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
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E&O RISK MANAGEMENT:
Meeting the Challenge of Change
Understanding Agents Duties
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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)