The number of property & casualty carrier ratings downgrades in 2023 continued to outpaced upgrades, according to AM Best. Some of the reasons behind this include heightened weather-related catastrophe activity, rising reinsurance costs and continued impacts due to worsening economic and social inflation.

In some cases, carrier downgrades led to the state insurance department placing the carrier in rehabilitation, receivership or even liquidation. For insurance agents, these ratings downgrades could present an errors & omissions exposure if not properly managed.

During rehabilitation or receivership, the carrier's assets are marshaled, liabilities are reviewed to see what changes can be made and there may be a moratorium on accepting new business, but claims can still be reported and insurance coverages are still in place.

It is also common for the carrier's board of directors to be disbanded because they are no longer needed to oversee the management of the carrier. There may also be changes in staffing with layoffs of management or other staff. These decisions are intended to strengthen the carrier's financial position and protect the promise made to insureds.

Sometimes, the financial position of a carrier is beyond repair. In that instance, the rehabilitator or receiver will petition the court for an order of liquidation. In simple terms, liquidation is bankruptcy. The official order of liquidation is an important document for agents to review because it provides details about how assets will be distributed to pay debts, how open claims will be transferred to the state's guaranty fund and when policies will be canceled, as well as time constraints to file new claims.

If one of the carriers you work with is impacted by one of these orders, remember that each carrier's situation is different. Read the court order and any other documents issued for clarification about how in-force policies will be treated.

Here are some steps to consider:

• Check your agency management system to identify potentially impacted clients.
• Contact the clients to advise them of the situation. Initial contact can be by telephone with a follow-up letter, but be sure to document communication.
• If the department of insurance or receiver issues information or guidance, share it with the client and include it in your follow-up letter.
• Document communications with the carrier or receiver.
• Prepare to remarket the affected clients. This is important if the carrier is placed in liquidation because you may have as little as 30 days to move their coverage.
• Check whether affected clients have other policies that may be impacted, such as umbrella or excess. Keep this in mind if your client asks you to remarket their policy.
• Review remarketed policies for coverage differences and advise clients if there is a change in limits or deductibles, or if there are coverage reductions.

Swiss Re Corporate Solutions insureds and Big “I" members have access to sample client letters on E&O Guardian. These letters can be customized for the carrier's circumstances and make documentation in the client's file easier, which is key to your defense should an E&O claim develop.

Here are three things you should not do:

• Pay outstanding or new claims for clients.
• Refund unearned premium if a policy is canceled mid-term.
• Rely on the rehabilitator or receiver to contact clients.

Communication with clients about changes in their carriers is key to strong client relations. Using the sample letters from the E&O Guardian website can help keep clients informed of the financial situation with their carriers as well as their coverage options. This demonstrates you are looking out for their interests by doing all you can to protect and inform them.

Annette Lynn Ardler is a senior underwriter and risk management expert underwriting insurance agents errors and omissions coverage for Swiss Re Corporate Solutions. She has been a licensed agent for over 30 years with a specialty in professional liability insurance. Ardler has taught classes in risk management, ethics and laws and regulations.

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group (“Swiss Re") and/or its subsidiaries and/or management and/or shareholders.