Errors and omissions (E&O) coverage is one of those topics that people have a love/hate relationship with. For the most part, professionals who need E&O cover like to know what coverage they have, when it covers them, and how they can get it as cheaply as possible. On the other hand, this is one of those topics where the information can be contradictory, depending on to whom you’re listening.
As with many aspects of life, we find that a reasoned approach to this topic is the best approach. I am aware that people will disagree with my assessment and that’s OK. We can disagree. We’ve all been wrong before. As we look at E&O coverage, we are considering four important considerations.
E&O insurance is designed to protect the insured from themselves and the people that work for them. The worst possible reason to buy insurance is that someone said that you need it, like when an insurance agent attempts to secure an appointment with an insurance company and the company wants to see their E&O declarations to make sure that they are covered. E&O insurance is necessary because insurance agents are professionals in the insurance business.
Having written that, I’m aware that many agents are counseled to avoid the term professional because that might open the door to additional E&O exposure. My response to that is very simple. If you aren’t a professional, why do you need E&O insurance, because E&O coverage is meant to protect professionals against those times when they make a mistake, an error or omission? If you aren’t a professional, why do you have to go through a licensing process to certify that you meet your state’s minimum standards of education and training to receive a license? If you aren’t a professional, why are you spending so much money as a member of professional associations for insurance professionals?
No. Insurance agents are professionals who go about their daily business, and in that daily business they work in several phases of insurance transactions. They have access to the companies that want to sell insurance to people, and they know the people to whom those companies want to sell insurance. They have access to people who want to buy insurance and they work to discover what insurance they need to buy so that they can connect with the companies that sell that insurance.
So why do insurance agents need E&O insurance? The short answer is that they are people and, believe it or not, people make mistakes. As much as we think that we are right all the time, it turns out that we make mistakes, and we make them as often as the people that we complain about on the highway. Some mistakes are avoidable, but since no one is 100% infallible, we simply can’t not make mistakes.
Some mistakes come from people who are not properly trained in processes, procedures, coverages, or other difficult issues they will face.
Other mistakes arise when the team is over-committed. That is to say that we’re so busy sometimes that we miss details. It’s like that time you were supposed to get that vehicle added to that one policy and the endorsement request form was sitting on your desk and someone put a file on top of the form, and you didn’t find the form until after the claim came in. Yeah. It’s like that.
This is what E&O coverage is for. It’s about those mistakes that are totally avoidable, but because we’re people, they happen.
The Common Reaction
It seems that the most common advice and reaction to the potential of an E&O claim is to reduce the potential of loss.
That’s great. We approve of proper risk management that starts with education, changes in procedures, standardization, and constant review. But that’s not exactly what happens.
Instead of learning about the risk and conducting a proper risk assessment, we see agencies going the other direction. They choose to deny their place as the expert in the insurance policy. They limit helping their clients to asking if they have life insurance or would you like us to try and bundle your home and auto policies. It’s the insurance equivalent of asking if you want the combo or just the sandwich. They choose not to act like an expert so they can reduce the likelihood of an E&O loss.
Some simply refuse to deal with the issue and chalk potential claims up as part of the cost of doing business. They accept that claims will happen without taking the effort to ensure they are minimized or mitigated before they happen.
Let’s be honest with each other. If you talked to a client who was buying insurance and you saw that their building showed no pride of ownership or that they had the attitude that the building is insured so who cares what we do with it, you would (I hope) choose not to do business with that client?
But the agency that tells their staff not to help people might just take the order and make sure the check clears, or they just think claims are going to happen, so let’s not worry much about it. We’ll just keep a high retention, keep cash in the bank and hope for the best.
Maybe it’s an overstatement that those attitudes are out there and maybe not. Whether you think it’s a problem or not, there is something every agency can be doing instead and that’s truly acting like the insurance and risk professional that you should be.
This starts with recognizing that the risk is real because people make mistakes, and you simply cannot by fiat declare that no mistakes will happen. Well, you can but that would be a mistake and you’ll soon find yourself thinking about the big mistake that you just made and deal with the looks that the rest of the team will give you.
Accepting the fact of mistakes does not mean that you should limit the number of mistakes that could be made by limiting the number of questions the team asks or offerings the team makes. Nor does it make sense to just accept that mistakes will happen so you might as well have a big bank account called Mistake Fund. It means that in recognizing it will happen, you take steps to stop as many mistakes as possible.
Start with education and no, I don’t mean going out for the $24.99 all you can eat CE buffet. I mean real education. Send your people to classes. Help them to choose designation programs that fit their needs and interests, and the needs of your office. Invest in the education and growth of your team. Help them to learn the policies that you sell, and not just the names and numbers, but know the policies. Help them to learn the importance of reading and understanding insurance policies.
Insurance is complicated and it isn’t just the policies that are complicated — exposures are complicated. Businesses and personal lives are more integrated than ever, and things are just a mess all over the place. Your team needs to be always learning new things and learning the old things over again because we forget.
As a side note, you might get the impression that I’m not a CE fan, which is incomplete. I think the CE system is broken and that too many of us call getting your CE requirements the educational program. The way CE is done must be fixed, but that is another topic for another day.
As the team begins its education, the next step is to build a system.
Systems are ways that we keep from making mistakes.
How do you think I get anything done? It’s the system that keeps me on task, or at least keeps me from getting too far off task.
That means that as an agency principal, you need to work with the team to create processes and procedures that keep the team from making mistakes. There should be risk exposure checklists. There should be conversation checklists. There should be documentation checklists.
Yes, it takes time to create procedure manuals. It takes even more time and effort to train on procedures and manuals. Then, you have to make sure to keep them up to date so that you don’t forget new things or important changes to the procedures.
Procedures create consistency and consistency creates habits and habits reduce how much thinking everyone has to do. It’s not that people go about their business like zombies. It’s about letting people think about the important things, like how to best cover your clients’ exposures. Besides that, consistency in dealing with clients is one more way to reduce your E&O exposure.
One of the procedures that an agency needs is a documentation procedure. The team shouldn’t ask what should be documented, how, where, or when to document. Here’s the short answer for your procedure. Document everything. Document every offer of coverage. Document every option. Document every suggestion. Document every phone call. Document every email. Everything.
If you have an agency management system or customer relationship manager, you already have a place to document everything. It’s just a matter of making it important enough so that the team does it. It’s already got the functionality to provide a place for notes. It already lets you import emails and documents. Make it easier on yourself and ditch the paper forms and scanner. Just use electronic signatures and keep copies in the management system. In a digital environment, there is no excuse for a lack of documentation.
I have one more thought about mitigating the risk of an E&O issue and it’s probably the most important one of all.
It’s all about communication.
Starting with the leadership communicating the procedures, especially changes to procedures, you must communicate more than you’re comfortable. You should be overcommunicating with your team. I don’t mean telling them weird things like what your uncle Harry does for a living, but communicating, over and over again, all that they should be doing to help your clients.
Open communication all around the office about the important things in the office creates a safe place for the team to communicate with you. When they feel like communication is safe, they won’t hide when they’ve made a mistake. It’s a step toward the people owning their mistakes and working with you to get them corrected. It might even be that open communication gets something in front of you early enough that it doesn’t become a claim later.
One thing is certain. Your E&O exposure is big enough, and the people that you serve will be plentiful enough (we hope) that you’re bound to have claims eventually.
Hopefully, your awareness of that possibility makes you a better leader and a better team. Hopefully, you learn how to better serve your clients. Hopefully, you learn how to mitigate that risk and stay in the business a good long time.
WRITTEN BY Patrick Wraight Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance. He can be reached at firstname.lastname@example.org.