As insurance brokers, clients depend on us for accurate advice and professional service. Clients expect us to be diligent, up to date on the latest products, know the terms and conditions of the insurance products inside and out, and provide them with accurate advice so they can manage their risk. If you fall short of this standard, you could be held liable for any financial losses you cause to clients or insurance companies. Hopefully I can give you some tips here on how to avoid E&O claims as an insurance broker.
Common E&O Exposures
With new products coming onto the market regularly, the most common E&O exposures is not recommending adequate coverage to clients (ie. failing to recommend cyber liability coverage when the client has a glaring cyber risk). But other examples can include:
- Failure to notify clients of exclusions
- Failure or delay in placing coverage
- Clerical errors when processing cancellations, renewals, etc.
How to Avoid E&O as an Insurance Broker
Communicate with Clients
Studies show that whether a doctor is sued for malpractice or not depends more upon his bedside manner than his medical abilities. It seems obvious but it’s true: clients won’t sue someone they like. So to avoid E&O, respond to your client’s phone calls and messages promptly (especially in an emergency), empathize with them and show them you care.
As an add-on to this point, be careful about what you say and avoid making sweeping statements about coverages like: “everything is covered”.
Use Proven Policies & Procedures
Everyone in your office should adopt strict policies and procedures designed to protect yourself against and avoid E&O claims. These procedures should outline how your staff will communicate with clients and most importantly, how those interactions will be documented.
Often times as brokers, we’re caught in between the insured and the insurance company and it can quickly turn into a game of “he said, she said” or telephone where messages get misconstrued. In a situation like that, you want to make sure you have a paper trail to support you.
For example, if you recommended Equipment Breakdown coverage to your client but they declined, make sure you document that or better yet, have them confirm their decision in writing. Most clients won’t act maliciously but sometimes they can forget that they declined the coverage.
Another important aspect is to have policies around the disclosure and storage of confidential client information. You will want to make sure you’re complying with the Privacy Act(s) and that information is stored securely in a locked cabinet or encrypted digitally. DO NOT, I repeat, DO NOT, leave papers face up on your desk for everyone to see.
The insurance business has grown more complicated over the years, outside of the stuff you’ve studied to get your insurance brokers license, there are new products coming out every day that you might not even be aware of: Environmental Liability, Cyber Liability, E&O, Directors & Officers Liability, and other sophisticated coverages and endorsements.
As mentioned before, failure to recommend adequate coverage is the single biggest source of E&O claims against insurance brokers. To avoid this, consider subscribing to trade journals and magazines to learn about new products. And since you need a certain number of CE hours each year, spend it wisely and try to learn about new products that could benefit your clients.
While I can’t help you much with the 1st 2 points beyond what I’ve written here, I can help you with Continuing Education. For the latest on industry news, trends and other useful tips, you can check our Blog page regularly. For a more in-depth dive into new and interesting insurance products, we offer accredited Continuing Education courses covering all kinds of specialty insurance products like: professional liability, wrap-up liability, terrorist acts insurance, cyber liability, cannabis, and more.