A
Smattering of E&O Thoughts
by Curtis M. Pearsall,
Vice President, Agents' Errors and Omissions Department
Claims
Frequency
With 2006 half over, there is one observation that is truly remarkable.
This deals with the number of claims that we receive, typically measured
as a percentage per 100 policies. With over 11,000 customers, there
is a fair amount of credibility to our statistics. Through June, claims
frequency is at 6.6%. This is the lowest, yes the lowest, that frequency
has been going back to 1988 (this is when Utica assumed the underwriting
of the program from Shand Morahan).
I believe that there are a number
of factors for this. Certainly the soft market is a contributing
factor. We actually find that claims frequency tracks very close
to the combined ratio of the overall P&C industry. Now that
the P&C market is softer, are carriers standing behind their
agents more? This is probably true to an extent although don’t
count on it if you screw up and exceed your binding authority – companies
are watching their bottom lines very closely so agency accommodations
are not at the level they used to be. I would hope that good
underwriting is a contributing factor and I am sure it is. But
there is no doubt that the number one reason for claims frequency
being down is YOU!!
Agencies are certainly dedicating
much greater resources (both fiscal and mental) to preventing
E&O claims. Documentation is better, agency staff are trained
better, systems are better, etc. For the past 18 years, it has
been Utica’s goal to help make the agents around the country
better agents from an E&O standpoint. While this is somewhat
of an idealistic goal, we do take this seriously and look to
provide you with the tools to help you get there.
So thanks and congrats to you. Claims
frequency is down to an all time low!
Flood
Many
of you may have seen over the past month that Upstate New
York has been extremely hard hit by rain causing significant
flooding and damage. As a result of this and other events,
a number of insurance departments (New York being one)
have sent out advisory letters encouraging agents to notify
all of their homeowners accounts that flood is not covered.
The recent events have shown
that even if you are not in a designated flood zone,
floods do occur even outside these high-risk areas. I
am sure that you would agree that undertaking an initiative
in your agency to advise your customers how their personal
and commercial lines policies will/will not respond to
flood claims makes good sense.
Also, in reviewing a number
of carrier contracts, I noted that in most of the cases,
you as the agent do not have the authority to bind this
coverage. Do you know how your carrier contracts read
in this regard? If you find this to be the case, it is
important to communicate to your customer that you cannot
bind the coverage until authorized by the carrier to
do so. As with all dealings of this nature, make sure
that you confirm all verbal conversations in writing.
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Intentional
Acts
E&O
policies by their very nature are designed to cover the
negligence of an agency for loss, which the agency was
legally obligated to pay as damages for claims arising
out a wrongful act to which the policy applies. Within
virtually all Agents E&O contracts is an exclusion
for deliberate, dishonest, criminal, fraudulent or malicious
acts. In other words, the policy covers the honest mistakes
of an agency. If an intentional act is committed and we
have received claims where it was clear that the agency
personnel committed an intentional act, there is an above
average chance that your agency could find itself with
no E&O protection.
While business ethics may
be something that we take for granted, it is important
to communicate to your staff that they are expected to
conduct business in compliance with the law and anything
less than that will not be tolerated.
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