E&O IN A CHANGING MARKETPLACE
by Curtis Pearsall
In most parts of the country, the marketplace is taking on a different look. As companies attempt to improve their bottom line, they’re non-renewing books of unprofitable business, raising prices, and scrutinizing new business much more closely. Curtis Pearsall examines the potential impact to your E&O in this document.
It’s amazing when you look at the cycles of the marketplace and its results for E&O. During a soft market, most companies look for new business aggressively (although at pricing levels that some would question) with policies that cover just about anything. As a result, customers are happy for the most part.
To attract new business, companies are extremely supportive of agency customers and stand behind them with 'agency accommodations' when the need arises. This typically involves customers who secure inadequate coverage, then complain when the company doesn’t cover a claim. To position the agent favorably with the customer, the company honors the claim.
In a hard market, companies will non-renew previously acceptable books of business due to changes in renewal guidelines. For those who meet the tougher guidelines, prices will certainly go up. New business is harder to place, especially if there’s a Property exposure. Companies that provided agency accommodations previously will review contracts and underwriting/binding guidelines to determine whether agencies overstepped their authority.
Do you think that one of your markets might sue you over a contractual issue? You’d better believe it, because it’s happening. What can you do about it? Here are some helpful hints:
Recognize that conditions have changed. The frequency of E&O claims during the past 20 years reveals that market conditions will play a significant role in Agents’ E&O.
Educate your staff. Let them know that they can’t overstep authority levels, even if you allowed them to in the past. Inform your staff that they must follow procedures precisely — as stated in the contracts. Make sure you advise your staff of their authority levels. Let them know that companies might not want the types of business they did in the past.
Keep your customers informed. A year or two ago, you would’ve been able to place a contractor without too much difficulty. In many parts of the country, this is no longer the case.
Unless you’re 100% sure that you’ll have no problem with a particular risk, let your customer know that you’ll try to place the account but that 'no coverage is bound at this time.' I’d still recommend calling the company just to be on the safe side. If you’re not optimistic about placing the account, let the customer know and advise them that they might want to work with more than one agent.
I was an agent for many years and I’m amazed at how cavalier some agencies can be in moving an account from one company to another just because the price is better. I’ve even heard of agents moving Umbrella coverages just to save a buck. If you’re going to do that, make sure that you’re not taking away any coverages from the customer by moving them to another company. If you are, let them know and get proper documentation for the file that states you’re doing so with their blessing.
New market conditions can provide great opportunities. Just go into it with the awareness that the game isn’t the same and that the players might not be as friendly if you step out of line.
This article originally appeared in the Utica National Insurance Co. E&O Bulletin and is reproduced with permission. Curtis M. Pearsall, CPCU, AIAF can be reached at Utica National Insurance Group, P.O. Box 530, Utica, NY 13503, (800) 274-1914, fax (315) 734-280, e-mail [email protected].