Mitigating Risk in the Risky Brokerage World

HOLLYWOOD, Fla. -- It may seem as though the stock market is registering new highs every week, and claims of negligence are at rock bottom. But that doesn’t mean advisors can relax.

If anything, now is the time to be disciplined about those best practices because claims will rise again, said Rob Ezren, vice president at Arthur J. Gallagher.

In the meantime, the “severity risk” remains for agents and brokerage general agencies (BGAs), he explained.

“If a life insurance policy doesn’t get placed appropriately, typically what happens is someone dies and that policy was either lapsed or not in force,” Ezren said. “And now you’ve got potentially hundreds of thousands or millions of dollars in unpaid life insurance.”

The potential for just one case should be enough to keep agents and BGAs on their toes when dealing with clients. Ezren will review best practices and share tips for managing claims tomorrow at NAILBA36 Annual Meeting.

The most obvious area of focus should be documentation, Ezren said. Meetings, materials, education and understand on the part of the client should all be meticulously recorded.

“It’s surprising to me how many BGAs don’t talk about ways in which they document conversations and other interactions with customers,” he said. “Many still don’t have customer management software, or other ways they are capturing that information.

“The No. 1 way to protect your firm is to have documentary evidence that you communicated something to your client.”

The key is having a checklist in place so agents know reflectively which details and conversations to document, he added. It might seem like useless busy work, but it’s invaluable information that one time you need it, Ezren said.

“Because when a claim is filed, all that communication stops and you’re left with that documentation,” he said. “So if you have this communication going on during the transaction (and) after … and you have this survey of the client saying ‘I really like my agent. He did a good job,’ that plays really well.”

'Take a Step Back'

In the unhappy event a problem arises, it’s important to keep calm, Ezren said. Before admitting any wrongdoing, “take a step back,” he explained. An important first step is to notify your E&O insurance carrier. Avoid communication with the client and let the carrier handle the claim.

“If you say ‘I’ll make it right’ right at the beginning, then you start to develop the evidence of what happened, it really hamstrings your E&O carrier’s ability to negotiate a settlement with that client,” Ezren said.

Another issue for BGAs, an “emerging risk” as Ezren termed it, is cybersecurity. Few firms are taking any steps to protect themselves against what is a growing threat.

“There’s a general assumption that cyberattacks only happen to big companies and that’s absolutely not true,” Ezren said. “What we’re seeing now is those larger companies are getting much more difficult to penetrate just because of the focus that’s been put on them for keeping their systems up to date.”

As a result, smaller companies are vulnerable. Yet, a very small number are buying cyber liability insurance, Ezren said.

“It’s very inexpensive insurance,” he said. “But we’re just not getting enough penetration in that group.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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