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A New Decade Brings New Risks

Posted By Joyce Anne Grabel, Tuesday, February 18, 2020

from PropertyCasualty360.com

Read in Kentucky Professional

Most of the emerging risks facing property & casualty insurance customers today ultimately center on business interruption. Whether it’s climate change and extreme weather, transportation supply chain issues, or cyber attacks and resulting system failures, business interruption — potentially with far-reaching and catastrophic financial effects — is often the result.

Climate change heats up

Climate change news is grim. The latest assessments of the “emissions gap” between the amount of planet heating gases countries agreed to cut and where the current projections are headed shows that global temperatures are on pace to rise as much as 3.2 degrees Celsius by the end of the century — more than double what scientists projected to be a “safe” range.

Yet the results of Deloitte’s recent “Insurance Regulator State of Climate Risks Survey” reveal the insurance industry appears unprepared for the risks of climate change. One-third of the 27 respondents, from the National Association of Insurance Commissioners, said they did not know how well insurers are prepared to deal with the potential aspects of climate-related risks on financial stability. Similarly, one-third of the regulators surveyed didn’t know whether current insurer risk models are sufficient to capture and test climate-related risks.

“It’s a myth that the insurance industry doesn’t care about climate change,” stresses Rob Newbold, executive vice president at AIR Worldwide. “The effects of climate change can take decades, and insurance policies are typically one-year contracts.” Newbold has found that the majority of reinsurers want to understand the effects of climate change on a 5-to-10-year time horizon — or longer. He points out that many reinsurance companies are taking a holistic approach to climate change, addressing the physical, transition and liability risks. Particularly in non-industrialized parts of the world, the insurance industry is taking such actions as providing micro-insurance to low-income entities at high risk from climate change, issuing catastrophe bonds for climate change-related perils, and working with governments to enable their knowledge and expertise to manage risk to the fullest extent possible, he says.

Newbold advises decision-makers to use scenario testing to evaluate potential financial effects. “Catastrophe models are a great tool for conducting such test,” he says.

The insurance industry must adapt, as it always does, when significant impacts like the financial risks presented by climate come along, says Bill Gatewood, corporate senior vice president of Personal Insurance at Burns & Wilcox. “There are many good lessons we can take from the last few years.”

The way the insurance industry approaches managing the financial risks and identifying solutions will need to be multifaceted, he stresses. Initiatives will need to involve changing the rating structure and the review process for comprehensive coverages that are offered. Carriers will also need to strengthen their loss-prevention activities to provide homeowners with more tools to make their homes more defensible against wildfires.

According to Patrick Barco, manager of Ocean Marine at Burns & Wilcox, extreme weather conditions compounded with large losses in recent years have led many insurers to review their underwriting philosophy and apply adequate premium for the risks in the transportation industry, particularly in shipping. “We are seeing that most losses in the shipping industry are due to on-board vessel fires, voyage casualties and weather-related losses with containers that are lost overboard,” he explains. He notes that inland shipments handled by road or railroad could also be affected by extreme weather-related losses and are tied to such exposures as tornadoes, windstorms, fires and derailment.

Extreme weather risks also are growing in the construction industry. People in risk-prone areas are weighing the options of rebuilding or moving elsewhere. With high demands on materials and labor, some people are waiting to get contractors and home builders lined up to begin their rebuild projects, Gatewood says.

Transportation troubles

Whether by land or by sea, the primary risks for the transportation and shipping industry revolve around business interruption and supply chain issues, which can be caused by everything from extreme climate events to catastrophic system failures.

On land, business interruption can be caused by accident claims taking place hundreds of miles away from the home terminal, says Steve Shepard, underwriting manager of Transportation at Burns & Wilcox. The insured must get any undamaged cargo to its destination in a timely manner, which necessitates finding a replacement vehicle to pick up and continue to transport the load quickly to mitigate further interruption. He notes that without the correct policy, the insured might not be afforded temporary or substitute coverage for the liability or cargo. “Ultimately, they could lose a contract because they can’t fulfill the shipment,” Shepard cautions.

Theft is also a risk for transportation; however, technology to mitigate pilfering has come a long way in helping prevent incidents, he says. “We’ve written several accounts where the client implemented GPS tracking on the units, as well as external and internal tracking devices to help track shipments should they be stolen. Additionally, using team drivers and not leaving the shipments unattended helps mitigate theft concerns.”

One risk-reducing trend in the transportation industry is the declining costs of safety-enhancing technology. “The costs of lane departure, GPS, and forward and rear-facing camera systems have dropped, and we anticipate this will continue to be the case,” says Shepard. As a result, most insureds will see savings on their insurance premiums when they invest in and implement reputable technology.

Part of a safety-conscious culture is ensuring that drivers are trained and qualified to handle the risks that “come with the territory” — literally. “There are situations where drivers with varying experience levels have to drive through multiple types of weather events in the same day, or drivers who are used to local routes are newly responsible for hauling a load through the mountains,” Shepard points out. If the drivers are inadequately trained, accidents could result.

For severe accidents resulting in loss of life, juries are awarding “nuclear verdicts” that can put a smaller transportation company out of business, warns Craig Dancer, Transportation Industry practice leader at Marsh USA Inc. As an example, in August 2019 a jury in Georgia returned a $280 million verdict against Schnitzer Southeast, a trucking company whose driver crossed the center line and killed a five-person family traveling in an SUV.

All at sea

The shipping industry is prone to a unique set of losses. “Marine insurance is designed to cover transit risk on both import and export products, to ensure the goods are covered for any physical loss or damage during the transit period. It is important to consider all the parties that are involved within the supply chain process and their exposures,” Barco says. “Insurance companies are actively involved in scrutinizing the risk and charging the appropriate premium. As a result, rates are increasing based on the hard market conditions.”

Globalization is making supply chain management more complex than ever. A failure of critical infrastructure on one side of the world can cause catastrophic supply-chain losses on the other, notes Newbold. “The 2011 Tohoku earthquake and Thailand floods, and the 2015 Tianjin port explosion in China — which massively disrupted global supply chains — highlight the complex interdependencies that exist in today’s supply chains and the far-reaching consequences of their failures,” Newbold says.

According to the World Bank, the Thai floods alone had a global economic impact of more than $45 billion.

Another “seismic” change affecting supply chains in the transportation industry are the transition from a B2B to B2C business cycle, he notes. “It’s the ‘Amazon effect,’ and it’s affecting logistics,” he says.

Amazon made a “big splash” when it introduced drones as a delivery vehicle, Dancer says. “The application of drones is going to be huge, in terms of that ‘last mile’ from the distribution center to the consumer’s house. The efficiency will be another seismic change in the B2C supply chain.” This, of course, will bring about such risks as privacy issues due to drone cameras coming into close proximity with private homes, distractions to drivers, and crashes in heavily populated areas.

“The good news is that drones are regulated by the Federal Aviation Administration, with its own set of safety regulations, so risk issues will be delineated in terms of the regulatory licensing process,” Dancer says. “A commercial liability policy can cover businesses using drones for deliveries.”

Whatever segments of the transportation industry they serve, it’s crucial that underwriters be able to differentiate the risks, Dancer says. “The most important thing is to sit down and spend time with underwriters, helping them understand their clients’ needs and how to differentiate within the transportation market space.”

Looming cyber threats

The list of cyber risks is growing and includes ransomware and malware attacks, identity and data theft, and digital currency scams. Data theft from malicious or unintentional security breaches have been some of the most publicized forms of cyber incidents to date. “Worldwide types of data at risk include credit-card numbers, names, emails, passwords, health or financial records, and intellectual property.

Hackers use a variety of techniques to steal data, including social engineering, phishing and deploying malicious internal agents,” he explains.

Breaches can result in direct losses when intellectual property is stolen, data is destroyed, operations are interrupted, or systems suffer physical damage. Indirect losses can include third-party liability from the compromise of proprietary data and reputational losses. One attractive target for cyber criminals is a credit-card payment processor or acquirer. A successful attack could yield millions of credit-card numbers. For an insurer, the financial consequences could be catastrophic, Newbold says.

Cyber-related business interruption losses result when a company experiences a disruption to its operations as a direct result of a cyber event. Contingent business interruption (CBI) losses result when a company suffers downtime because its vendor or supply chain is affected by a cyber event.

Scenarios that could result in business interruption and CBI losses include attacks on a payment processor, domain name system provider, email server, content delivery network, or ad network. An attack on the power grid (run by a utility company that drives electricity through a common network of power lines) could lead to business interruption losses across a large geographic area. Although no blackout in the U.S. or the UK has yet been publicly attributed to a cyberattack, it has happened in Ukraine, demonstrating that the types of malware and viruses capable of causing a blackout already exist, Newbold warns.

“The cyber-threat landscape and the exposures companies face due to malicious activity such as ransomware are rapidly evolving,” says Michelle Chia, head of Professional Liability and Cyber for Zurich North America. “Underwriters need to collaborate with clients to understand their challenges in order to develop coverages and risk-mitigation services that will protect them from emerging threats.”

It’s important to have a standalone cyber policy because the underwriters who write them are aware of the trends, keep pace with emerging threats, understand how threats differ by industry, and collaborate with risk engineers to make sure they can provide needed protection, Chia explains.

In evaluating cyber risks, it’s important to be aware of the entire ecosystem of the business and how it affects the larger economy, Chia adds. “When a cyber event causes a business interruption, upstream and downstream are all impacted. Understand the various parties and how they interact.”

“Over the last year or so we’ve been seeing an increasing trend toward ransomware attacks,” observes Bob Parisi, leader of US Cyber Products at Marsh. “It takes many forms, but the simplest is ‘We have your data, and we’ve encrypted it so you can’t access it.’”

When a cyber event such as a ransomware attack does occur, Chia recommends contacting the appropriate experts immediately. “Not only do we engage with law enforcement, we engage with professional negotiators and professionals that can convert real currency into cryptocurrency such as bitcoin, which is most often the form of ransom malicious actors demand.”

Parisi advises carriers and underwriters to keep an open mind and be aware that the information they need to evaluate cyber risks might not come from traditional sources. “You might get a better sense of the risk companies face by talking to cloud vendors” and other tech service providers, he says.

From a cyber-risk perspective, cryptocurrency is a challenge in several ways, warns Jacob Ingerslev, head of Global Cyber, The Hartford. “One impact cryptocurrency is having on cyber risk is the way it’s fueling ransomware attacks. Beyond that, there is the evolving threat of cryptojacking and the ongoing cybersecurity problems with the currency itself.”

It’s difficult to determine the extent of cryptojacking in terms of annual costs to companies whose networks have been hijacked for crypto-mining purposes, but it is an issue that is growing in parallel with the adoption of cryptocurrency overall, Ingerslev notes. “The more measurable cyber risk aspect of cryptocurrency is the theft of funds from wallets and exchanges,” he says, referring to a report by Ciphertrace that states theft of crypto funds reached a total of $1 billion in 2018.

Cannabis risks are flowering

The changing legal status of marijuana in the U.S. is prompting insurers to begin offering coverages, despite having extremely limited loss data to inform them. “While marijuana remains illegal at the federal level, action is being taken on the state level to change laws on its consumption,” Newbold says.

More than half of U.S. states and the District of Columbia have legalized the use of medical marijuana. Many also allow recreational marijuana use.

“The growth of this industry has led to the development of a nascent insurance industry to support it,” Newbold says. “However, these carriers often find themselves faced with tough choices to make on appropriate premiums to charge and coverage limits to offer because the risks associated with businesses related to this industry are still being defined.”

The rapid growth in market size of the marijuana industry and activity has engendered concern due to the limitations of available scientific evidence regarding potential benefits and harmful effects, Newbold says.

Thinking ahead

Staying on top of the vast array of emerging risks is daunting but essential for insurance professionals who wish to provide optimum service and remain competitive. Dancer advises insurance professionals to update their mindsets on what “business interruption” means in today’s world. Newbold recommends that insurers use liability accumulation models to help quantify the potential impacts of events on a supply chain.

Parisi stresses that while you look to the future, don’t neglect past lessons. “There is a lot to be learned from how the insurance industry has previously addressed risk,” he says.

Read in Kentucky Professional

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Is Professional Liability Insurance the Same as Errors and Omissions?

Posted By Administration, Monday, November 11, 2019

from SimplyBusiness.com

Even though the insurance terms “professional liability” and “errors and omissions” are often used interchangeably, there are subtle and important differences that you need to know about. Overall, both policies cover mistakes and errors made with customers by you or your employees. The pivotal distinction of coverage comes down to what trade you’re in.

Here’s an example: A professional liability policy is commonly purchased by estheticians, who could potentially make mistakes when treating a client’s skin. For instance, if they apply a chemical peel to a client’s face and it causes an adverse reaction, such as a rash or burning of the skin, professional liability insurance would help cover the costs of any legal claims filed against the esthetician.

On the other hand, errors and omissions (E&O) coverage is more commonly purchased by accountants and business consultants, as they provide more guidance-based services. For example, if you’re a tax preparer and you inadvertently submit the wrong tax form for your client, they could sue you if they get audited by the IRS as a result of your mistake. In this case, an E&O policy could cover your legal costs. These trades can also get professional liability, which has the same coverage as E&O.

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Email: Friend or Foe to Insurance Agencies?

Posted By Curt Pearsall, CPCU, AIAF, CPIA, Wednesday, October 30, 2019

Email was first created in 1971, but it didn’t start to play a big role in people’s lives until the 90s. It has contributed to our level of communication becoming more written and less verbal. Many years ago, the sound of phones ringing and staff talking on the phone were extremely common in insurance agencies. Nowadays, agencies are quieter as email communication has become more the norm. 

From an insurance agency perspective, has this been a good thing?

Generally, the answer to that question is probably, “Yes.” Email has created the ability for agencies to communicate with their various customers (clients, insurance carriers, wholesalers, etc.) in a fairly efficient manner. Pre email, for an agency to bind coverage, to secure information, or to get updates on a client’s exposures, agency staff had to either pick up the phone and hope they would get the party they desired or use regular mail, which had its advantages and drawbacks. Today, email has largely replaced both of these approaches. 

A typical question from many agency’s staff, especially on matters dealing with an errors and omissions (E&O) claim, deals with the issue of whether email is an acceptable and legal form of communication. The question is whether the email is clear, whether the recipient consented to receive email communications, and whether the email was received.  With respect to the latter issue, emails can get deleted or caught in the recipient’s spam filters. Approaches to address the acceptability of emails include written certification from a customer that you can communicate by email and to which address, and written acknowledgment that the recipient received the email. Some agencies use an approach that requests the recipient send back an email stating something to the effect of, “I got your email.”   

What about the issue of the client sending the agency an email requesting the binding of coverage? Can the client presume that by sending the agency an email that the coverage is, in fact, bound? 

Let’s look at an actual claim and give consideration to any lessons to be learned. This claim arose out of a hit-and-run involving a minor child. The client allegedly sent an email to the agency to add a vehicle to their auto policy. The email got caught in the agency’s spam filter and thus the agency never saw the email. As a result, no coverage was bound for the additional vehicle. The customer never followed up with the agency until after the accident, several months later.  

It is not clear why the client didn’t contact the agency especially when a revised declaration page and premium should have been anticipated. It appears that they presumed that by contacting the agency (via email), coverage was technically bound. What could the agency have done better? While it is certainly much more common that agencies include on their voicemail greetings a statement such as, “Please note, coverage cannot be bound or amended without written verification by an agency representative,” it would be advisable for agencies to include something similar on their emails. Including the voicemail statement as part of the signature line on their emails, would make it very clear to clients that they cannot simply send an email on some change in coverage and expect that the coverage has been bound. This is a form of client accountability. 

It would be wise for the agency to advise clients (for all existing clients and then especially on all new business) the various “do’s and don’ts” on communicating with the agency in the form of an engagement letter. When an E&O claim occurs, the defense of the agency could be potentially impacted by taking steps to ensure clients understand the rules of engagement, especially when it comes to matters involving email. 

NOTICE: This information is provided solely as an insurance risk management tool.  It is provided with the understanding that the member insurance companies of the Utica National Insurance Group are not providing legal advice, or any other professional services or advice.  Utica shall have no liability to any person or entity with respect to any loss or damages alleged to have been caused, directly or indirectly, by the use of this information. You are encouraged to consult an attorney or other professional for advice on these issues.

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Managing Your Agency's E&O Costs, Coverage & Claims

Posted By Andrea Wells, Wednesday, October 30, 2019

from insurancejournal.com

Independent agency owners spend their entire careers worrying about the risks and exposures of others. Managing the risks of their own agencies can take a backseat to helping their clients.

While agents appreciate the importance of errors and omissions (E&O) coverage and the need for a strong risk management approach, they are at times “a little like the childhood fable of the cobbler’s children having no shoes,” says Mark Angelucci, resident senior vice president and E&O segment leader, Utica National Insurance Group.

“They are so focused on their clients’ insurance needs that they can neglect their own,” Angelucci said.

Many agents treat their clients better than they do themselves.

Agents E&O is “vital to protecting the agency’s hard earned assets and reputation,” according to Sabrena Sally, senior vice president, Westport Insurance Corp., which serves as an underwriting carrier for the Big “I’s” Professional Liability Program.

“In the same way agencies recommend their customers periodically assess their risks, agencies too should review their E&O coverage versus their exposure,” Sally said.

According to Insurance Journal‘s Agency E&O Survey, the majority (83.5 percent) of agency owners purchase E&O coverage to protect their agency’s assets.

Agents should be alert to many of the same issues they weigh when they are recommending coverages for their clients. “Coverage terms and limits relevant to the exposures of the agency’s operations, the experience of the carrier in the agent’s E&O space, the reputation of the carrier’s claims team, the longevity and stability of the association program through which the coverage is being purchased – all of these are important considerations when purchasing agency E&O,” Sally said.

According to Sally, there are certain questions agency owners should be asking at the time of purchasing insurance: “Has their agency experienced growth? Has their customer base changed to include insuring higher values and limits or customers with higher exposures? Has the ownership structure of the agency changed to one which might prefer higher limits?”

Also, has the agency moved from a sole proprietor to a partnership or incorporated with multiple owners?

Angelucci believes that a good relationship with their E&O underwriter can provide agents with additional coverage and limits options that might have been overlooked.

In addition to buying the right agency E&O coverage, agents must stay focused on risk management within their agencies — just as they tell their clients to implement workplace safety measures and adopt best practices.

Knowledge and Time

Coverage knowledge is one area where agencies can always strengthen themselves and their employees, says Chris Burand, founder and owner of Burand & Associates LLC, based in Pueblo, Colo., which provides agency management consulting services including agency E&O exposure reviews.

Agencies are still being sued for failure to provide the right coverage to insureds, and often this occurs with less experienced agency staff, he said. Some agents just don’t know their coverages well enough. “It’s not only that they don’t understand their coverages, they also don’t understand what coverages their clients often need,” Burand adds. “I see that a lot.”

Burand says that while continuing education is important, so is putting in the time and effort needed to properly address the needs of every client and eliminate this E&O exposure.

The best agents are good at thoroughly understanding what their clients’ needs are, he says, and they take the time – make the time – to find out what those needs are. “They really do a good job of searching the marketplace for the policies that fit those needs closest,” Burand says.

Westport’s Sally believes agencies are becoming more knowledgeable about the coverages available for their customers and are using technology to increase efficiency in providing that coverage. But in her view, where agencies struggle the most is in finding a consistent balance in their workload.

“The struggle remains in balancing the need to perform all transactions the same way every time, and to document each transaction, balancing that against being customer friendly, and managing the daily work flow,” she said. “For example, the ‘best’ documentation would consist of a detailed analysis of a commercial customer’s exposures, insurance options to address each one, with the customer signing off on declined coverages.”

In theory that approach is best, but Sally understands the real-world environment and that demands placed on today’s independent agents make that practice difficult. “In a business that is still relationship based, this is not always achievable,” she said. “In addition, we are human beings. The best processes and procedures are still prone to human error.”

Best Defenses

Proper documentation, consistent policies and procedures and coverage knowledge are an agent’s best defenses when it comes to E&O, the experts agree.

For years, the leading cause of claims against agents has been lack of coverage or inadequate coverage. “Failure to procure coverage, obtain coverage in adequate limits – it’s the knowledge-based errors that make up half of all the errors in an agency,” said Mark Wolf, vice president for Big “I” Advantage.

“You’ve got the general errors that people make. They just make mistakes. They don’t place the coverage. They don’t check to make sure an excess policy is follow form,” Wolf said. Mistakes happen and that’s why agency E&O coverage is there to respond.

Then, there are the knowledge-based errors, Wolf said, which can be avoided. The best way to combat these is to specialize, Wolf said.

“You really need to be a specialist in today’s world,” Wolf said. Specialists know the market, know the coverages available, and can potentially avoid knowledge-based errors, he adds.

“Specialists, especially in certain coverage areas, are definitely a much better risk,” he said. “People that dabble are going to have claims and if you’re dabbling in something that has high-severity risks, you’re going to be looking at very large claims.”

Mark D. Harris is president and CEO of Quadrant Insurance Managers, a national program administrator, managing general agency and wholesaler based in Westerville, Ohio, that has been writing agency E&O programs since 1989. Harris says larger agencies may face different E&O problems than their smaller counterparts.

“Small agents may struggle with obtaining and properly documenting coverage rejections from a client – for example, rejections of flood and excess flood insurance,” Harris said. “So there needs to be a procedure that demands client acceptance or rejection of the terms offered, as well as certain disclaimers and warranties on every proposal to protect themselves. It’s a tall order and for small agencies it will be really hard,” Harris admits. But those kinds of policies and procedures protect agencies from E&O claims, he said.

Harris says agencies that excel in E&O risk management have management that insists on excellence in product delivery and is always involved in the process, he says.

Staff stability is also important. “We have seen E&O losses follow staff turnover or when they experience difficulty replacing staff. Oftentimes, management focus is on something other than quality or client satisfaction, like driving revenue,” Harris said.

All agencies must drive revenue but not at the expense of agency E&O, he added.

Technology Helps

Technology makes E&O risk management easier today. If used properly, technology can also be an agency’s best defense in an E&O situation, Harris said.

Agency management systems allow agencies to more readily verify that policies and procedures are adhered to, according to Harris. But technology can also be a double-edged sword, offering a place to store documentation but also asking it obvious if an agency promises to do something and doesn’t fulfill that promise.

Technology can help if a claim ends up in E&O litigation, says Bob McCabe, partner at Houston-based law firm Thompson Coe, which specializes in agency E&O coverage litigation.

“Technology certainly makes it easier to track things when people are utilizing agency management systems,” McCabe said. Files are better managed than they were in years past, he said.

Agencies could improve their storing of emails to and from clients, making sure that these emails make it into the agency management systems, McCabe advised.

“I find a lot of times there may be a function where if you send me an email then I’ve got to get that email into the file once I receive it and a lot of people don’t and instead leave it in their inbox or delete it. Then we have to drag it out later,” he said.

The best E&O defense is about being able to document conversations and being able to show that documentation later, McCabe said.

“By and large most agents are doing a good job and are doing what they should do. But when someone has a claim that doesn’t get paid because of a policy exclusion or policy that expired or a piece of property wasn’t scheduled, or something else, the insured will oftentimes say they didn’t discuss that with their agent, or was told something else. Proper documentation and saving those email conversations will get agents away from the ‘he said, she said’ problem. “The more things I have in my favor to back up what the client (agent) said, the better chance I have to convince a jury,” McCabe added.

Signed Applications

Westport’s Sally warns about an increasing number of claims stemming from carriers’ use of online application processes that do not require an affirmative signature of the applicant prior to binding coverage. “Unless the agency takes steps to document their file regarding the application information represented by the customer, the agency may face a classic ‘he said, she said’ situation should an E&O claim arise and there is no signed application in the file,” Sally said.

Angelucci has seen court cases involving agent’s or insured’s material misrepresentations (from the carrier’s perspective) with the carrier bringing an action against the agent for the value of the claim.

“Obtaining signed applications, use of exposure checklists and being thorough in understanding a client’s operation are the best way to avoid these types of claims,” Angelucci said.

Technology Hurts

Technology can also contribute to E&O concerns. The Agency E&O survey respondents listed privacy and cyber-related exposure as areas where they feel most vulnerable to an E&O claim.

One agency owner wrote: “The interplay between the E&O policy, technology E&O, and cyber/privacy coverage will be important as more agencies diversify the method in which they interact with clients/carriers.”

“We feel it’s a major area of concern,” Harris said. “There is always the possibility that absent an exclusion and, sometimes with an exclusion, a court could find coverage for cyber in the E&O policy.”

Most agency E&O policies have exclusions for cyber or will have “throw-in” coverage.

“Many carriers have gone to a ‘baby cyber policy,'” Harris said, “and add breach coverage but it’s not robust coverage.”

Others put sublimits on cyber coverage. “The real issue is dilution of the limits. If someone is going to put cyber (on an E&O policy) as a throw-in, make sure they are not diluting limits,” he said.

These advisors agree that just as agents tell their clients that cyber exposures are becoming so important that coverage should be on a separate policy, so are they important enough for an agency to have a separate policy. Angelucci advises agents to look for policies that include breach notification services, not just reimbursement for expenses incurred for notification.

Social Media

New E&O exposures are emerging. One is business defamation as it relates to social media, where negative comments made about a competitor are looked at as libelous, according to Utica’s Angelucci.

“The use of social media is becoming an increasing part of how agents interact with their clients,” he said. Agencies need to communicate with clients about the proper way to make requests. “If an action occurs via social media it should be documented in their agency management system.”

Angelucci says an agency must strike a balance when making claims about its agency’s capabilities versus a competitor. n “Factual statements must be used and you must be cautious about any reference to a third party or competitor,” he said.

The most common type of defamation claim in an E&O context concern statements made to clients or prospects. “Social media creates the potential for any statement to be communicated to a much larger audience than a statement made in person,” he noted.

In cases against agents for E&O claims, agency websites and marketing materials (which could include social media posts or blogs) are used as evidence to argue the merit of a claim.

Thus agencies need to be cautious about making any statements, especially unflattering ones, about others on social media. “This is where a well written social media policy for agency employees is important,” Angelucci said.

Angelucci offered the following tips for a good staff social media policy:

  • Lay out which social media tools are acceptable or not acceptable for business use.
  • Detail the need to be careful about disclosing confidential customer information on any social media sites.
  • Be sure that everyone who may use social media sites for the company understands the behavioral expectations when communicating in this forum (respectful, honest, accurate, etc.).
  • Determine what correspondence or requests the agency will accept from customers or prospective customers with these tools and how to properly document and handle them.

“For example, will you take an endorsement request via a Facebook posting? If so, do you expect a screen shot of the request to be copied to the customer’s file in your agency management system? Or will your agency not accept any requests except via phone call or written correspondence? Expectations need to be specifically laid out in either situation,” Angelucci said.

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Is Professional Liability Insurance the Same as Errors and Omissions?

Posted By Administration, Tuesday, October 29, 2019

from SimplyBusiness.com

Even though the insurance terms “professional liability” and “errors and omissions” are often used interchangeably, there are subtle and important differences that you need to know about. Overall, both policies cover mistakes and errors made with customers by you or your employees. The pivotal distinction of coverage comes down to what trade you’re in.

Here’s an example: A professional liability policy is commonly purchased by estheticians, who could potentially make mistakes when treating a client’s skin. For instance, if they apply a chemical peel to a client’s face and it causes an adverse reaction, such as a rash or burning of the skin, professional liability insurance would help cover the costs of any legal claims filed against the esthetician.

On the other hand, errors and omissions (E&O) coverage is more commonly purchased by accountants and business consultants, as they provide more guidance-based services. For example, if you’re a tax preparer and you inadvertently submit the wrong tax form for your client, they could sue you if they get audited by the IRS as a result of your mistake. In this case, an E&O policy could cover your legal costs. These trades can also get professional liability, which has the same coverage as E&O.

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Premium Audit – Errors & Omissions (E&O) Loss Prevention Tips

Posted By Administration, Tuesday, April 30, 2019

Your insureds don’t like surprises, especially when it comes to the topic of audits.  Without proper explanation and timely, adequate handling procedures, policies subject to audit can lead to surprises and E&O claims against your agency.

Your agency works long and hard to establish a relationship with a prospect. You learn about his or her business, analyze loss exposures, develop and present a comprehensive risk management plan, including insurance coverages, and win the case. Now it’s time to think about audits, as a number of policies are subject to audit.  

The following are some suggestions for your agency to ensure that your customer understands what it means to be audited and what he or she can expect.


  Identify which policies are subject to audit.

Determine why the policy is subject to audit, whereas some other policies are not.

Improper Workers Compensation class codes and territory issues are often discovered during an audit,  and can result in premium changes.

Check with the carrier prior to choosing classifications and developing premium.

Document your conversation. 


Notify your client in writing, on the proposal, that his or her exposure will be audited.

Explain the audit process and timing.

Clarify the difference between a physical audit, phone audit, and self-reporting audit.

Explain why the client’s premium can change from the initial proposal or policy premium. Talk to him or her  about how growth, previously unknown exposures, changes in operations, new products and/or operations, acquisitions, etc., can result in premium changes. 

Reinforce his or her responsibility to maintain adequate records. Advise what specific information will be  needed to complete the audit.  


Utilize proper premium calculation forms. If the carrier has its own form for calculating premiums for policies  subject to audit, use that form. 


Strategize how to respond to an audit.   

Discuss with agency management, or the producer, the best approach to promptly disclose premium  increases to the client.

In the event of a mistake, advise your client that you are looking into the matter. 

Collect your information and contact your E&O carrier.   

Together, determine if there are any solutions to the problem.   

Discuss how best to communicate with the client. 

While not all premium audit problems can be avoided, proper knowledge, explanation, and planning go a long way toward maintaining a positive relationship with your customer and minimizing the E&O exposure to your agency. 

The material contained in this article is for informational purposes only and is not for purposes of providing legal advice.You should contact your attorney to obtain advice with respect to any particular issue or problem.

Tags:  E&O  Premium Audit 

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What Exactly is an E&O Claim?

Posted By Curt Pearsall, CPCU, AIAF, CPIA, Friday, March 29, 2019

This may sound like a basic question, but don’t think for a second that everyone in your agency knows exactly what an E&O claim is. In many instances, some of the agency’s less experienced staff may not have had the benefit of someone educating them on this important issue.

Face it, there is a good chance that virtually everyone in the agency has made a mistake in their insurance career. The mistakes can vary from not providing the coverage your client requested to providing your client with totally incorrect information on how a certain coverage would respond, in the event of a claim. While perfection may be your goal, with the pace that agency staff must perform, reaching that goal is probably easier said than done.

So, should every “mistake” be considered an E&O claim? No. There is a common analogy that for a mistake to develop into an E&O claim, the “planets need to align.” Therefore, when the client asks for collision on their vehicle, and you discover that you only provided comprehensive, that by itself would not be an E&O claim. You simply would have the policy endorsed to include collision coverage. But when the client suffers a loss because of the error you committed, these are the situations that have the potential to become an E&O claim. The bottom line is your mistake caused the client to suffer an uninsured loss. 

There is also the possibility that the client suffers an uninsured (or not fully insured) loss, yet the agency technically did not make a mistake. For example, the client puts an addition on their house that would increase the value of the home, but they fail to advise you, as their agent, of this exposure change. The home sustains a loss, but the settlement is less than what the client believes is correct. The client could bring a suit against the agency alleging an error. So, as is commonly known in the insurance world, “you don’t have to do anything wrong to be sued.”

Every E&O policy defines what a claim is. Typically, it is defined as, “a written demand or written notice, including service of a subpoena, suit or demand for arbitration, received by one or more insureds which alleges a wrongful act or asks for money or services.”

A very significant issue here is that since “you don’t have to do anything wrong to get sued,” the agency must be diligent in not admitting any degree of liability. Even if the agency technically did make a mistake, it is still critical that the agency not make an admission of guilt. If the agency were to do so, there are potentially some very serious implications. E&O policies typically include language in the conditions section of the policy that state, “no insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation or incur any expense without our (the E&O carrier) consent.” This section dealing with the admission of liability has the potential to result in the E&O carrier denying the claim and consequently leaving your agency fully responsible for the legal costs and damages. This is not an issue you want to face. It is highly suggested that agency management mention and continuously reinforce the importance of not admitting liability.

Basically, this is because E&O policies are based on the premise of “legal liability.” In other words, just because the agency made a mistake and the client suffers a loss does not automatically make the agency legally liable. There are a host of defenses that the agency could raise that could minimize or even eliminate any agency liability. In addition, clients have a standard of care they are expected to honor. One of the more prevalent ones involves the client’s duty to read their policy. If the client would have seen they didn’t have any collision but did not contact the agency, this could change the direction of a potential E&O claim.

Educating the staff on “what exactly is an E&O claim” would be a positive step in the right direction. 

The material contained in this article is for informational purposes only and is not for purposes of providing legal advice.You should contact your attorney to obtain advice with respect to any particular issue or problem.

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Recent Hurricanes Producing More Flood Claims than Wind Claims

Posted By Administration, Wednesday, February 27, 2019

from Utica National Insurance Group

When each story was written about Superstorm Sandy, Hurricane Harvey and Hurricane Florence it was ultimately the flooding that produced the biggest financial loss. Unlike wind or other exposures associated with this type of occurrence, flooding is not covered by standard Homeowners or Commercial Property policies. Many insureds found themselves without coverage or with less than adequate limits following these powerful storms. Some relief was available through government loans.

Where did many flood victims turn in search of the funding to rebuild their lives?

Their insurance agency and their Errors and Omissions Coverage.

With the frequency and severity of recent storms and flooding events, it is even more incumbent upon agents today to inform insureds of the risk of flood and the availability of risk evaluation tools, mitigation techniques, and coverage through the government (NFIP) and/or private insurers. Failure to do so can lead desperate insureds to take action against their insurance agent.

The following are actual E&O claims associated with the peril of flood along with suggestions regarding how to avoid them in your agency.

Failure to place flood coverage 

The insured is a long-term customer of the agency operating a retail shop written on a      Businessowners Policy (BOP). Superstorm Sandy caused flood damage to the insured’s rented store resulting in contents and inventory damage. The BOP carrier declined the claim. The insured sued the agency for failure to offer flood coverage. The agency did not document their file that flood coverage was offered/declined. The result was a $325,000 E&O claim with an additional $145,000 of loss adjustment expenses.

The E&O risk management solution is to offer all insureds the option to purchase flood coverage in writing, have the insured sign acceptance or denial of coverage form, document the agency file, and repeat at each subsequent renewal.

Failure to place flood coverage 

The insured is a long-term customer of the agency operating a retail shop written on a Businessowners Policy (BOP). Superstorm Sandy caused flood damage to the insured’s rented store resulting in contents and inventory damage. The BOP carrier declined the claim. The insured sued the agency for failure to offer flood coverage. The agency did not document their file that flood coverage was offered/declined. The result was a $325,000 E&O claim with an additional $145,000 of loss adjustment expenses.

The E&O risk management solution is to offer all insureds the option to purchase flood coverage in writing, have the insured sign acceptance or denial of coverage form, document the agency file, and repeat at each subsequent renewal.

Failure to procure adequate flood limits 

The agency has written the insured’s building coverage, including flood, at the same limit for several years. The insured owned and operated a manufacturing operation, under a different name, which occupied the building. The manufacturing operation was not a named insured under the flood policy nor was contents coverage provided. Superstorm Sandy flooded the building. Flood damage to the building was covered, but there was no coverage for the tenant’s contents. The result was a $280,000 E&O claim with an additional $65,000 of loss adjustment expenses.

The E&O risk management solution is to offer all insureds the option to purchase flood coverage in writing, have the insured sign an acceptance or denial of coverage form, ask the insured if any changes have taken place in their business which would require additional coverage or limits, document the agency file, and repeat at each subsequent renewal.

Failure to adequately explain flood policy provisions 

The agency writes a large, complicated property policy for a supermarket chain encompassing numerous locations in multiple states. The Flood Coverage is provided with many unique coverage provisions. Superstorm Sandy caused flood losses at several of the insured locations. The flood claim adjustment accounted for the various provisions in the policy resulting in the insured receiving far less coverage than they anticipated. The insured sued the agency. The result was a $2,500,000 E&O claim with an additional $1,500,000 of loss adjustment expenses.

The E&O risk management solution is to review all unique coverages, policy provisions, exclusions, and limitations with the insured; offer examples of how specific claim situations will be handled in the event of a flood loss; have the insured sign an acceptance of understanding form; document the agency file; and repeat at each subsequent renewal.

All of the above examples show that flood insurance is a frequent cause of E&O claims against insurance agents. Taking time to understand the flood insurance options, offering all options to your clients, and documentation of their declination or acceptance of your proposal is sound customer service and E&O loss prevention.

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Ordinance and Law: Are You Discussing This Coverage With Your Clients?

Posted By Curt Pearsall, CPCU, AIAF, CPIA, Thursday, January 3, 2019

Do you think everyone in your agency is knowledgeable about Ordinance and Law Coverage? There’s a good chance that not everyone is familiar with it. The coverage is fairly unique but is very important.

Ordinance and Law Coverage is typically included on Homeowners policies. The standard coverage is usually a low percentage of the Coverage A limit, around 10% with higher percentage limits available for an additional premium. Ordinance and Law Coverage can pay not only for rebuilding a destroyed home but also upgrading the home, so it meets current building codes.

When looking at a claim that involved Ordinance and Law Coverage, the lowest policy amount was not enough. The claim alleged the agency failed to procure the requested coverage for the agency’s client. The key issue was that the agency staff member was unaware of the differences in three options under the Ordinance and Law Coverage and thought the client had limits of $100,000 under this coverage when, in fact, they only had $10,000.

After the client’s roof suffered hail damage, it was determined the building code had changed and required the client to add a membrane coating under the roof. The client was seeking $100,000 under the Ordinance and Law Coverage, far more than the $10,000 policy limit. The client sued for the additional $90,000 alleging the agency failed to procure the requested coverage and did not properly understand the options/coverage provided. An E&O claim was brought against the agency.

Could this type of claim happen in your agency?

Ordinance and Law Coverage can include three separate types of coverage:

Coverage for Loss to the Undamaged Portion of the Building − In some jurisdictions, the building code may require that a partially damaged building be demolished. This type of coverage states that if this type of ordinance is in place and enforced by the local authorities, the insurance policy will treat the claim as a total loss even though the building was only partially damaged.

Increased Demolition Cost − This type of coverage applies to the cost of the demolition to the undamaged portions of the building.

Increased Cost of Construction − This type of coverage applies to any increased expenses incurred to upgrade, repair, or replace the building while conforming to the current building laws or ordinances.

The basic coverage in the Homeowners policy may not be enough for these associated costs, as in the claim example above. At a minimum, the agency should make the client aware of what the Ordinance and Law Coverage can provide and the limits available.

Some agency staff may think the coverage is only for older homes, but that is not true. There is a possibility that homes built 10 years ago could have this exposure if the municipality where the client resides has undergone some type of a building code change.

Agencies should consider the following tips for Ordinance and Law Coverage:
Provide agency staff, Personal and Commercial Lines, with the necessary training to ensure they know the coverage and how to properly explain it.

All proposals should include reference to this coverage and the additional limits available for purchase.

There should be clear documentation with the client’s signature of any agreed upon coverages and limits.

Consider educating current and prospective clients on the importance and implications of this coverage, possibly in a social media campaign that could generate additional sales.

Typically, when discussing Homeowners Coverage, the more prominent threats (fire, theft, etc.) are discussed. Agencies should not discount the importance of Ordinance and Law Coverage.

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E&O and Your Agency Website

Posted By Curt Pearsall, CPCU, AIAF, CPIA, Wednesday, November 28, 2018

How do most agency websites get developed? Typically, the agency contracts with a marketing firm to build a website that is very impressive and says a lot of great things about the agency and the type of business the agency handles. After all, isn’t the website designed to impress current and prospective clients to induce them to deal with the agency? 

Is there the possibility that the website makes statements that technically are not true? 

Statements such as:

  • We will identify your exposures to ensure that you are properly covered.
  • We will search the entire marketplace to provide you with the best coverage.
  • We will ensure you have no gaps in your insurance program.
  • We will annually update your property values to ensure that you are not penalized in the event of a property loss. 

These all sound impressive and may assist in the agency landing the account. You are probably wondering “so what’s the problem?”

A problem arises when the website makes a statement that is not correct. Actually, the last statement noted was a key issue in an E&O case I was involved in many years ago. The problem was the agency did not do what the website stated and the client suffered a fire loss that resulted in a $500,000 co-insurance penalty.

Agencies need to understand that the website could be a key factor in determining the direction of an E&O claim. Both plaintiff and defense counsel will be reviewing the website 1) to determine its applicability to the case and 2) to determine whether the agency honored what the website stated.

When looking to have a website designed / updated, the issue may not be what words / phrases to use but instead, what words / phrases to avoid. It is best to avoid words such as “expert” or “specialist” as they have the potential to raise the legal standard the agency could be held to. In addition, the goal should be for the website to accurately state the capabilities of the agency. To state “we will ensure you have no gaps in your insurance program” (this is an actual statement in an agency website) is really not possible. The agency can work with the client to identify the various exposures but at the end of the day, it is up to the client whether they buy the coverages discussed.

Another issue that is often overlooked deals with the communication of your agency objectives to the staff. In many of the cases where I ask a producer about the agency website, their response is “I have no idea what our website says”. All agency personnel should be keenly aware of what the website (as well as other promotional material) says about the agency.

It is very important for agencies to have a strong message on their website. Just make sure that it is not saying things about your agency that really aren’t true.

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