Reducing E&O Exposures: What Agents Need to Know

Certificates of Insurance, Data Breaches, Unfamiliar Markets Among Exposures for Agents

Insurance agents who fail to keep up with changing legislation, regulations, policies and forms are opening themselves up to costly errors and omissions (E&O) claims, according to experts and educators.

The fastest-growing area of E&O claims exposure involves certificates of insurance, which many agents and their employees find confusing and frustrating.

Bill Wilson, associate vice president of Education & Research for the Independent Insurance Agents & Brokers of America, has worked for many years educating insurance agents on certificates of insurance, including launching an course about it through the Big “I’s” Virtual University and writing white papers. Despite the resources devoted to certificates of insurance, there is still a huge gap of knowledge on this subject, according to Wilson.

“Getting the information to the people in the trenches, the ones issuing the certificates, has been very frustrating,” says Wilson. “Every day I get questions from agents who haven’t read anything about certificates.”

A certificate of insurance is a summary of what the basic policy provides. Companies, however, ask for all kinds of information on these certificates. The result is the certificate may not reflect what the policy actually covers, which creates a huge E&O exposure, according to Wilson.

It’s not a small issue. According to Wilson, 15 percent of commercial E&O claims in the last four years have had to do with certificates of insurance and additional insured requests.

To compound the problem, ACORD has made significant changes to its certificate forms that agents can’t afford to ignore.

Chris Burand, founder and owner of Burand & Associates, based in Pueblo, Colo., believes the new forms make it even more important for agents to focus on certificates.

“Things are going to get tougher so agents need to pay more attention to it,” Burand warns. “Agents need to have better procedures, better education and be more diligent than they may have been in the past.”

According to Burand, agents are typically given one year to begin using the new forms; those who use the old ones after that year are exposed to claims. “The E&O exposure for ignoring it is phenomenal,” says Burand. “Agents also have a greater exposure depending on which aspect they violate. They could be violating copyright law, violating insurance code, and changing the wording on policy forms.”

Other Worries

Certificates are not the only worry.

Technology has brought about new and sometimes hidden E&O exposures for agencies handling information on clients.

Sabrena Sally, head of U.S. agents for Swiss Re’s Property and Casualty Division, says that while she has not seen any data breach or privacy claims against agencies yet, she is keeping an eye on this area.

“There seems to be a lack of awareness of the exposure and I say that because nine times out of 10 when an agency does online quoting, they don’t have security for these transactions,” says Sally. “It’s a great way to do business but agents could be collecting information that is personally identifiable information and there may be no security on their site.”

Many states have laws about how agencies must store personal data, she notes.

The sluggish economy makes all businesses vulnerable to lawsuits. According to Wilson, this means it’s important that agents understand the markets they write. “One thing I have noticed is a lot of agents trying to write accounts that are beyond their expertise,” he says. “I get a lot of agents asking me, ‘how should I write this thing?’ and I tell agents if you aren’t comfortable that you understand the business then let it go. It’s not worth it from an E&O standpoint, despite the commission.”

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