in the confirmation letter to the client.If a binder is not issued, the agent should refer the client to the proposal and outline any changes. If the agency’s practice is to issue a binder, carefully follow state rules about extending it if the policy is delayed.

5. Policy Checking

Include disclaimer language in the cover note. Once again, agents should reinforce to clients that the policy governs what is covered and what is not, regardless of what the agent said or showed the client. The cover note should state that it is the client’s responsibility to read the coverage and terms.

Use a consistent and standardized checking methodology. Some agencies leave account managers to decide how thoroughly a policy needs to be checked. The absence of a consistent process can leave agencies at risk. A standardized checklist should be developed, along with clear procedures on how to resolve discrepancies.

Don’t use policy checking for coverage validation. Policy checking should confirm that the coverage provided on the policy matches what was requested, proposed, and quoted, and what is represented in your AMS. Coverage validation should be performed prior to binding coverage, not during this step.

Is Policy Checking Killing Your Agency’s Growth?

Policy checking is one of the most critical steps to reducing E&O risk, but it also takes away valuable time from agency staff, preventing them from focusing on high value, revenue generating activities.

Agencies shouldn’t need to choose between protecting themselves against E&O and achieving growth. That’s why we created Policy Insights 2.0, a tech-enabled platform that transforms policy processing into a strategic advantage. Here are just a few of the benefits:

  • We perform 99.9% accurate policy checking for agencies through automation with human audit
  • Agency account managers gain access to our online portal for quick and seamless policy review
  • Operations leaders can use our analytics dashboard to view E&O hotspots and other insights

Learn more by visiting our Policy Insights webpage.