'Out of sight, out of mind.' Not a problem in the case of an old pair of shoes you forgot you had, but it’s unacceptable in business. The farther your clients are, the more closely you must monitor their exposures. Curt Pearsall provides an enlightening example in this document.
A recent article compared the loss ratios of businesses located closer than 100 miles to an agency’s office with those that were more than 100 miles away. It was interesting to note the significant differences. A fair number of E&O claims involve accounts that are farther away; many aren’t even in the same state.
Although there’s certainly nothing wrong with an agent writing business wherever they’re licensed, these accounts require a different level of handling.
When an account is located in your hometown, it’s much easier to service them and to note changes in their exposures. One of your staff might know the particular customer. You can visit the account or ask them to stop in. When an account is more than 100 miles away your options become more limited, but your need to identify any changes in exposures is just as important.
To illustrate, here’s a claim that happened to one agent:
A carrier brought a suit against a New York agent for the unauthorized binding of warehouse coverage at a client’s California location. The underlying claim involved an armed robbery at the client’s warehouse. The carrier paid the loss, in excess of $1 million. The basis for the claim: undocumented discussions with the carrier underwriter, and allegations against the agency that the warehouse didn’t meet carrier underwriting guidelines. The agency’s position was particularly difficult because the agent traveled from New York to California in an effort to service the account but was unaware of the type of security or alarm protection at the property.
The claim was resolved through a negotiated settlement. But it would’ve been defensible had the agent maintained adequate client contact and documented conversations with the carrier’s underwriter.
Unfortunately, this is a common pattern. Although agents need to service all accounts, distance can create problems. It’s very difficult for agents to know accounts as thoroughly as they should without frequent contact. And don’t forget that company underwriters rely on agents for proper underwriting information.
Following 9/11, everyone’s looking at things differently. You need to discuss with customers — among other things — worst case scenarios. Customers have traditionally insured their property and liability to proper values. But if accounts bought Business Interruption, it’s doubtful that they factored in anything of the magnitude of the 9/11 catastrophe.
'Renew as is' will no longer suffice. Although it can be time consuming, review every Personal and Commercial account thoroughly. You can probably handle local accounts more easily. Accounts that are farther away tend not to get the level of service they need and as a result, underlying claims can occur if you fail to conduct updated coverage discussions.