Does your customer service provide effective protection from current and future E&O losses?
In October of 1991, an upscale area of Oakland CA was decimated by a firestorm that razed ore than 2,000 homes and cost insurers more than $600 million in claims. The average replacement cost on the dwellings was more than $300,000.
After reconstruction had begun, more claims kept arising — claims of omission against insurance agents for failing to do their jobs properly. They didn’t take the time to provide true customer service, which I define as “recognizing and addressing a customer’s needs.”
The losses also come from failure to upgrade coverage (Homeowners 3 to Homeowners 5). Many of these high-valued homes had not had an appraisal, or even an inspection, in years and were woefully underinsured. Finally, as you would imagine, most of the claimants lacked proper coverage for jewelry, furs, silverware, fine arts, etc.
Such failures can cost agents dearly. Deductibles for E&O are high and because most Personal Lines agents tend to write in a local area, they will have multiple losses. What’s more, if the E&O carrier finds a pattern of sloppy procedures, it might not renew coverage, or at least raise premiums and deductibles.
There’s never a good time for a tragedy like this, but today is probably the worst time for any agency seeking economical E&O coverage. Premiums are skyrocketing. Worst of all, losses such as the Oakland disaster could be prevented if agents do the job for which they’re paid and trained.
For years, agents have been receiving commissions on Personal Lines renewals and not contacting their customers to conduct an annual exposure and coverage review. In many agencies, the CSRs just compare the continuation policy to the expiring contract, look at the pricing, and then file it away.
What can you do to prevent this type of loss? First, you need to write and implement a workflow manual that incorporates proper procedures and accountability. The manual should include forms and form letters to be used by agency personnel. Make completion and use of these documents mandatory. “The Gold Book: A Compliance and Risk Management Procedure Program,” offered by Fries & Fries Consulting, provides an excellent, comprehensive manual that provides procedures, forms and form letters.
It’s essential to complete a coverage and exposure checklist when writing a new policy. You should also conduct an annual protection review by direct mail or on the phone. Both of these activities will not only limit your agency’s exposure to errors and omissions, but also provide additional sales opportunities. Properly used, the checklist and annual review will help your agency provide professional customer service, while growing revenues.
For agencies that have a good record with their E&O carrier, an internal or external audit and procedural implementation by an outside consulting firm can both help the agency in writing and implementing procedures, and provide carriers the opportunity to grant schedule credits that reduce the annual premium. Members of Gold Seal Risk Management Services have been approved by some carriers to provide these services, which, in many instances, have led additional credits on agencies’ E&O premiums.
The choice is yours: Implement detailed written procedures that incorporate professional customer service, Errors & Omissions protection, and account development — or stick with the “me too” process of attacking renewal declarations, ignoring the opportunity to increase income per account, and subjecting your agency to a loss of dollars, E&O coverage, and public opinion.