WHAT EXACTLY IS E&O?
Errors and omissions insurance protects professionals (like lawyers, accountants, engineers, consultants and agents) from any actions that might make them liable against claims of negligence or failing to perform their duties. Within the insurance industry, it's basically insurance for insurance agents. It's the policy that protects your assets from lawsuits if you're ever accused of professional misconduct.
WHAT DOES E&O COVER?
Does E&O cover you against slip-and-fall accidents in your office? Nope, that's general liability insurance, not professional liability insurance. So what does this kind of policy cover?
Here's a list of things your E&O policy might cover, besides those listed in the picture above:
- Bad Advice or Recommendations
- Defense Attorney Costs
- Claims Against You for Slander or Libel
- Employees Who Work for You
- Damages Awarded to Plaintiff
The largest thing your policy doesn't cover is acts that are deemed willfully deceitful or fraudulent. In other words, your E&O doesn't cover white-collar crime. Just like your auto insurance won't cover you if you drive drunk and run into (or over) someone; your liability insurance won't cover wanton or illegal behavior if your actions lead to a financial wreck for one of your clients.
One common misstep that many agents make that isn't covered under E&O is failing to get advertising materials approved. Falling out of compliance with your ads because you didn't get the insurance company to sign off on your marketing materials could possibly open you up to a future false advertising claim – which isn't usually covered by E&O.
12 TIPS TO AVOID AN E&O CLAIM
Even if you have the best E&O coverage you can find, of course, you hope you'll never have to use it. But if you've made insurance your career of choice, you should understand better than anyone that it might not be a matter of if but when.
Insurance Business Magazine reports that 1 in 7 agents will have an E&O claim during their career, while Insurance & Risk Management Knowledge Alliance says that 1 in 5 agents will experience a claim.
Just having E&O coverage isn't enough to save you from a claim. You should cover yourself with these 12 precautions that can help minimize your exposure to errors and omissions, and even help prevent claims altogether:
1. The most important tip an agent can follow when faced with an E&O claim is to get everything in writing! Wondering if you should document a recommendation that a client didn't take but their significant other might question later on, get it in writing. Ideally, every agent should take detailed notes about each interaction with every client, including info about their:
d. Medical conditions
e. What they like about their current plan (if you're replacing it)
f. What they dislike about their current plan
g. What riders or policies, if any, you recommended to them
h. Why the prospect wants a policy in the first place
Taking good notes will also impress the carriers if you can provide a submission report or cover page with your application that summarizes the situation. It will also cover your butt should any claim ever arise. Plus, taking notes shows clients and carriers alike that you're professional and thorough – which can only help when faced with an E&O claim.
2. Explain policy requirements and provisions carefully. For example, if you've recently written a Final Expense policy for graded or modified coverage, failing to explain this important detail could result in a claim if the beneficiary expected a check for 110% coverage and you never documented the graded or modified provision.
3. This tip is more for P&C agents than L&H, but it's important for agents to talk with clients about potential exposures with certain coverage amounts, riders, or deductible amounts as they review their choices. If you never explain that the lower priced policy would leave a larger coverage gap for the consumer, then you might have an E&O claim.
4. Discuss a range of coverage options. Unfortunately, 5% of E&O claims arise because the agent didn't recommend enough coverage for the client. A good way to overcome this is by doing an informed needs analysis to document your specific recommendation, and presenting several coverage options when attempting to close the prospect.
5. Get ALL of your marketing materials approved by the compliance department. Sure, compliance can be a pain – but not as painful as a false advertising lawsuit that could have been prevented.
6. If you change any marketing materials after they've been approved by compliance, resubmit them again.
7. Even if you're an agency or an FMO/IMO targeting agents and not consumers, still submit your advertising to compliance, as the NAIC model doesn't distinguish between agents and consumers.
8. Don't mislead clients or give inaccurate facts or statements, whether it's in person or via marketing communications. One example is using superlatives like "best" or "most popular" without giving statistical sources for such boastful claims.
9. Don't give the impression that you or your agency are sanctioned, approved, or affiliated with any government agency or program.
10. Don't use titles that you haven't earned, or obfuscate your actual title, which should be agent or broker rather than advisor, specialist, or "field underwriter."
11. Fully explain non-guaranteed elements of a policy like dividends for life insurance. If you go over any non-guaranteed elements, values, or projections, make sure you're also showing the guaranteed numbers as well.
12. Don't disparage competitors, whether it's another company or another agent. If there's a difference in value for premium comparison sake, it's totally possible to explain it without putting down the competition. Besides, putting down the competition might have an adverse effect of making the prospect or client defend their previous choices of another policy, agent or company.
Of course, failure to exercise these precautions could open you up to liability – even if you feel you've "been doing this for years" or "have your system on lockdown."
ABC Medicare Plans
4101 Perimeter Center Dr., Ste 102
Oklahoma City, OK 73112
866-444-9673 Toll Free