Policy Issues: Knowledge, Habits and Nerds Can Serve You Well in 2007

HAPPY 2007! As Buffalo Bob used to say, “What time is it, kids?” Why, it's New Year's Resolutions Time! So let's get right to it with our first resolution.

Read your forms! OK, I admit it–this is always my first resolution. Alas, what tangled webs we weave when first we fail to review and perceive. It's frustrating to read of problems–in the court cases published in this and other magazines, in insurers' errors and omissions case studies, in e-mails that arrive at my office and in postings on online forums–that could have been avoided had someone only taken a few extra minutes to read the applicable form language before proposing coverage. Some swear on their mothers' souls they do not have time for such diligence. But as our own dear mothers used to say, “If you can't find time to do it right, when will you find time to do it over?” In our industry, “do over” is often abbreviated “E&O.” Which leads us to resolution No. 2:

Be good, not lucky! The November “Down to Cases” article included a claim that a carrier paid and for which it then sought reimbursement from a clearly negligent agency. If you want to know just how “clearly negligent,” one quote should suffice: “While the agent indicated on the application that she had inspected the truck, she later testified she had simply viewed the truck through her office window.” According to the article, the truck in question was parked in a lot across the street from the agency. Now, I don't know how your dictionary defines “inspected,” but the Encarta English Dictionary's definition is: “to examine something carefully in order to judge its quality or correctness.” One issue in the case was that the insurer accepted the vehicle because the agent told the carrier that it was a standard pickup. The truck, however, had six wheels. If this were a movie, the soundtrack would now swell ominously, foreshadowing the great calamity just over the horizon.

The agency, however, was saved when it won the case on a technicality. So is the lesson to be learned “Hurray for dumb luck”? Alas, this kind of “angels will watch over the innocents” mentality evidently passes for E&O prevention at far too many agencies. No, the lesson to be learned is that agents who rely on luck to dodge a bullet today undoubtedly will catch one tomorrow.

Was I the only one astonished when the judge in that Katrina case in Mississippi–cited as a major victory for the insurance industry–mentioned (almost as an aside) that the agent involved had told the plaintiff he didn't need flood insurance? But since the judge considered the comment mere advice, the court gave the agent a pass. That suggests a new E&O avoidance strategy. After each bit of solid advice given to a prospect or client, add the disclaimer: “But, hey–what do I know? That's just my opinion, and you know what that's worth!”

For those who decide that trusting dumb luck as an E&O technique is roughly equivalent to pursuing a retirement strategy based on lottery numbers and scratch-off tickets, may I suggest our third resolution:

Fight E&O with “OM.” For our purposes, “OM” stands for “Office Manual.” More agencies have run aground on the shoals of E&O because of flawed or nonexistent office procedures and workflows than ever bottomed out because of form technicalities. Sure, failure to procure proper coverage may be the legal basis for a claim, but what causes this failure? Those thousands along the Gulf Coast who were ruined by floods were not done in by a miscalculated BFE or insufficient premium issue arising from a misread FIRM. Nay, their misery arose from the absence of flood coverage, which many claim their trusty agents never offered them. And why this oversight where the need for flood insurance seems so obvious? The problem was the same that leads to other coverage gaps and missed opportunities–no agency process or procedure to ensure clients are offered coverage. You can call it cross-selling, account rounding or account development. I call it E&O prevention. When the overriding reason for E&O claims is coverage that was never written, the overriding solution is–write the coverage. To paraphrase the bard: If you sue us, do we not bleed? But if we sell you, are you not covered? And if you be covered, do we not profit? Therefore, blessed be they who ask, so their clients may receive.

So ask the client to buy coverage that's obviously needed. Always. Every time. Nonoptional behavior, the management gurus call it. I prefer the term “habit.” Develop and implement procedures that will overcome the tendency in us all to let things fall through the cracks. Seal those cracks with the putty of process.

Notice I said the overriding majority of E&O claims arise from flawed or nonexistent procedures. I didn't say all of them do. A given number arise from such things as overlooked exclusions, misunderstandings or misinterpretations of coverage language, or failure to provide adequate solutions via effective forms choice or the attachment of proper endorsements. Which leads to our fourth resolution:

Call on Semicolon Man! Or woman. My friend Bill Wilson, grand wizard for the IIABA Virtual University, coined this phrase to describe a person who knows the fine print of the coverage forms so well that even the punctuation reveals hidden secrets and nuances. This person loved “The DaVinci Code” for the riddles, not the plot–and thinks of sudoku puzzles in the same vein as computer solitaire–time-filler for the brain-dead. In the insurance world, these folks greet the announcement of major forms revisions not with “Oh, no,” but a joyful “Oh, yes!” They find coverage details fascinating. Maybe you've hit extreme levels of frustration trying to bribe them to X-date or cross-sell. You might even have encouraged them–seriously–”to get a life.”

Rather than force these proverbial square pegs into the round holes of production-oriented tasks, unleash their deductive powers to resolve those coverage molehills that can lead to E&O mountains. For example, does someone at your agency review every policy on arrival from the carrier to make sure every detail is as requested? For you, this may seem mind numbing. For Semicolon Man, this is Christmas morning! When creating coverage proposals for complex accounts, do you make sure every need is met and no exclusion overlooked that could negatively affect the client at claim time? For a producer, it can be easy to overlook details like optimal endorsements, adequate limits for business income, underwriting requirements for certain risks or applicable classification exceptions/footnotes. Dare I mention verification of coinsurance compliance and proper allocation of excess coverage layers?

So Semicolon Man to the rescue! You will get a better night's sleep, and the agency will receive a major additional layer of E&O protection. Can you say, “win-win”? Which seems like the perfect segue to our fifth and final resolution:

Remember that Insurance is Fun! Love the Life! And Happy New Year 2007!
Chris Amrhein is an insurance educator and speaker with more than 30 years in the industry. He is also chief fun officer of www.insuranceisfun.com, where his newest book of insurance. Readers may contact Chris at [email protected].

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