By David Dankwa
Insurance agents are having difficulty obtaining affordable errors and omissions (E&O) coverage as carriers institute premium increases, restrict coverage and, in some cases, exit the market.
Most independent insurance agents and brokers purchase E&O coverage to protect their agency's financial assets in the event they make a mistake in the course of their professional duties that results in costly litigation or a settlement not covered by the insurance company.
According to Kelly Christ, marketing manager at Rockwood Programs, a managing general agency, the E&O market is hardening and premiums for both life and health agents as well as property and casualty insurance agents are on the rise.
Typically, E&O insurers consider a number of factors including annual commissions, applicant location, types of products written, prior loss history and experience within the insurance industry when setting rates for agents.
The errors and claims of property-casualty agents and life insurance agents tend to overlap, although there are some unique differences, Christ told InsuranceNewsNet.
“Property and casualty agent professional liability claims tend to be more frequent, while life agent claims tend to present higher exposure and more complexity,” she said.
In addition, life agent claims frequently involve estate or probate proceedings, which can be prolonged and complex. “These claims often are intertwined with other financial investment vehicles which require voluminous discovery and the involvement of financial and accounting experts,” she added.
Life agent claims often involve disputes regarding beneficiaries, typically involving family relations, which can be highly contested and emotional, resulting in significant defense costs. By contrast, property-casualty agent claims, while more common, tend to be straightforward.
A typical claim involving serious auto accidents, fires, and flooding might present the possibility of significant exposure, and the personalities of the involved claimants and their counsel can result in protracted litigation. However, the legal issues of liability and the calculation of damages are often clear-cut.
Some of the most common complaints that trigger E&O claims against agents are failure to procure appropriate coverage or adequate limits, failure to advise of policy exclusions or limitations and negligent determination of inappropriate property values.
Failure to advise clients about coinsurance penalties, negligent misrepresentation of coverage, and failure to handle claims properly causing carrier denial are also common allegations against agents.
Swiss Re Corporate Solutions surveyed its attorneys on agent E&O litigation and came up with a list of the most important things agents can do to prevail when contesting an E&O claim.
• Involve your E&O carrier early and as soon as you become aware of an incident that could potentially give rise to a claims
• Never give a deposition without contacting your E&O carrier and being accompanied by an attorney
• Immediately write a chronology of events or summary of facts leading up to the claim
• Identify all people in the agency that may have relevant information on the underlying claim
• Make sure that agency staff does not talk to the customer, customer’s counsel, or other outsiders regarding the claim. Refer them to your E&O carrier
• Fully cooperate with and take advice offered by your defense counsel
• Don’t withhold or delete any communications
• Make your best efforts to gather, assemble, and preserve all documentation and information relating to the claim and thoroughly learn the file
• Be truthful
According to Rockwood Programs, the demographic profile of life insurance agents has been evolving since the company first entered the E&O marketplace more than 17 years ago. Among the changes is a decrease in the number of traditionalists selling only life or accident and health products, increased diversification into financial instruments such as mutual funds, variable annuities, and stocks, and incidental property-casualty placements.
David Dankwa is a longtime business reporter with significant experience writing about the global insurance industry. Contact him at [email protected]
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