Constantly changing state and federal legislation, insurance regulations and policy updates equals a lot of information that insurance agents have to stay on top of. Although the information can seem overwhelming or superfluous at times, a failure to stay informed and educated can lead to costly insurance errors and omissions (E&O) claims and even the loss of an agent's insurance license in some extreme cases.
Another part of the job of an insurance agent is to stay abreast of new market trends. Many of these new trends are now big business for insurance agents. Technology, for example, has brought about new exposures for insureds and new business opportunities for agents, but at the same time it has also resulted in new E&O exposures for agents that many aren't aware of.
Sabrena Sally, senior vice president and head of U.S. Agents for Swiss Re's Property and Casualty Division, says that while they haven't seen any data breach or privacy claims towards agencies yet, it is something the company is keeping an eye on because of all the personal data agencies are responsible for. Sally says agencies put themselves at risk with their Web sites when they offer online quoting or any interactive portal that accepts personal information.
"There seems to be a lack of awareness of the exposure and I say that because nine times out of 10 when an agency does online quoting, they don't have security for these transactions," says Sally. "It's a great way to do business but agents could be collecting information that is personally identifiable information and there may be no security on their site."
Sally said that at least 47 states have laws about how companies must store personal data and insurance agencies must comply with those just like every other organization. Health care is also a big topic right now and one Swiss Re is also watching.
"Like everyone, we are keeping an eye on what the changes on health insurance might bring to the table for insurance agencies and what it might bring to their E&O exposures, but it is still up in the air," said Sally.
Certificates of Insurance
Certificates of insurance are another area that causes great frustration and confusion for insurance agents, but also an area that many claims arise from because of the lack of knowledge.
A certificate of insurance is historically just a summary representation of what the basic policy provides. But because companies ask for all kinds of information on these certificates, that has caused a huge E&O exposure, according to Bill Wilson, associate vice president of Education & Research for the Independent Insurance Agents & Brokers of America and director of Big "I" Virtual University. This is because things on the certificate may not reflect what the policy actually covers.
"15 percent of commercial E&O claims [in the last four years] have to do with certificates of insurance and additional insured requests," says Wilson.
Wilson has worked tirelessly for many years on educating insurance agents on certificates of insurance, which includes launching an online course about it through the Big "I's" Virtual University and writing many white papers on the topic. He says despite the many resources they have created to provide information on certificates of insurance, there is still a huge gap of knowledge in the insurance community about this subject.
"Getting the information to the people in the trenches, the ones issuing the certificates, has been very frustrating," says Wilson. "Every day I get questions from agents who haven't read anything about certificates."
Chris Burand, founder and owner of Burand & Associates, based in Pueblo, Colo., says there have been many recent changes to the ACORD certificate of insurance forms, some of the most significant ones he has seen. Typically, agents are given one year to begin using the new forms with the changes and those that use the old ones after that year are left open to claims.
"The E&O exposure for ignoring it is phenomenal," says Burand. "Agents also have a greater exposure depending on which aspect they violate. They could be violating copyright law, violating insurance code, and changing the wording on policy forms."
Wilson says the most significant change on the ACORD form is the removal of the cancellation provision, which was done in Sept. 2009. He says this change was pushed by regulators and certain states and will be eventually required nationwide.
Burand says the fastest rising E&O claims involve certificates of insurance and the new forms will only exacerbate that.
"Things are going to get tougher so agents need to pay more attention to it," he said. "Agents need to have better procedures, better education and be more diligent than they may have been in the past."
Wilson says with the economy the way that it is, agents are very vulnerable to lawsuits. That is why expertise has really become important.
"One thing I have noticed is a lot of agents trying to write accounts that are beyond their expertise," he says. "I get a lot of agents asking me 'how should I write this thing?' and I tell agents if you aren't comfortable that you understand the business then let it go. It's not worth it from an E&O standpoint despite the commission."
What Agents Can Do
Experts agree that there are several important steps agents can take to reduce their general E&O exposure, and they carry over to all aspects of the insurance business:
"By far, the most common claim is simply an allegation of failure to place coverage," says Sally. "The most reliable way to prevent these is written documentation that says 'this is what I offered you, my customer and this is what you accepted."
2. Keep a Coverage Checklist when Writing Policies
"We recommend agencies use coverage checklists," says Sally. "They can range from fairly short and simple to a very detailed one that walks through certain types of coverage that could be appropriate for a certain type of operation."
3. Stay Educated Through Trade Organizations, Associations
"Every state association offers E&O classes. Those are great and are offered all the time," says Burand. "Another great resource is the IJ Academy. It offers great courses and will be offering additional courses this year. Attend the webinars."
4. Read, Read, Read
"It is tough being an agent because you are bombarded with newsletters and e-mails and publications and it's tough to look at everything," says Wilson. "But for myself, I identify the publications that give me the greatest value and get rid of all the rest. Identify the sources of info you really truly need and focus your time on these."
5. Conduct an Agency E&O Audit
"Another tool that agents should use is to have an E&O audit of their agencies completed," says Burand. "It is done by an outside auditor and agents may be able to obtain a discount on their E&O premiums."