Insurance agents are expected to be knowledgeable about their client’s insurance needs and to be able to recommend the appropriate coverages. Insurance agents sometimes focus on the business of insurance while overlooking the liability that may arise from the business itself. It’s important to develop a business code of conduct for all agency personnel to follow in order to help avoid E&O claims and to ensure employee actions consistently and appropriately represent the agency in a favorable light. Below is a list of items to consider when setting up a business code of conduct. All items can be consolidated into an office procedure manual easily accessible to agency personnel. Here are a few suggested items to address in an office procedure manual:
Scope of authority for each employee
Attendance at regular staff meetings
Agency philosophy regarding professionalism, teamwork and the need for ongoing professional education
Telephone procedures including standardized memo and message forms
Cash management & check handling procedures
Mail handling procedures (which should include date stamping incoming mail)
Forms manual with instructions outlining when to use standard letters, memos, meeting reports, etc.
Complaint handling procedures including how to deal with negative comments from clients
File Maintenance Procedures
Standard filing procedures that define how documents are to be maintained. A multi-part file folder is recommended to separate the correspondence, policy, application etc.
Record retention standards. Check your state requirements.
Effective Suspense System
An effective suspense system should facilitate follow-up as well as to document and verify the completion of an item.
Each day the items which are diaried to be reviewed for that day should be documented with the following issues being addressed:
Pending new business
Changes pending on existing business & status thereof
Expiration dates o Correspondence requiring a reply
The claims examples which follow illustrate how incomplete or inadequate office procedures contributed to an E&O claim being filed against an insurance agent.
Claim: A long time client of the insurance agent had a large family with several children of driving age. This client made frequent changes to his auto policy to add or remove vehicles and drivers. On one occasion, the client called the insurance agent to discuss two changes. First, he wanted to add a daughter and her new car. Second, he thought he might be removing a pickup truck that he was selling because a potential buyer was coming back in a day or two with the money. The insurance agent made notes to his file and told him to call back as soon as he knew the truck was sold. The insurance agent then put the file aside, figuring he would handle both changes at the same time. Three months later, the client called to report that his daughter had totaled her new car. The insurance agent pulled the file and realized he had failed to act on the customer’s request to add coverage. Estimated Claim Cost: $15,000.
E&O Prevention Tip: Act on coverage requests immediately. Establish a diary/suspense system to follow up on potential changes.
Claim: A new customer contacted an insurance agent and requested an immediate binder for coverage on a car he was buying. The insurance agent asked the client if he had a valid driver’s license. The client said that he did so the insurance agent quoted a 6-month premium, collected a cash deposit and issued a binder. Two days later, the insurance agent received a motor vehicle report showing the client’s license was suspended. The insurance agent attempted unsuccessfully to contact the client by phone for several days. The insurance agent then sent letters to the client and to the bank rescinding the binder explaining that the client’s license had been suspended. The insurance agent forgot to refund the premium deposit. Four months later, the client called to report that the car had been totaled. The insurance agent reminded him that he had no coverage. Both the bank and the client denied receiving the insurance agent’s letter. Estimated Claim Cost: 10,000.
E&O Prevention Tip: Establish clearly defined procedures for notifying clients of cancellation. Utilize a cancellation checklist which includes a step to refund any unearned premium. Consider using certified mail.
Claim: An insurance agent’s assistant printed an automated policy summary from the insurance agency’s computer system for a BOP policy and sent it to the client. In the haste to deliver the summary, no one checked to be sure it matched the actual coverages purchased by this particular customer. As a result, the customer received a generic summary that showed three specific coverages that were not included on his specific policy. In addition, the summary failed to mention the reduced sub-limits of third-party coverage. When a claim occurred involving coverage that the customer did not have, the customer pulled out the policy summary page showing that coverage was to be included. Estimated Claim Cost: $7,300.
E&O Prevention Tip: Be sure your office has procedures in place to address double-checking templated documents against actual insurance company quotations and/or in force coverage.
Claim: A woman purchased a house and requested that the insurance agent obtains a policy. The insurance agent accepted a down payment premium of $100. The application was misfiled and never processed. The woman called the office several times to inquire as to the status of the policy and the insurance agent told her that the application had been sent to the insurance carrier. Two months later, the woman’s house was destroyed by fire. The insurance agent did not realize that the application had not been processed until the woman called to make the claim report. Estimated Claim Cost: $50,000.
E&O Prevention Tip: Do not rely on memory when responding to client inquiries regarding policy status. Pull the physical file or look up the information on the computer and call the client back if necessary.