E&O Loss Control
Agency Automation: Friend or Foe? (Part 3)
By Curtis M. Pearsall, CPIA, CPCU, AIAF
The previous three articles in this series dealt with automation as it pertained to the processing of work. In this article, I would like to show you how several aspects of automation could have a very favorable impact in diminishing your E&O exposure.
For as long as I have been involved in E&O, going on 17 years, the # 1 cause of E&O claims has been "Failure to provide the proper coverage." If your agency management system is somewhat current, you already have a very powerful tool that can cut your chance of being faced with an E&O claim. This tool has different names but I commonly refer to it as an exposure-analysis checklist. Now, there are no silver bullets that will guarantee that you will never be faced with an E&O claim but believe me, this is pretty close.
Some producers provide a proposal based on the coverages the client currently has, with the hope of competing based on price. Other producers will recommend the coverage for exposures that the client/prospect typically faces. I contend that neither of these is good enough and that to properly do the job, you need to do a true exposure-analysis review. And you know what's nice? The tool that you need is part of most agency-management software.
Within each of these systems, the various exposures that your clients face are listed in detail normally alphabetically or by SIC code. As a sales person, you can use this when you meet with your prospects. It will allow you to cover, in a systematic fashion, the various coverages that are available. The various exposures involving property, liability, business interruption, professional liability, directors and officers, etc., will be flushed out. Using this properly, in addition to being the professional thing to do, can help your sales effort, too. It is important to cover all of the potential exposures and not just discuss those that typically can happen. A big key to avoiding E&O claims is to identify the exposures and to recommend coverage for them.
The next area of automation that can play a key role in reducing the likelihood of an E&O claim involves a formal quote presentation approach. There are numerous quote-presentation software products on the market and many of the agency-management systems contain this as well. Whether you are dealing with current customers or prospects, you need to give them a proposal that clearly outlines the coverage (exclusions should be noted!) that is being quoted and the limits associated with those coverages. Many an E&O claim has developed due to a misunderstanding between the agency and the client-and I don't need to tell you who has a better chance of winning those misunderstandings. One of the keys here is getting your client to acknowledge in writing that they are not buying certain coverages. This will be a powerful defense if a claim occurs down the road. If you don't use this type of an approach, how do you ensure and document that all coverages, limits, and exclusions are explained and understood by your client?
Last but not least - use automation to cross-sell various coverages. For example, how many clients do you write the auto and homeowners for, but your agency has never discussed an umbrella? Automation can help you identify these clients and send letters out advising them of the benefits and potential cost of an umbrella. There are significant benefits to this. First, you will probably sell more insurance and second, if they don't buy it, it will be a valuable defense should a claim be made against you.
So, automation in general is a good thing provided that you take advantage of all of the benefits that it offers.