Ask agency staff members when the last time was that they moved an account to a new carrier. They would likely say that it happens multiple times a week, possibly every day. When this happens, an alarm should go off to remind them of the many issues that could occur. The most critical issue surfaces if the client suffers a loss that would have been covered by the expiring policy but is not covered by the replacement coverage.
The following errors and omissions (E&O) claim highlights this issue.
The agency’s client was a landscaping and snowplowing operation. The underlying loss was from a slip and fall in a commercial parking lot. It is undisputed that the agency’s client had snow removal coverage on the prior policy, but when a new carrier has the policy, the snow removal coverage is missing. While the producer was aware of the exclusion, there is no documentation to support a discussion on this matter with the agency’s client. The damages
were more than $1 million.
This issue is one of the more significant trends today in E&O claims. It is critical that when an agency’s staff moves accounts to a new carrier, it must have very detailed procedures that address this matter head-on.
Those procedures should include the following:
› A process should be in place to verify that the application used to market the account accurately describes the risk as it exists. Oftentimes, the previous year’s application is used to market the account today. The downside is that the client may have different or new exposures that need to be identified and discussed.
› When the agency receives the proposals from the various markets, there should be a process to verify that the coverages requested are the same as the coverages proposed. Agencies should never assume that what the agent asked for, from the carriers, is quoted. A more significant concern, with the excess and surplus market, is because carriers may exclude specific exposures. If necessary exposures are missing, such as the snowplowing exposure in the above claim, an effort should be made to secure the coverage.
› If the replacement coverage is not comparable to the expiring coverage, it is vital to bring the reductions to the client’s attention. This notification should be in writing and the client, if he or she is agreeable to the reductions, should be required to acknowledge the reductions in writing. Also, if the agency cannot provide the same depth of coverage through the carriers it works with, notify the client as soon as this fact is determined. Based on the coverage that is missing, the client may need to find another agency.
› If the agency does not complete the steps above, there is still another opportunity to identify any shortcomings in the coverage. It is at the time of a policy review. If the agency assumed that the coverage was the same, a thorough policy review would have caught the lack of coverage for snowplowing. The review should involve a comparison of the expiring policy versus the replacement coverage. Multiple sets of eyes can help to identify errors more comprehensively. Requesting the client to review the coverage is also suggested. Statements such as, “This coverage is as good as what you had before” (or something to that effect) should definitely be avoided.
Moving coverage is more than just trying to save the client premium dollars. Problems may develop if the replacement policy contains less coverage than the previous policy, and the client is unaware. If the agency really wants to minimize its potential for an E&O claim to develop, it should have a detailed procedure to address this.