Many consumers turn to Google or other online sources first when they have questions about any product, including insurance. This can create additional E&O risks for agents and brokers, however, when a policyholder misunderstands their coverage needs or policy language. Learn more about this growing challenge and how to help prevent E&O claims arising from policyholder misunderstandings.
How E&O Risks Arise From Policy Misunderstandings
E&O claims often begin with assertions that the agent failed to adequately recommend or explain coverage to the policyholder. However, when policyholders self-diagnose their own coverage needs, disregarding the advice of their agent, this can become a grey area. As E&O claims have been on the rise, considering how policy misunderstanding can lead to E&O claims is important.
Some common policy misunderstandings that could lead to an E&O claim include:
- When a policyholder declines coverage recommended by the agent, but later claims the agent never informed them of the need for coverage. This risk increases when the policyholder does not understand the importance of the coverage they declined.
- If a policyholder relies on advice found online rather than their agent’s professional advice, and that advice leads them to refuse coverage they should have.
- When a policyholder requests minimum limits and later claims that their agent did not explain the drawbacks of low limits when they suffer a large loss.
- When a policyholder assumes their policy will cover a loss that is excluded, misunderstanding their coverage.
While keeping clear documentation of discussions and signed coverage declinations can help agents if an E&O claim is filed, agents can take other proactive steps to help reduce E&O risks that arise from policy and coverage misunderstandings.
Ways to Reduce E&O Risks From Policy Misunderstandings
To reduce the potential for E&O claims from policyholders who are upset about misunderstanding their coverage, agents can take proactive steps. It is not only about avoiding E&O losses, but also about providing better education and customer service to policyholders.
Understand that many consumers do online research before committing to a purchase.
Consumer purchasing behavior has evolved as online searches have improved. Most people read reviews before committing to a restaurant reservation, let alone an insurance product. But this does not mean they understand what they have read. Agents need to know that consumers will have pre-conceived ideas about their coverage before even meeting with them. Agents may need to spend more time discussing coverage and limitations with policyholders to clarify any misconceptions, but this is critical in helping avoid an E&O loss stemming from a policy misunderstanding.
Educate policyholders without overwhelming them.
This may mean holding a few meetings to discuss coverage or sending written explanations of coverage in advance of your meeting. Find creative ways to educate policyholders without overwhelming them. If policyholders have incorrect assumptions, take extra time to discuss and correct their misunderstanding. Citing real-world examples to align with policy wording can help policyholders better understand their coverage and its limitations. Explain how endorsements may help add back coverage that is excluded, and spend time reading relevant policy language together.
Use written coverage checklists and disclaimers.
Provide policyholders with written checklists describing common optional coverages they may be interested in purchasing, and always include written disclaimers for policies with known limitations. This could include citing homeowners’ policies that exclude flood damage or that personal auto policies may void standard auto coverage during rideshare activity. Giving policyholders details in writing helps to educate them, but it is also helpful evidence in the case of an E&O claim.
Spend time to reconfirm understanding.
While it may feel repetitive to discuss coverage limitations and policy wordings at each renewal, it is critical to make sure policyholders understand. Silence does not always mean agreement or understanding. It may be necessary to explain coverage in different ways using terms a layperson would understand. Ask policyholders to confirm in writing that they understand the coverage limitations based on the decisions they have made. This written confirmation can help demonstrate policyholder intent and understanding of the potential consequences of their decisions.
A brief, proactive conversation with written documentation can help avoid an E&O claim later. Becoming a trusted advisor to policyholders means correcting policy misunderstandings and providing accurate information so consumers know what to expect if they suffer a loss.
Review Your E&O Coverage Today
The risk of coverage and policy misunderstandings is just one reason agents should review their E&O coverage. As risks evolve and agents expand, their E&O risk also changes. California-based producers can request a free quote for E&O coverage from the American Agents Alliance. Request your free quote today!
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