E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O RISK MANAGEMENT: Meeting the Challenge of Change Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change SPECIAL MODULE INTRODUCING THE E&O CROP INSURANCE MODULE Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CLASS DISCUSSION Take five minutes to talk with your neighbor and list as many things you can think of that make crop insurance unique in your agency Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CROP INSURANCE UNIQUENESS • Specialty Division in most Independent Agencies • Many agencies utilize CROP ONLY agents • Some agencies are “servicing agencies” for other agents/companies • Many “crop agents” have outside work interests Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CROP INSURANCE UNIQUENESS • Many crop agencies offer additional products and services to clients • Many agencies have “met the cost of doing business” by moving to techniques with less client contact • Program still has high maintenance; sales closing, production reporting, planting, plus claims in a given year • Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change WHY CROP E&O TRAINING? • In most agricultural states, crop insurance ranks in top THREE rankings of E&O claims: a. % of claims b. % of $$$ paid out c. % claims requiring litigation • Federal and State regulation conflict at times • Commodities present vast differences Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change WHY CROP E&O TRAINING? • • • • Program Complexities Record Keeping Agent severed from claim activity Specialty program tie-ins create additional problems • More education required of policy holders than more offerings of coverage Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change WHY CROP E&O TRAINING? • Common date-certain requirements • Tiered governance program A. Congress B. USDA Direct: RMA and SRA Indirect: FSA C. Industry – NCIS Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change WHY CROP E&O TRAINING? • Tiered governance continued: D. E. F. G. Company Service Center (if applicable) Writing Agency Writing Agent Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CAN YOU THINK OF OTHERS? Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Agent/Carrier Relationships – Law of Agency Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change INTRODUCTION • Independent insurance agents are uniquely positioned to meet their customers’ insurance needs with access to multiple carriers • The relationships with carriers and customers and the duties agents owe to each can become blurred • Understanding these relationships is critical to protect against potential claims arising out of a failure to meet the minimum standards of care owed each of these parties Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change THE LAW OF AGENCY • “Agency” is a term that denotes a legal relationship established when one party represents another • Both parties must voluntarily agree to enter into the relationship which can be done in writing or orally • When an “agency” relationship is created, the agent steps into the shoes of the principal and acts on the principal’s behalf • In the insurance agency relationship, the agent acts on behalf of the carrier in an insurance transaction Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change ESTABLISHING AN AGENCY RELATIONSHIP Three Types of Authority • An agent has three types of authority to bind a principal to any agreement made with a third party. • They include: – Express Authority – Implied Authority – Apparent Authority Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Understanding Agents Duties Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS • In all states, agents/brokers can be held liable for their negligence in providing services to their customers • Each state's laws differ regarding the duties an agency owes to customers • Awareness of the standard of care is a baseline for establishing how an agency operates including: – whether the agency simply takes customer orders – specializes in certain coverages, or – performs more thorough risk analyses Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS Negligence – Prove It! • Negligence is the standard of care established by law that would be expected of a reasonably prudent agent acting under similar circumstances. • There are four (4) requirements that must be met for a customer to prove that the agency was negligent. • Agents are, at a minimum, held to this standard of care. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS Negligence – Prove It! Negligence requires that all four of the following are met: 1. A duty existed 2. The duty was breached 3. Proximate cause - A connection between the breach and duty showing that the particular error or omission was a cause of the loss 4. Actual damages occurred as a result of the breach Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS Standard of Care The standard of care is the degree of prudence and caution required when rendering services to customers • The level of standard of care is closely dependent on the circumstances • Based on how a reasonable agent would react under similar circumstances. • Failure to meet one’s standard of care can result in a claim of negligence Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS Standard of Care The determination of the legal standard of care varies in each state • Know your state’s standard • Be cognizant of “special relationships” that could increase the chances of negligent claims • Agencies need to be aware of their exposures and implement procedures to minimize risk. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS Differing Levels of Standard of Care • The standard of care for agents is determined by state courts and can be divided into two categories: 1) Non-professional or order-taker status; and 2) Professional standard of care. • • The court will assess whether a “special relationship” exists which can potentially increase the standard All agency personnel must be aware of the circumstances in determining how a special relationship is created Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS Differing Levels of Standard of Care Non-Professional Standard of Care In states where agents are not subjected to a professional standard of care the agents obligations are: • to procure the coverage requested by the customer, and • to let customer know if that cannot be done Where possible: • obtain written confirmation from insureds regarding any specific coverage requests, and • document all steps, including the final outcome of any such requests. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS Differing Levels of Standard of Care Professional Standard Of Care In states where agents are subjected to a professional standard of care the agent’s basic standard of care recognizes the insurance professional’s skills and knowledge required to perform his/her duties • agents may be expected to uncover and inform customers of the possible loss exposures they face, and • offer insurance solutions Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DUTIES TO CUSTOMERS The “Special Relationship” • Courts often look to the nature of the relationship the agent maintains to determine the standard of care to be applied • Some factors the court might consider that could increase the standard of care or create a “special relationship” include: – – – – Claims of expertise Agreement or Additional Compensation Length of Customer Relationships Rendering of Advice Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O DEFINED “I made a mistake” (error) or “gosh I missed that” (omissions) • Wrongful acts can be described as human failings • An agency that has good E&O risk management procedures in place, that are enforced and monitored, can reduce their E&O exposure. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Procedural vs. Knowledge Based Errors • E&O claims can generally be broken down into two categories: procedural errors and knowledge-based errors. • The spread of claims between these two categories is about 50/50 and in some cases there is overlap between the two Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Procedural vs. Knowledge Based Errors Procedural Based Errors: • Lack of timely response • Failure to: – – – – Comply with underwriting guidelines Add Additional Insured Deliver a policy in a timely manner Submit claims • Sending incomplete information to carrier Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Agency E&O Culture - Staff Awareness Agency staff needs to follow procedures AND understand the concept of how E&O may occur • The actions or lack of action of all agency staff affects the agency’s E&O exposure • A culture of E&O awareness can keep it top of mind and is the first step in successfully avoiding claims • Open discussions will create an environment where agency staff is more comfortable making managers aware of potential E&O claims Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Agency E&O Culture - Staff Awareness A Culture of E&O Awareness facilitates: – Better claims reporting – Ensures coverage by meeting the agency’s E&O policy’s reporting requirements Fear of discipline or reprisal may delay bringing a situation to management’s attention until it is too late to resolve the problem Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Welcome RMA Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Reporting an E&O Claim Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change REPORTING AN E&O CLAIM - MYTHS VS. REALITY • Often professionals do not believe that they have done anything wrong when confronted with a claim or potential claim • Their reaction may be to provide their own “proof” or “defend” their actions to those making allegations. STOP before you proceed to defend your actions or provide any documentation and contact your carrier for assistance! Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change REPORTING AN E&O CLAIM - MYTHS VS. REALITY The Cost of Reporting • The reporting of a claim/potential claim to Swiss Re does not automatically result in any underwriting action • Underwriters individually review each claim/incident to determine the facts and circumstances • If no reserves or payments are applied, generally no underwriting action will be taken The cost of not promptly reporting a claim far outweighs reporting it Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change REPORTING AN E&O CLAIM - MYTHS VS. REALITY When it happens to you • Do not admit liability—to the insured or the insured’s insurance company • Be empathetic, BUT choose your words very carefully • Do not discuss or provide copies of your E&O policy to anyone • Do not offer to pay the claim yourself - even small amounts! • Do not agree to give a deposition or provide a statement Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change REPORTING AN E&O CLAIM - MYTHS VS. REALITY When it happens to you • E&O Carrier procedures: – Report the claim – by completing a claim reporting form – to the E&O carrier, or producing state association, along with details of any conversation or correspondence you have received making a demand for damages – Forward all documentation – Cooperate fully with the E&O carrier or appointed counsel Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change REPORTING AN E&O CLAIM - MYTHS VS. REALITY When it happens to you • Internal agency procedures: – Involve your assigned E&O quality assurance staff person, or other appropriate agency personnel – Appoint one agency member to serve as the sole point of contact for all matters related to the claim – Interview every person involved in the claim—and remember it’s not about the “who”, it’s about the what, when, where, and how – Have each applicable person provide a written narrative describing the incident and check the customer’s file to determine the chronology of events Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Agency Defenses – Documentation Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change INTEGRATION OF MULTIPLE AGENCY SYSTEMS • • • • • • • “Agency management information systems” (or “AMIS”) Document management softwares Email systems such as Outlook Websites, social media, and instant messaging Phone systems Voicemail-to-text softwares Carrier underwriting and policy issuance systems Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change LINES OF DEFENSE • Documentation • Invariable Practices • Use of Disclaimers • Written Follow-ups • E&O Coverage Checklists Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change WHAT MAKES DOCUMENTATION COMPLETE? Who How What Where When Why Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CHANGING COMMUNICATIONS METHODS • Communication methods have changed. • With more ways to communicate it is easy for certain correspondence and conversations to miss finding their way into the customer’s file. • More relaxed correspondence with certain communication media. • Professionalism must be maintained with all communication documented and clear to all parties. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change WHAT TYPES OF COMMUNICATIONS SHOULD BE IN THE CUSTOMER FILE? • In-person Discussions • Phone Calls (landline and mobile) • Emails • Instant Messages • Live Chats • Faxes (traditional and electronic) Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) • • • • Text Messages Websites Social Media Voice Media E&O RISK MANAGEMENT: Meeting the Challenge of Change CHARACTERISTICS OF PROPER DOCUMENTATION • Documentation should be clear, concise, consistent; include what was done or discussed with specific dates and times. • Don’t use random abbreviations or jargon that could be misunderstood. • Documentation should include unalterable date/time stamp (Note: this is only possible in an automated environment). • Be able to recreate the transaction step-by-step. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CHARACTERISTICS OF PROPER DOCUMENTATION • All staff should use the same system and procedures in documenting customer files. • Daily activity logs, copies of change orders, premium adjustments, premium audits, applications, renewal applications, declaration pages, and access to all policy forms should be in the file or easily accessible using a carrier website Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change THINGS TO AVOID • Comments about a claim, its merits, or your opinion as to whether or not there is coverage • Resist the urge to go to bat in writing for your customer when a claim is denied • Just the facts - personal asides and comments should not be included • Do not put E&O claim information into the file of the customer involved Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change KEY ELEMENTS OF THE CUSTOMER FILE • The ultimate goal of documentation would be to have every point of contact with a prospect, customer, carrier or outside third party documented • However, it’s more important to document some things than it is others. – New business: coverage and exclusion discussions – Renewals: coverage and exclusion discussions – Limits and values – E&O coverage checklist – Claims – Endorsements and Cancellations Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CARRIER CLAIMS AGAINST AGENTS • Keep in mind that the frequency of claims involving carriers against agents is increasing, so it is important to document all carrier correspondence and conversations. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DISPOSAL OF CUSTOMER FILES • Security of private information is an on-going issue • The privacy of confidential information is important and security breaches may put the agency at risk of regulatory action or civil or criminal litigation • Disposal of private information requires handling and agencies should have a process in place. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O Considerations of Agency Operations Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CLASS DISCUSSION • How does your agency describe itself and its services in marketing materials? • Does your agency have a procedure in place for developing and approving marketing materials? • How has marketing the agency changed in the past 10 years? Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change MARKETING THE AGENCY • Computers and Internet have changed the way agents market their services. • Ways to market the agency: – Websites, cold calls, brochures, advertisements, newsletters, Facebook, Twitter, blogs • Care must be taken in how agency markets their products and services. • Statements made can influence the standard of care expected from customers. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change PROMOTIONAL LANGUAGE USED • Balancing act of trumpeting strengths while managing customer expectations. • Services promised must match services delivered. • Watch out for raising the standard of care with statements of: – “Specialized” or “expert” expertise – Broad promises – Higher levels of loss exposure expertise Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change PROSPECTING AND ADVERTISING • Understand both state and federal advertising and solicitation laws. – CAN-SPAM: Prohibits sending commercial emails. – Telephone Consumer Protection Act: “Do not call list.” • Same laws that apply to paper advertising may apply to online advertising as well. • Protect personally identifiable information purchased from outside sources. • Solicitation letters should not overstate benefits of products, agency knowledge for services. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O TIPS - MARKETING • Know state and federal advertising and solicitation laws. • Ads should reflect agency’s knowledge and services. • Don’t over use superlatives. • Review and approve all marketing materials. • Encrypt private information collected from websites. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) • Avoid terms that imply coverage is broader than actually available. • Don’t over-promise carrier representation. • Include “unsubscribe” on solicitations. • Document initial conversations with prospects. E&O RISK MANAGEMENT: Meeting the Challenge of Change CLASS DISCUSSION Which of the agency’s carriers don’t require a formal signed application? How does the agency adapt its internal procedures when a carrier does not require a formal signed application? When working with carrier underwriting systems how does your agency have the customer confirm the information provided is accurate? What tools does your agency use to assess the risk exposures of customers? What are the types of situations where the coverages provided to current customers changes and how do you handle these? How many attendees have heard of the Big “I” Virtual Risk Consultant powered by Rough Notes and exclusively available to Big “I” members (www.iiaba.net/VRC)? Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O TIPS - APPLICATION • Never sign an application on behalf of customer. • Have insured review application and sign and initial each page. • Verify when carriers do and do not require agency to retain application. • Get a signed application anyway. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) • Recap information provided by insured and get signature attesting to accuracy of information. • Use ACORD forms to assure consistency, unless carriers have proprietary forms. • When emailing application use secure email. TLS secure email is recommended. E&O RISK MANAGEMENT: Meeting the Challenge of Change PROPOSALS AND QUOTES • Presentation of quotes and proposals varies by agency. – Size and complexity of account, Personal vs. commercial lines • Carrier underwriting systems have changed how some agencies handle proposals. – Proposals can come directly from carrier underwriting systems with no modification. – Agency specific proposal template where information is transferred from carrier quotes. • Agency and prospect may review quotes over phone with not formal proposal issued. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change PROPOSALS AND QUOTES • Proposals directly from carrier underwriting systems may not include: – Offer of increased limits. – Additional endorsements available. – Other stand-alone coverages offered/rejected. – Appropriate disclaimers. – Duties in the event of a claim. – Customer sign-off verifying the agency relied on information provided by the customer. • Consider a supplemental form when using a carrier specific proposal. • Encourage prospects to request a copy of the proposed coverage forms. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O TIPS – PROPOSALS AND QUOTES • Documents any coverage discussions with prospects, insureds, and carriers. • Procedures should outline whether carrier proposal or agency template is used. • Let the customer make the coverage purchasing decisions. • Clearly indicate any changes in coverage. • Have insured sign off on rejected coverage. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) • Recommend additional coverages: flood, earthquake, umbrella, environmental impairment, EPLI, cyber liability. • Include disclaimer language on proposals. • Provide additional steps or information required to effect coverage. • Make customer aware if premium is subject to audit. E&O RISK MANAGEMENT: Meeting the Challenge of Change CLAIMS HANDLING • Report claims to the carrier the same day received. • Do not make coverage determinations on behalf of the carrier. • Remember a claim report to the agency is a claim reported to the company. • Report claims to all carriers where coverage may be applicable. • Manage expectations of the customer. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change ADVOCATING FOR COVERAGE • Care needs to be taken in how the agency advocates for their customer when a claim is denied. • Healthy discussion of the policy language with the carrier is acceptable. • Admitting your error caused the denial should never be done; especially in the form of a letter to the carrier. • If your customer has a potential uncovered claim consider getting your E&O carrier involved early. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O TIPS – CLAIMS HANDLING • Treat all claims as critical. • Do not deny or confirm coverage. • Outline the claim process. • Have the customer to contact you if they don’t hear from the carrier. • Advise the policyholders of any loss conditions or duties. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) • Don’t advise the insured who to hire for repairs unless directed by the carrier. • Regardless of instruction from the customer, report all claims to the carrier. • Create a suspense/activity to follow up with policyholder with 72 hours. E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O CLAIMS DRIVER • The leading driver of E&O claims is “failure to procure coverage”. • They are primarily a result of one of the below issues: 1. 2. A lack of coverage knowledge or improper guidance regarding coverage Procedural failures – generated from a lack of timely action or followup, including not properly documenting the customer file. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change E&O CLAIMS DRIVER • The more often a comprehensive coverage checklist can be used the better position they will be in to offer a solid defense • When presenting quotes and proposals it is recommended that additional coverage options be included beyond those requested • The continual use of checklists allows the agency to document an on-going process of coverage option recommendations Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change WHAT’S INCLUDED IN COVERAGE CHECKLISTS • Enhances exposure identification through a review of the coverages listed • Usually have areas indicating: – no exposure exists – recommended and accepted, and – recommended and rejected • Most provide an area for the client to initial coverages that are rejected and for a signature at the bottom of the checklist. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change RECOMMENDED PRACTICES • The standard of care an agency must meet is largely determined by the state in which it is doing business • However, an agency’s use of risk assessment questionnaires and checklist does not in itself necessarily establish a higher standard of care. • Use of coverage checklists is a best practice Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change DEVELOPING CUSTOMIZED COVERAGE CHECKLISTS • Coverage checklists should be thorough, current, and standardized. • It can be challenging for an agency to develop and update a comprehensive checklist without missing something. • Using commercially available checklists means that agency staff is less likely to modify the checklist. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CONSISTENCY – USING THE SAME E&O COVERAGE CHECKLIST • From an E&O standpoint, agency procedures must be consistent • Along with all agency staff using the same checklist for customers, the agency’s procedure manual should outline when the checklist must be used and the procedure for using the checklist Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change ESTABLISHING A CRITERIA FOR USING COVERAGE CHECKLISTS Agencies should establish a written procedure outlining: • when checklists should be used • what checklists should be used, and • how documentation is to be completed and maintained An agency should establish the procedure based on sound risk management identification of those accounts that may require continual updating Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change WHEN COVERAGE CHECKLISTS AREN’T USED • The agency should have a procedure in place to offer the availability of a more comprehensive exposures analysis at the request of the customers. • A letter indicating that coverage has been placed as requested could include an offer to complete a risk analysis checklist if the customer is interested. • The importance and benefits of this more thorough checklist risk analysis can be stressed. • Maintaining the letter in the customer file will serve as documentation of the offer. Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change CROP INSURANCE PANEL Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Overview • Unique nature of crop program can create additional E&O exposure • Review: – Overview of common crop policy – Important deadlines – Crop forms • Assist agents in recognizing where potential errors or omissions are more likely to occur during the process Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Common Crop Policy • Risk Management Agency (RMA) administers the Federal Crop Insurance Program • Crop policy form is similar to traditional P&C forms • Multi-peril crop insurance policy (MPCI) is continuous until cancelled • Renews as is unless change made prior to sales closing date Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Application/Coverage Change Form • Application must include: – Coverage level – Coverage elections – Coverage type – Coverage endorsements for each crop year • Information must be submitted no later than the sales closing date Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change What is covered? • • • • • • • • • • Adverse weather conditions Fire (natural causes) Insects Earthquake Decline in harvest price Plant disease Wildlife Earthquakes Volcanic eruption Failure of irrigation water supply • Understand the coverage you are selling – dabbling invites E&O claims • Dates are critical Reducing E&O Exposure in Placement of Crop Insurance Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change What is NOT covered? • Negligence, mismanagement or wrongdoing by the insured • Failure to follow recognized good farming practices • Water that is contained by or within structures that are designed to contain a specific amount of water such as dams • Failure or breakdown of irrigation equipment • Failure to carry out a good irrigation practice • Any cause of loss that results in damages that are not evident or would not have been evident during the insurance period Upfront time with the customer on what is and is NOT covered can prevent E&O claims and aid in defense of one. Reducing E&O Exposure in Placement of Crop Insurance Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Important Deadlines Sales Closing Date • What: Last day to apply for crop coverage • When: March 15th for common spring crops and September 30th for common fall/winter crops • Refer to RMA guidelines for your specific region and crop. Final Planting Date • What: The last date for a specific crop to be initially planted in order for it to be insured for the full production guarantee or amount of insurance per acre. • When: Changes each year for each crop. Check regional guidelines for the specific date. Acreage Reporting Date • What: The last date to report the acreage planted and various other information on the Acreage Report. • When: Depends on the crop being planted. Refer to your regional guidelines for the date. Reducing E&O Exposure in Placement of Crop Insurance Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) Missed deadlines for any of these can result in no coverage for that crop that year. E&O RISK MANAGEMENT: Meeting the Challenge of Change Important Deadlines Date to File Notice of Crop Damage • What: Claim for indemnity due to crop damage or revenue loss. • When: Crop carrier should be placed on notice of crop damage or potential crop damage no later than 72 hours after discovery of damage for a planted crop but not later than 15 days after the insurance period; if no crop damage or loss of production but a revenue loss on a revenue protection plan, no later than 45 days after the latest date the harvest price is released. For prevented planting claims, no later than 72 hours after the final planting date or it is determined that replanting is not possible during the late planting period. Customers need to know these dates to insure coverage. End of Insurance Period • What: Last date the insurance coverage ceases for the crop. • When: Total destruction of the insured crop; harvest of the insured crop; final adjustment of a loss on a unit; the calendar date contained in the crop provisions or special provisions; the end of the insurance period; or abandonment of the insured crop. Reducing E&O Exposure in Placement of Crop Insurance Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Important Deadlines Payment Due Date • What: Last day to pay the premium without being charged interest. • When: Premium is not owed in advance of the MPCI policy providing coverage until after harvest. If there is an indemnity payment owed to the named insured, the carrier will automatically reduce this indemnity payment by the premium owed. Production Reporting Date • What: Last day to report production for Actual Production History; Actual Revenue History, Revenue Protection, and Revenue Protection with Harvest Price Exclusion Option. • When: By the earlier of the acreage report or 45 days after the cancellation of the policy. Reducing E&O Exposure in Placement of Crop Insurance Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Application/Coverage Change Forms • Used for new policies and each year for renewal policies that have changed. • Completed and SIGNED by March 15th each year for spring crops, September 30th for winter. • Three weeks for agent to send to carrier. Risk Management Tips: • Be organized and proactive. • Have a plan for contacting customers well in advance. • Always inquire about changes in customer operations. Reducing E&O Exposure in Placement of Crop Insurance Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Application/Coverage Change Forms • With large amount of information required, applications are ripe for E&O claims. • Due to RMA’s strict enforcement deadline, applications are set in stone. • One missed box can have a great impact on coverage! • Claim Examples and Risk Management Tips Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Acreage Reporting Form • Submitted for each insured crop on or before acreage reporting date. • Lists the amount of acres of each crop planted. • Filing of Acreage Report is the trigger for attachment of coverage for the crops planted. • Due 30 days after the final planting date established by the RMA for that crop in your region. Check the regional guidelines for the exact date for your region. Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Acreage Reporting Form • Prime place for errors. • Customer provides FSA 578 and aerial map of certified acres to the agency. • Acreage Report and FSA must match exactly. • Omitted acreage can impact indemnity payment on a crop or revenue loss. Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) PITFALL! - Be sure to accurately key data from the FSA 578 to carrier’s acreage report exactly. E&O RISK MANAGEMENT: Meeting the Challenge of Change Acreage Reporting Form • Omission of acreage, calculation errors, and clerical errors by the agency can be corrected if no claim has been filed prior to the request to correct the amount of acreage • Don’t delay if any inaccuracies noticed • Claim Examples and Risk Management Tips Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) Important: Always have the named insured review and sign completed form prior to submission. E&O RISK MANAGEMENT: Meeting the Challenge of Change Summary of Coverage • Equivalent of Declarations Page • Acreage Report is the source of information • Last document in MPCI policy cycle prior to harvest • Claims Example and Risk Management Tips Important: • Agent should review Summary and compare to application and Acreage Report. • Send a copy to named insured immediately. Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Production Report • Records the annual production of each crop • After harvest, insured receipts or reports to prepare Production Report • Must be provided to the agent • Determines if indemnity payment is owed and the average yield for next crop insurance year • Agent has duty to forward production information to carrier • Assigned Yield vs. Actual Yield Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Crop Provisions • Each type of insurable crop has specific provisions applicable to it • “Nuts and bolts” of coverage for specific crop • Agents need to be familiar with specific provisions to avoid misrepresentation claims Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Policy Endorsements/Options • Be familiar with policy endorsements and options • Must be applied for on or before sales closing date: – Examples: Catastrophic Risk Protection Endorsement; High-Risk Alternate Coverage Endorsement (HR-ACE); Prevented Planting Endorsement; Green Snap Endorsement • Claim Example and Risk Management Tip Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Appealing Claim Disputes • Appeals process regarding any decision made by the Federal Crop Insurance Corporation • Information available on RMA website or ask your underwriter • E&O carrier may be able to assist with the matter Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Crop Risk Management Checklist • Available at www.iiaba.net/eohappens or in student materials. Internal Crop Risk Management Checklist Customer Name: 1. 2. 3. 4. Date: Was each question on the application gone over with the named insured prior to completing the application? Yes No Yes No Did the named insured review the application prior to initialing each page and signing the application? Yes No Were all changes made prior to obtaining the signature from the named insured? Yes No Was “New Producer” information shared and explained with the named insured? Reducing E&O Exposure in Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Thank You Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: Meeting the Challenge of Change Presented by: Bob Fulwider Creative Adventures in Insurance Education PO Box 198 West Liberty, IA 52776-0198 (319) 627-2184 bfulwider@fai-wai.com Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1)