Whether you’re an experienced insurance agent or a “newbie,” there’s one critical lesson that’s probably been drilled into your brain a few hundred times by now: You must make sure your client thoroughly understands the policy coverage he or she is purchasing. Failing to fully inform your clients is one of the most common causes of errors and omissions claims. Often, it occurs because agents neglect to delve deeply enough into a client’s needs to realize the type of coverage that’s best. Sometimes, it occurs because customers are uninformed about insurance and wind up making assumptions about what’s included in their policy. Here are three examples of how failing to fully inform a client resulted in successful claims being filed against an agency:
About a year after a newly married couple bought their first home, the house was completely destroyed by fire. In rebuilding their home, the couple learned that a new regulation required new construction to use a higher grade of wiring. However, the homeowner’s policy the couple purchased only offered coverage to have the home rebuilt to its original state, which would not cover the costs of the upgraded wiring. The couple maintained they were led to believe the policy provided enough coverage to restore their home in the event it was destroyed by fire and filed an e&o claim against the agent in the amount of $8,000.
A homeowner who noticed an odd smell in her home learned she had extensive mold damage and large portions of her home would need to be rebuilt. After attempting to file a claim with her insurance company, she was surprised to find that her policy did not cover mold damage. She immediately filed a $18,000 claim against the insurance agent, whom she said did not inform her about the mold exclusion.
In a similar incident, a client purchased a policy which he said his agent described as providing “full coverage.” When his basement flooded a few months later, he was dismayed to learn his policy was not as all-inclusive as he had believed, failing to provide coverage for flooding. Claiming his agent failed to inform him that the policy did not cover flood damage, he filed a claim for $24,000.
So what are the takeaway messages in all these cases? Keep your client informed as well as you can – and then inform them some more. Here are some tips:
Make sure your client understands what the policy does and does not cover
Answer clients’ questions carefully, listening for clues indicating they may need additional coverage
Make sure clients understand any industry terminology you use
Ask questions yourself to identify areas that need additional coverage as well as to clear up potential misunderstandings
Make sure the client has a copy of their policy ASAP
These are just a few examples demonstrating the critical need for E&O insurance for insurance agents. No one can anticipate every situation or answer every unasked and unknown question. As insurance agents ourselves, we understand the need to have affordable E&O insurance with broad coverage to protect you and your agency against claims that could have substantial financial repercussions. Review our excellent E&O insurance program for P&C insurance agents right here.