Binding Summaries. A significant risk unrecognized by most producers and CSRs is the risk of being sued by the agency’s own insurance companies. A large proportion of E&O suits that make it all the way to court are brought by carriers. While definitive public statistics are nonexistent, anecdotally it seems as though many of the claims agencies lose are also brought by their own companies. One area in which agencies are especially vulnerable is binding risks.
One aspect of this risk is binding risks that exceed the agency’s binding authority. It is rare that I visit an agency today where the producers and CSRs, or even the agency owners, know their binding authority. Most often everyone thinks that if the company does not reject the application, then the binder is within the agency’s binding authority. Quite often, these two actions have nothing to do with one another. For an agency to properly bind a risk, the risk must absolutely fit within the agency’s binding guidelines. This does not mean underwriting guidelines, although it may include underwriting guidelines. It does not mean qualifying for a quote either.
Binding guidelines generally have two major components. The one everyone thinks about is the policy limit. This can be property and liability. It is usually detailed by line of business. The second is the time. Historically agencies had 30 day binding authority. For some lines today, with some companies, that has been reduced to three days. Others use seven days. In other words, agencies today have to pay attention to the time allowed and the limits.
Everyone who writes binders or binds without a binder (a topic for another day) absolutely should have a copy of each company’s binding authority at all times and refer to it regularly without making assumptions.