I have been completing E&O audits for almost 25 years now. My first experience was one of the oddest because my trainer had me watch him complete 1.5 audits. Halfway through the second audit, he turned it over to me and then announced he was going home. We had three more audits scheduled that week! I do not remember anything about those three audits except one point an agency owner made. He told me he’d never been sued in 40 years. He was in a litigious area. I asked how he had achieved such an amazing feat. His answer was, “I never insure anyone I do not like.”
To like someone almost always means trusting that person. If I only had one E&O rule to suggest agencies follow, it is “Only do business with people you trust.”
Ever since that week, starting from absolutely zero knowledge, E&O auditing has been a long journey for me. I have had some weird experiences. A couple of times the agencies were so royally messed-up that I felt lucky to get out physically and mentally unscathed. A few agency owners are truly warped. I learned from them that sometimes, warped people insure other warped people and somehow that results in a twisted sort of trust. Those agencies were not sued nearly as often as one would think because they insured people that were twisted, like them. Trust matters.
On the other hand, many of the most tortious E&O claims I’ve seen involved amazingly ethical, honest, smart, and knowledgeable agents that happened to insure someone they did not quite trust. This happens when producers are young, when producers are desperate, when the clients are call-ins, and when the agency just feels the need to help someone and ignores that little tickle advising them to not trust the client.
In these situations, the agencies really did not deserve to be sued. They really did not do anything wrong or at least, materially wrong. The plaintiff tried to blow up some measly little issue as if that was the cause of their client’s loss. Trust is a major factor in predicting E&O claims. I don’t think you find that in the E&O applications and risk management classes.
Another great lesson has been more personal. When I began, I was so young and yet CSRs, producers, and agency owners listened to my advice. Honestly, I was surprised at a certain level. But over time, I kept getting the same response from agencies, “You’re not like everyone else in the E&O world. You actually explain and teach while you do the audit. This really helps.” I’m sharing this for a couple of reasons other than to pat myself on my back.
First, I had to do it this way because I was so young. It is a good method for young producers to use because being young, no one would believe me if I just told them what to do.
Second, I learned how mistrusting agents were of their E&O carriers. With my approach, with the way I work, people open-up more. Their fears were real, but the basis of their fears was not justified.
Here are a few of their common fears that I have not found to be true, at least when I do E&O audits.
The carrier will see the results and they will nonrenew my policy. I have never seen this except for one situation where the agency already had two sizeable E&O claims and maybe had not been adequately proactive fixing the problem prior to the audit. They were being audited because of the claims, so it was not even a voluntary audit. Otherwise, the carriers with which I’ve worked have appreciated the proactive nature of an agency asking for an audit and one carrier gives a huge discount for such audits.
The procedural recommendations will be onerous. The procedures will keep me from writing accounts. This is not what happens. I can only speak for myself and the kind of procedures I recommend, but high quality procedures do not hinder anyone from writing business. In fact, my clients that most assertively adopt my recommendations find they write more business. The one exception is where a producer can only write business by cutting corners but better procedures will hinder their ability to cut corners.
Customers will resent the extra steps, signoffs and disclaimers. This is really a training issue relative to training people how to work with clients and a coaching situation to help people become confident using these protections. One factor to remember is that insureds are not stupid and they understand intuitively if not cognitively that if an agency is not getting them to signoff, the responsibility goes to the agency. A sad story happened to an agent making a proposal to a large commercial client who lost to one of the much larger brokers. When the agent asked why they did not get the account (because in their opinion, their proposal was far better), the account advised that while their proposal was much better than the big broker’s proposal, the big broker had higher E&O limits. Clients know.
Another common fear is that agency morale will suffer. That may be true if the agency has a bunch of people that do whatever they want. In that case, morale will likely suffer and suffer even more when a major E&O claim is incurred. In these situations, morale is going to suffer one way or the other but addressing the situation and bringing order to the agency now will mitigate the pain, increase morale, increase agency efficiency and therefore, profitability and sales will increase.
This last point is surprising. Agencies that adopt high quality procedures and cause people to follow those procedures, increase sales and productivity. Sales increase because clients buy more insurance (at least the way I do E&O audits). Staff becomes more efficient with quality procedures and this also reduces future E&O claims. Think about it this way: if the staff can do 10 percent more work, then the agency can grow without hiring more people. The fewer people, the fewer headaches and with fewer people, especially new people, the lower the probability of a mistake.
I encourage every agency owner to have an E&O audit completed. Depending on your carrier, they may give you a discount or even help pay for the audit. The positive results outweigh any negatives, if any negatives even exist.
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