E&O Loss Control Measures: Which is Best?
By: Robert Burns

We are often asked about which loss control program; EO seminars, exposure analysis checklists, procedures manuals are best?  The answer that most comes to mind for me is all and none.  Sound like underwriting run around?  Here’s what I mean; one by one they have some value.  To be really effective they must be used as an interlocking and mutually supporting system:

• Procedures manuals that are not updated by agency experience go out of date and lose meaning quickly,
• Checklists not required by procedures manuals won’t get done.
• Unless Checklists and files are regularly checked for quality, they won’t be done right.
• Unless the lessons learned in the quality control audits are put into staff training, the agency won’t get the full benefit of those lessons.
• Once the lessons are applied in seminars and regular meetings they should be used to update the procedures manual.

The Procedures Manual—It is vital that your staff have a clear and consistent set of instructions to guide them.  You can’t always be on hand to make decisions.  There are many ways to develop an effective manual.  You can start with your association for sample suggestions.  There are also several commercially available templates that you can buy and adapt to your operation.  You can also access our library of loss control articles to use as material.

One example of a procedure that is important to have is one governing the issuance of insurance certificates.  We frequently see claims where someone references an additional insured in the remarks because that was on the specifications for the certificate; however no one actually followed up and requested the endorsement.  Another important procedural step is how to handle requests for non-standard remarks to be added to the certificate; only a properly trained agency representative should approve such a request.  That should clearly be stated in the procedure.  I believe we have all seen the scenario where the agency client comes in at a quarter to five on a Friday with an urgent certificate that has to be done now!  Good procedures can help bolster your staff and help them to make the right decision, even if you are not around.

After the right procedures have been put together it is important that your agency staff document that the right things are being done.  At the heart of an insurance agency is the process of offering and explaining coverage to agency clients.  The best way to document this, in my opinion, is the use of an Exposure Analysis Checklist.  This document will list all of the coverage and limits options that you have offered.  To be useful it must be signed by the agency client.  In too many claims we have seen the producer emphatically exclaim, “We talked about that, he didn’t want it!”  Memories dim with time and can’t really be counted on, particularly after a big loss.  It is much easier for us to defend you when there is a signed checklist available.

There are a number of checklist products available in the market place.  Very likely your agency management system uses some sort of checklist.  I recommend that you check with your agency association representative or your e&o underwriter for suggestions. 

In my opinion you should purchase a checklist rather than developing your own.  The reason is that publishers of checklists employ staff to research and keep up on the latest products coming into the marketplace.  Things change so much that it is a full time job to keep up with new coverages.  For this reason checklists are just as important for renewals as new business.

To ensure that checklists are effective they must be in regular and consistent use.  For this reason their use should be required and outlined in your procedures manual.  And let me add that personal lines are just as important as commercial lines.  The number of times that jewelry, fur and fine arts floaters are missed is well represented in our claims files.

A word of caution here!  Procedures manuals had fallen out of favor for a while as a loss control tool.  This was because in many cases the manuals were not being followed.  A favorite trick of plaintiff’s attorneys was to subpoena the agency procedures manual.  If the facts leading up to the loss varied from the procedures, the claimant’s case was made.

Unfortunately if you don’t have a procedures manual you are more likely to have errors.  The trick then is to have the procedures manual, keep it up to date and follow it.

The best way that I know of to make sure that the procedures manual is followed is to make sure that a Quality Control program is in effect.  Some agencies have a dedicated staff that only do internal audit.  Others use managers or owners to check.  However you do it, it is vital that it become a regular part of the agency culture.

To be really effective it should be a part of performance review for employees and be apart of their compensation plan.

After the results of quality control audits is reviewed and recorded the information can be useful in developing staff.  E&O seminars are a great way to supplement the training needs of your staff.  Your association representatives can help you identify seminars in your area.

A great way to make more use of seminars is to supplement them with regular agency meetings that discuss e&o loss control.  Please feel free to use the material that I referenced earlier that is available on our website.  I find that claims information is always interesting as examples of what can go wrong.  It is also a good opportunity to gain update information for your own procedures manuals.

So in answer to the original question as to which loss control technique is the most valuable, I submit that it is really all one continuous process.  All of the components have a part to play; they all interconnect and each in its own way serves one purpose:  safeguarding your agency.

I would be glad to discuss any of this information and learn more about how your agency handles these issues.  My number is 866.860.1914 ext. 6941.  E-mail: robert.burns@uticanational.com.