As agencies focus on their very survival in this long-running soft market, they may be overlooking a critical aspect of their own business—and potentially placing themselves in a vulnerable spot.
Roughly one-in-nine insurance brokers have an errors and omissions claim each year, and not all of them actually arise out of clear mistakes. For example, a client is unhappy with the result of a claim filed with an insurer and therefore brings a claim against his agent or broker to obtain additional compensation.
For insurance agents and brokers, these types of claims can be just as difficult and expensive to defend as clear-cut errors. E&O insurance typically pays for the cost of defending a claim, whether clear-cut or not.
The typical claim an insurance broker sees is a claim for failure to place coverage or failure to place adequate coverage. Situations vary and usually occur when an insurer denies a claim.
Severity varies greatly and is impacted by the specific circumstances of the claim. For example, the severity of an insurance broker's claim for failing to place proper coverage on an auto is significantly less than the severity of a claim for failing to place coverage for a contractor's business.
When underwriting an insurance broker/agent's professional liability insurance, carriers will take a detailed look at the operations of the applicant. The exposure base used is typically either revenues or premium volume, and underwriters will take into consideration factors like the type of business placed, location, management experience, prior claims, internal procedures and employee training.
Additional risk comes in the form of new federal and state privacy laws mandating protection of clients' personal information.
Adopt a data-breach or privacy plan which includes the agency's website and electronic systems. Investigate where breaches might occur and develop a plan of action to safeguard the vulnerable areas. Also consider purchasing data breach/privacy insurance policies.
Beyond insurance, of course, it's critical that you have a well-trained, dedicated staff that prizes teamwork, accuracy, personalized service and attention to quality. These are critical determinants of success for agents and brokers. They lead to better customer satisfaction, which in turn reduces the potential for errors and omission claims.
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