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Intersections: Where E&O Safety Meets Agency Growth

Errors & omissions protection or agency growth? They're not mutually exclusive.
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How many errors & omissions classes have you attended? How many times did you walk away thinking, “What a great idea for agency revenue generation”?

The industry offers some great E&O sessions and somewhat fewer great sales seminars. But very few, if any, make the connection between E&O safety and increasing agency revenue.

In reality, the two business strategies can align well.

The biggest E&O exposure in the industry is failing to offer coverage. “Recommend” and “policy interpretation” allegations make up more than 35% of agency E&O incidents, according to studies from Westport and other carriers.

The biggest agency growth challenge, on the other hand, is improving revenue to match and exceed inflationary cost increases. Sales velocity averages only 12% before natural attrition of 5-7%, and even Best Practices agencies averaged only 6.9% growth in 2015, according to the latest Best Practices Study.

Agency growth depends largely on three factors: new commission per producer, increased policies per account, and average increase in revenue per account. When producers write more coverage for each new client and CSRs incorporate account development into account management, an agency not only grows, but also protects itself from “failure to offer” allegations.

Every agency principal and manager will agree that writing more coverage for more clients is good for business. The big question is how to make that happen while maintaining day-to-day service demands.

Best Practices agencies use six strategies that work:

1) Redefine every service occasion from “task” to “opportunity.” One account manager compared this agency culture change to treating every client like a friend you want properly protected—even if it means “nudging” them a little. Another account manager likened her job to the doctor who saw her husband for what everyone thought was a cold, but ended up being nasal cancer. The diagnosis saved her husband’s life.

Consider this example: Years ago, a client called an agency in South Bend, Indiana to complain about a premium increase that had resulted from adding her newly licensed son to her auto policy. The account manager was able to transition the caller from being upset to purchasing an umbrella policy, by pointing out that the son had the most chance of jeopardizing the family’s college and retirement savings.

Even agencies and brokerages with written job descriptions often fail to include specific annual goals related to revenue and policies per account for account managers. Clarifying expectations increases your chances at success.

2) Stop being a remote employee for the insurance carrier. Instead of updating the carrier’s site with a policy change first, your first stop should be the agency’s database to check the status of coverage in your own system. Use this opportunity the client gave you to discuss how missing coverages could hurt them in realistic scenarios.

For example, increasing a deductible to balance a renewal premium increase but overlooking that the client’s rental property has no liability coverage increases your E&O exposure while also losing your agency money.

Update the agency system fully and then use Real Time to transfer the policy change to the carrier site. If Real Time is not an option with that carrier, email a change form.

3) Focus more management time and attention on account managers’ coverage knowledge and communication skills. Coverage skill is generally thin across the industry. Consider the following examples:

  • Moving a commercial client with rental property from a business owner’s
    policy to a package, without realizing that business and rental income coverage needs to be added to the package to replicate what the insured had on the BOP
  • Moving a client’s rental properties from personal lines to commercial lines, without realizing pollution coverage is lost unless the commercial program is endorsed or supplemented

To improve coverage skill among agency staff, try incorporating a coverage case into every department meeting. Consider using your agency management system to report on how many homeowners policies have optional endorsements—schedules, coverage for relatives in assisted living, sewer backup, ordinance and law—and quizzing the department members on their knowledge of when those coverages are needed.

Or, have a monthly lunch and learn session in which an employee discusses an interesting coverage and the team brainstorms how to use that coverage with relevant clients.

Coverage nerds can be an agency’s secret sales weapon!

4) Require the agency sales director to spend frequent quality time with account managers to help improve their sales comfort and skills. Many agency employees are hired into jobs that were described as more reactive and logistical than focused on risk management and account development. Making that transition to differentiate the agency and provide added value to clients takes persistence, coaching and energy.

Director-led roleplays can help account managers develop more natural and targeted conversational skills. The ability to effortlessly segue from “what you are requesting” to “what you might want to consider to protect yourself better” can strengthen every client contact—but it takes practice.

An account manager should always ask “why”—and can usually find a way to round out coverage. Consider the question “Why the increase in inventory value?” If the reason is an uptick in the client’s web-based sales, that’s an opportunity to add cyber coverage. Creative chatting is an essential sales skill.

5) Be sure the agency’s insurance proposal is a true sales document—not just a pricing display. Comparing this year’s proposed pricing makes it all about price. Using a carrier’s from-site proposal by itself means you miss essential sales and E&O prevention items. Every proposal should include these elements:

  • Why do business with us? Remember, the prospect can get this carrier and its products from lots of other agencies or brokerages. What are the specific advantages of dealing with you?
  • Your agency’s credit and collection policies. If the incumbent agency or brokerage advances agency-billed premiums for the client or hounds its direct billed clients to pay their bills, the prospect will expect the same from you—and may get canceled as a result. If you did not specifically advise that you (wisely) don’t provide those services, the client may have a legitimate complaint.
  • Your coverage recommendations and prospect signoff requirements, to prove the client had the opportunity to discuss them.

6) Make annual account reviews mandatory, not optional. The client who is the quietest can be the biggest E&O exposure, because of the credibility of their allegation that they paid their premium for years with no contact from the agency.

Create a coverage recommendations letter template that can be merged into the agency management system and prepare a few pre-written paragraphs about specific coverages. This enables you to format and send a good letter or email in seconds to recommend the next logical and relevant coverages to a client.

It’s difficult for a client to blame the agency for not having coverage if the agency is on the record with those recommendations. Even if only a small percentage of recipients bite and wisely buy the additional coverage, the agency improves its growth curve.

Virginia M. Bates is an approved auditor and seminar leader for the Swiss Re Corporate Solutions/Big “I” Professional Liability program, as well as an educator and consultant on many other insurance subjects for state associations, agencies, vendors, carriers and other organizations.

Case In Point

A case involving Cammeby’s Mgt. Co, LLC, decided by appellate decision in late 2017, is a good example of how important these recommendations can be.

A policy with an effective date of June 30, 2011 carried a $10-million limit for flood. The insured entity’s insurance consultant—not a named insured, let alone the first named insured—emailed the agent to inquire about increasing the limit to $30 million, which it turned out better matched the exposure.

The agent completed the request via a new policy with an increased premium. Some of the entity’s property managers objected to the increased premium, so the insurance consultant requested that the increase revert back to the initial $10-million limit. Apparently, no one at the agency created or sent the client either a change confirmation or suggestion to match the limit to the exposure.

In fall 2012, Superstorm Sandy caused more than $30 million of damage to Cammeby’s properties. The resulting legal action ended with the appeals court ruling in the Cammeby’s favor in the amount of the disputed $20 million: “We conclude that a reasonable juror could find that Cammeby’s lacked either the knowledge or intent necessary to ratify the policy limit reduction.”

With that final adjudication, the agent lost
not only the case, but also the additional legitimate premium for coverage that at least matched the exposure. It is impossible to know for sure if the first named insured would have agreed to maintain the higher limit, but substantive documentation of a “gung ho” attempt to point out the financial loss at risk may well have succeeded at preserving the coverage that was ultimately necessary. At best, it could have precluded the expensive defense and settlement.

The task was to comply with the request, which should have been confirmed with the first named insured. The opportunity was to lobby for maintenance or even increasing the higher limit that turned out to be appropriate for the loss.

Moving from a task-based culture to an opportunity-based one reduces the double threat of E&O hassles and financial stagnation. —V.B.
Tuesday, June 2, 2020
E&O Loss Control