How many times over the last couple of years has your agency found it necessary to move a personal lines or commercial account to a new carrier? Due to the soft market, it has probably happened fairly frequently. In most of these situations, the premiums were probably lower, resulting in a happy customer and the retention of the account.
The next question is: How confident are you that the coverage with the new carrier was at least equal to the expiring policy—or if it wasn't, was the customer aware of the fact and did he or she sign off on the differences? If you didn't identify the differences and a loss occurs that would have been covered by Carrier A but was not covered by Carrier B, your customer will not be happy and may consider bringing an E&O claim against you and your agency.
This process, referred to in the industry as the “mirror test,” is critical to avoid future problems down the road. Actually, although many carriers are reporting claims frequency as being down compared with a couple of years ago, agencies failing to perform the mirror test is an area that by itself could cause claim frequency to rise. As carriers look to differentiate themselves from their competitors, it is likely that if your agency remarketed an account to three additional carriers, there is definitely the potential for differences between the incumbent carrier and these additional markets. When looking to move an account to a new carrier from one carrier to another, the key is to identify any coverage differences, bring them to the customer's attention and seek their direction.
What is the likely scenario? You move the account to another carrier and the insured suffers a loss that would have been covered by Company A but is not covered by the new carrier you placed them with. The customer now faces an uninsured loss and unless you advised them of the coverage differences, they may question why your agency moved the coverage. It is likely that that they will say that they never would have approved you moving the account if they knew that they were giving up coverage. If you stated verbally or in writing to the customer that the coverage is the same when it was not, this could have negative implications; so the words your sales staff use must be chosen carefully.
The differences between the various proposals can be significant, involving sub-limits, the coverage grant, specific endorsements, definitions for areas such as “who is an insured,” exclusions as well as the rating of the carrier. I am aware of one E&O claim where the account went from agency bill to direct bill and this was not explained to the customer. When the carrier premium pay notices went ignored (the agency producer also advised the customer to not worry about them), the coverage was cancelled. When the customer realized after a significant fire loss that they had no coverage, they proceeded with bringing an E&O claim against the agency. Guess who won?
The most recommended approach is to take all of the carriers that you are considering and put the details down on a spreadsheet, noting all of the pertinent issues such as limits, sub-limits, coverage grants, etc. Consider sharing this spreadsheet with the customer and bring to her attention the details she needs to be aware of. This will allow her to see the differences and to make an educated decision. At a minimum, bring to the customer's attention the differences between the expiring policy and the other carriers that you are strongly considering. While some of the differences may be subtle, invariably this is where the loss occurs.
When a final decision has been made, secure the customer's decision in writing. This document will be key if an underlying claim occurs down the road and they then find out that they didn't have the coverage that they thought that they had. If they chose the lower price with the lesser coverage, that is okay—just get it in writing that they realized they were giving up some coverage.
While this detailed comparison is important on all coverages, if you write professional liability and/or D&O, where no two policies are the same, there are probably more things to examine. An issue as subtle as an exclusion on one policy that was not on the other (the expiring) has resulted in a claim being denied which subsequently triggered an E&O claim—all because the customer alleged he was not aware of the difference.
For more than 20 years, the No. 1 cause of E&O claims has been failure to provide the proper coverage. In 2010, it was more than 50 percent. There is no doubt that a significant percentage of the claims that fall into this category would be eliminated if the proper analysis and comparison was completed, communicated to the customer and the customer signed off acknowledging the differences.
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