How E&O Proof are Your Proposals?

by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department

Have you ever had a client who misunderstood your proposal? Thought that when he bought All Risk coverage that everything was covered? Chances are they found out at the time of a claim that the coverage they bought was not the coverage they thought they bought. Helping your clients understand what they are buying, as well as what is not covered, can reduce your chances of an E&O claim.

What is the purpose of a proposal? Basically, it is to convey to your client what coverages you are proposing to cover their exposures and/or assets and the offered price of the coverage. You are trying to earn the trust of your client to allow you to manage their insurance program.

Is your proposal going to be read in its entirety and is it going to be understood? If not, your chances of becoming that client's insurance advisor are slim. So, your objectives in writing a good proposal are to present the pertinent information in a manner that will get the attention of the client, ensure that the information is understood and remembered, and cause the client to act upon the proposal.

Provide the necessary detail. Agents often try to present their material in the shortest version possible, believing that the clients are not going to read the whole proposal. However, it is important to provide your clients with enough detail to understand what you are proposing. Intuitive Proposals is an example of software that is designed specifically for creating and understanding proposals. As Preston Diamond of Intuitive Proposals states, "Errors occur when the parties to an agreement have a different understanding of the reality of the agreement. With Intuitive Insurance Proposals, the producer creates a common base understanding upon which he builds the prospect's knowledge of his or her insurance coverages and exposures rather than building on the prospect's possible misunderstanding or prior knowledge."
Break your proposal down by coverage that is being offered: Property (Building and Contents), Automobile, General Liability, etc. Indicate in this area the locations that are covered for the various lines of business. A fair number of E&O claims occur as a result of an insured's belief that all of their operations are covered when in fact, they were not. Obviously, the values you are proposing should also be clearly indicated. If you completed a risk management / exposure checklist, this should be included.

Explain any terms that are unique to the insurance industry - chances are your client does not know the insurance business as well as you do. The definitions you use should be those that are universally used and are from an authoritative source. If the carrier being quoted has a unique definition of a particular term, use the carrier's definition. Terms such as co-insurance, special forms, mechanical breakdown, and agreed amount are not universally understood. Give examples of how some of these terms, such as deductibles and co-insurance clauses, apply to the payment of a loss.
Indicate what is not covered - the exclusions. The #1 cause of E&O claims is failure to provide the proper coverage. This is often a result of the insured believing that they have coverage for a certain peril when in fact they do not.
Provide some detail on the company you are recommending and why. Information on the rating of the carrier, whether it is admitted or non-admitted, etc. should be included.
Include a section on the team that you are providing the client and what their respective responsibilities are.

Your proposal is one of the most important pieces of communication you will have with your clients. By presenting the material in a manner that is easy to read, easy to follow and easy to remember, you will increase your sales closing ratio and your customers will understand and appreciate what you are doing for them. This should also have a measurable impact in reducing your potential for having an E&O claim brought against you.