There are plenty of dangerous things agents do that can potentially expose them to Errors & Omissions (E&O) claims.
Whether it’s a fundamental issue such as lacking a thorough understanding of products being sold, or common causes such as misrepresenting the scope or cost of coverage or failing to document communications with clients, when it all comes down to it statistics bear out that about one in seven agents will be sued at one point in their careers over an E&O issue.
Being sued in an E&O claim will likely cause some headaches, but this is why agents purchase professional liability insurance. Having a thorough understanding of your E&O coverage will help to make sure you or your staff doesn’t do anything that might jeopardize the coverage.
Knowing that there is that one in seven chance an agent will face an E&O claim at some point, we asked the National Ethics Association for some tips on how to minimize the chances of a claim arising. By following the advice in the 10 tips provided by the NEA, agents will dramatically lower the odds of being that one in seven:
- Adhere to ethical business practices and comply with all regulations. This will greatly minimize an agent’s E&O exposure. We can’t overestimate the importance of simply doing business the right way.
- Sell insurance by the book. Do rigorous fact-finding and only sell insurance or other financial products that are appropriate for prospect needs, financial resources, and risk tolerance.
- Master your product provisions and spend whatever time necessary to educate your clients on them. Avoid expectation gaps at all costs!
- Take great care to fully complete the policy application. Ask the questions exactly as phrased on the app; don’t answer for the prospect; don’t leave questions unanswered; don’t sign for the person; and don’t coach the prospect to answer the “right” way. Also explain to the person what’s at stake in completely and correctly answering the questions.
- If possible, deliver the new policy in person and review the provisions once more. Make sure the delivered coverage and customer expectations are still in synch.
- Document all future client discussions, no matter how seemingly trivial. For major decisions (including something like declining recommended coverage or coverage limits), have the client sign an “understandings” memo or letter.
- Fulfill all insured service requests quickly and correctly, leaving a paper or electronic trail in the policy file.
- Be very careful regarding policy replacements, making sure to follow the carrier’s replacement regimen, filling out all forms, explaining impact of coverage change and tax implications to clients.
- Be diligent about touching base periodically with clients about their beneficiary elections. And when a customer calls with a beneficiary change, put it through promptly.
- Be very perceptive about client dissatisfaction, complaint letters, or demand for payments or refunds. Take these events seriously and inform your E&O promptly should they occur.
While some E&O claims are practically unavoidable, the vast majority can be avoided by following procedures and guidelines such as these, and always maintaining strong documentation that may prove invaluable in the event of a claim.