Signed, Sealed, Delivered?

Remember that signed application you never collected? It could cost you.

E&O claims data provided by the Big “I” Professional Liability Program’s endorsed carrier, Swiss Re Corporate Solutions, reveals that application-related claims have increased approximately 60% in the past five years. CSRs are more frequently the target of these errors, with the number of application-related claims involving CSRs nearly doubling from 2009 to 2013.

What’s behind these trends? While carrier underwriter systems have increased agent response time to the customer, they can also create potential E&O headaches. Without a formal application signed by the customer, agency personnel often use “placeholder” information to generate customer indications.

Agency staff might have every intention of going back to the customer and gathering the appropriate information, but they also want to proceed with getting an indication to the customer as quickly as possible. Unfortunately, that means they sometimes fail to set a reminder—binding the indication and issuing the policy with inaccurate information that was input by agency staff and not verified by the customer. This leaves the agency wide open to future E&O claims—and these types of claims are increasing in frequency.

Without securing signed customer verification of the information used to procure coverage, the customer’s misrepresentations can become the agent’s problem should a carrier deny coverage. E&O attorneys agree that the actual insured signed application is a critical piece of evidence in defending the agency.

Even if carrier systems allow the agency to deliver quotes without getting a formal application, at a minimum, agents should establish a process for documenting the customer-provided information that was used to procure coverage and make sure to get a customer signature. Discourage agency staff from inputting “placeholder” responses on behalf of the customer as a time saver.

David Hulcher is Big “I” assistant vice president of agency professional liability risk management.