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E&O-Proofing Your Agency: 25 Tips For Little Or No Cost!
E&O incidents are on the rise. We've entered an era where it seems that any uncovered loss creates a problem. In a hard market, account movement creates problems, as well. Areas of exposure are rapidly expanding, and the high cost of everything , combined with increasing consumer awareness, will only aggravate the problems associated with running an agency. You can take steps that will lessen your exposure to E&O. Many are common-sense activities that any professional needs to do anyway. Here are 25 tips toward E&O-proofing your agency: 1. Never, never write a Commercial account without inspecting the risk. This applies to both new business and renewals. If the account is too small to inspect, you would be better off not writing it. If an insured does something you don't know about, or if the building has features not considered, you might fail to advise the insured properly. Take photos of the front, rear, and sides of the property; if possible, take some inside. Diagram the premises and highlight any special processing. Have the insured walk you through and show you what the business does. Ask questions, and ask the carrier how they want to handle anything that seems unusual. If you just renew accounts “as is” by sending them back to the carrier, you're inviting a problem. It's not a matter of whether, but when! Even though the insured might not feel that a new activity is important enough to mention, it might have a significant impact on the insurance. For instance, growth of an account might pose an audit problem down the road that you could have prepared for. Some agents say, “The carrier inspects the risk anyway, so why worry about doing an inspection?” But if the carrier doesn't inspect, or does the inspection after the fact, you might be liable for any problem that arises. More important, if a problem does arise, you might lose credibility with the carrier and the client. What about Homeowners accounts? Although in theory, every home should be inspected, in reality, it just isn't practical to inspect every home each year. What you can do, however, is to set some guidelines and make arrangements for a personal visit to the client every three years, take photos at that time, and determine what, if anything, has changed. Look at all new business and interview the insured. Inspect large Homeowners and Personal Lines accounts annually. If not, send a renewal questionnaire that asks about any primary or incidental business activity, works of art, antiques and other collectibles, hobbies, activities, or anything that needs scheduled coverage. Include a return postage-paid envelope with the questionnaire, and require the insured to sign and date it. Also, request photos of any unusual or high-value items or activities that might pose a coverage problem or require special handling. That way, you can determine whether you need to make an appointment with the client at the site. This procedure provides an opportunity to sell other coverages, improve existing coverage, and even to sell Life and Disability insurance to round out and gain control of the account. 2. Take notes when talking to clients. Organize the notes into a narrative in your file. Most agency automation systems allow you to document meetings and discussions — and with all of the electronic methods available today, there is on reason not to be able to properly document activity. When understandings, perceptions, and some kind of activity are involved (especially binding any coverage), confirm this in writing to the client. You can use e-mail, form letters, handwritten memos, personally written letters, and so forth; but always cover your tracks. Attorneys trying to establish your negligence will always want to know how you handle and document understandings. They try to establish inconsistencies in the way that you and your staff perform different functions. In many cases, this alone is enough to make or break your case. Be consistent and thorough about file documentation, and you will eliminate the problem before you have it. With the sophisticated automation facilities available, there is just no reason not to document. 3. Always note telephone conversations in the file. Most agency computer systems, especially those that allow networking, document as activities, document telephone activities that indicate the nature and date of the call, in or out of your office. Instead of having to keep phone slips all over your desk (which can be lost), electronic mail and telephone systems enable you to call up all calls on your computer monitor; most of them also can maintain a phone log. When an important matter is involved, acknowledge the nature of the discussed item to the client by e-mail or a form letter, which can be generated by the activity. Such automation capabilities as transactional filing and electronic imaging), greatly simplify this process. For an agency using stand-alone PCs or a non-networked system, the activity log is an important tool. When using phone or activity logs, be consistent. Don't use them on a “hit or miss” basis. Attorneys love to find inconsistencies in processing. Be consistent! 4. Use a checklist when reviewing coverages or coverage needs. Highlight exposures that aren't covered. Why go through all this? First, it provides a track for an orderly coverage review with the insured, on both new business and renewals. Second, it provides an easy and positive way to highlight areas that are not covered. Third, it's an easy lead-in to a discussion about defining an “uncarried coverage” and how it might benefit the client. Fourth, once you've discussed the coverage and the cost with the client, your role as an advisor is over and the client has only to make a business decision. Finally, the checklist demonstrates your professionalism to the client. Once you've initiated a discussion of the risk-management process with them, you're in a position to talk about insurance and non-insurance methods of dealing with risk. This sets you apart as a competent professional able to present alternatives, rather than the stereotypical salesperson interested only in making a sale. This builds the strong trust relationship that's essential for a long-term relationship. The beauty of this activity is that almost all systems have built-in account checklists and if you use a Notebook computer, you should be able to do this as you visit with the client or at least complete the form and then enter it into the system. 5. If you move or replace an account, and a portion of it is changed from a standard carrier to a Surplus Lines carrier, be sure to point out the difference to your client. If the Surplus Lines carrier is non-admitted, make the insured aware that they might not have the protection of the guarantee fund to fall back on if the carrier fails. Also provide them with the most current Best's rating information on the carrier. Moving back and forth between “claims made” and “occurrence” policies can also be a problem, especially with Surplus Lines carriers, because provisions might vary between the two. Also, because many Surplus Lines carriers don't use standard forms, a careful review of the contract is important. When the policy is on an audit basis it's important to inform the insured of a possible difference in the rating basis between the standard and the Surplus Lines carrier. Because the Surplus Lines carrier usually won't permit a “turnback” on an uncollectible audit, sure going in that everything is as correct as possible. Although dealing with a Surplus Lines carrier has many disadvantages, sometimes neither you nor the insured has a choice. The more you know about this, the better for your client. Have copies of the forms they will be using faxed to you before binding. Ask if the carrier uses ISO forms, learn which forms will be non-ISO, and focus on those. 6. Keep abreast of Best's ratings. Rating changes and reviews much faster rate today than in the past. If you don't think so, look at the impact of recent natural disasters and man-made catastrophes on many carriers — some even to the point of being declared insolvent. Be sure the agency has access to such rating information as Best's Key Rating Guide. If you want more frequent updates, Best's publishes interim reports, a “Rating Monitor” (in Best's Review magazine), weekly “Best's Insurance Management Reports,” and Best Day Service on the Internet. You can order individual Best's reports from most of your carriers. Although other rating sources exist, Best is probably the most familiar and is almost universally acceptable. As soon as ratings are published each year, review them for all of your companies, prepare a report for your staff, plan to advise your insureds of the ratings of their respective carrier(s), and then monitor changes regularly and frequently. Be prepared for questions, and have the courage to advise your insureds when you have concerns about their carrier. Prepare to move them when you must, but do the groundwork first, so that they're forewarned and your competitor can't go in and damage your credibility. Although this is a tough call to make, sit down with your clients, relate the facts as you know them, and then let them make a business decision. You'll gain their respect and trust. 7. Never just duplicate another agency's or company's policy for a new client. The purpose of the review and checklist is to discuss exposures. Simply duplicating current coverage compounds a potential problem, especially if you do so without having inspected the premises. If the previous agent did the same thing or wasn't particularly competent, you would just be aggravating their bad handling of the account. When this happens, attorneys know that their case is already won. If you fail to do a complete review and inspection, and recommend the coverage they need, you're looking for unnecessary trouble. Clients pay you to tell them what they need. As the professional, you should be in control of the situation. By doing the survey, making recommendations, and providing alternatives, you're making the insureds decide what they want to do. If the decision is contrary to your recommendation, have them sign a statement that they understand the potential consequences, or send them back to their old agent. 8. If you're using a building valuation service, be sure the insured understands that the only safe way to establish values is with a professional appraisal. Take the time to discuss the valuation with the insured, showing the calculations used, so that they can confirm that the criteria are accurate. If you're not an appraiser, emphasize this in writing. Make it clear that your information is only to be used as a guide. Tell the client that it's a generic approach to valuation using generally accepted standards and provided by an insurance company or valuation service. Also, be sure to include a statement on the valuation calculation form that you do not guarantee or represent it to be accurate, and that it should only be used as a guide. It probably wouldn't hurt to recommend a professional appraisal. Never do a valuation calculation on a building that you haven't seen or entered. If you or any of your employees use a valuation service, such as Boeckh, be sure that the person has been trained in its use. If the carrier provides software, take the same precautions. If you're not sure how to value an unusual risk, take photos, complete the carrier worksheet, and send them to the carrier, who will do the calculation and return it to you. Finally, never sign a statement of values on behalf of an insured. 9. Never give a client accounting or legal advice. Stick to insurance! Even if you're knowledgeable about Property/Casualty and feel you have a working knowledge of Life insurance or annuities, there are always tax ramifications involved — and you might not be as up on current tax law as you think you are. Be sure to consult with a Life person or a company person before making any recommendations, especially when taxes are involved. When accounting and legal issues arise, always tell clients that you're not an attorney or CPA, and that they should consult with these professionals on appropriate questions. Then confirm that whatever decision they reach is the one their CPA or attorney recommended. Developing a relationship with clients and their CPA or attorney will in effect, make you the third important member of their professional advisory team. More important, the relationship with CPAs or attorneys might lead them to recommend some of their clients to you for insurance help, and you can return the favor. This team approach to problem-solving helps all parties to see beyond their own narrow perspectives, which brings your image as a professional to a new level in your client's eyes. Be sure to work on the relationship as a cooperative venture. Don't let it become competitive or adversarial — that can do more harm than good. Your goal is to focus on the client. 10. If you (or one of your producers) are working on a type of risk for the first time, get help from your carrier or from an outside source. Many carriers have supplemental applications designed for the type of risk you're trying to write, and/or a special program for the risk. When it's something unusual, call your underwriters and discuss it with them. They might even pre-inspect or engineer the risk and advise you about what will be needed. If they have special coverage forms for this type of risk, get them in advance and do a review so that you have some additional insight. Use services that provide aids for risk analysis, such as Best's underwriting guides, the International Risk Management Institute, Inc. (IRMI) manuals, IMMS; and so forth. Check with your carriers to see if they have any publications appropriate to the risk. If the risk belongs to an association that has an office in your area, get information from them. Prospective clients provide another excellent source. Get them to talk about their business. Be a good listener and note-taker. Ask about what's good and bad in their business and what concerns them the most. This alone might give you a great deal of insight into the situation. Compile a complete submission and solicit the company's advice on the best way to handle the risk. Photos, diagrams, financial statements, flow charts and a narrative are critical parts of this submission. 11. Take the time to explain coinsurance, valuation clauses, deductibles, and other restrictive clauses in the policy. When interviewing prospective clients, take the time to explain the provisions in the existing policy. After getting the account and delivering the policy, review them again, and repeat the process on every renewal. If you're switching from a CPP to a BOP, you might already have a competitive advantage; taking the time to explain this to the prospect or client makes the sale a lot easier. Eliminating coinsurance also simplifies the process. Whenever you do this without costing your client a lot of money, try to do it. Many experts agree that coinsurance is an outmoded and confusing provision anyway; that's one of the reasons the BOP has become so prominent. On the other hand, insurance-to-replacement value remains a necessity under the BOP program. Even though most BOP or enhanced BOP programs don't have coinsurance, they still want values carried at 100% or 90% of replacement cost (actual cash value if the policy is amended). 12. Never sign an insured's name on any application, endorsement, clause, etc. Some agents have signed a statement of values on behalf of a client and forwarded it to the company, using the excuse that the insured didn't understand it, or wouldn't take the time Companies that thought an honest mistake might have been made or the signing wasn't an effort to take advantage of them might have tolerated this practice — 25 years ago. Today, they would never allow it. With a claim denial, you'll most certainly end up in a negative position. Never sign a driver exclusion on behalf of a client. Don't fill out voluntary audit forms or sign one in the client's behalf and then send it to the carrier. Your case will be lost before you ever get into court! It's questionable how responsive your E&O carrier might be. Even if they defended you, they probably wouldn't renew your coverage, and you' find it very difficult to obtain another market. 13. Confirm all binders in writing to the carrier and to the insured; never bind coverage without issuing a binder. This one probably stands at the top of the list of situations generating E&O claims. If you ever tell an insured who calls about coverage at 5:00 on a Friday afternoon that coverage is bound, be sure to identify the carrier. Agents frequently bind coverage and figure out who they'll bind it with after the fact. By issuing a binder, you have to identify the carrier. This will solve your problem. Today's automation systems make it easy to document, issue, and send a binder. Binding should be done only by persons who are licensed and authorized to do so. If an unlicensed CSR issues a binder and uses a signature stamp, be sure that they had advance approval. 14. Be sure than everyone in the agency authorized to bind coverage should be aware of what binding authority each of your carriers has granted to the agency. Maintain a binder manual or enter the details in the computer so that anyone authorized to bind can check to see what lines and limits are authorized. If this isn't clear, contact your carriers to get binding limits and other necessary information. There have been E&O cases in which the agency exceeded binding limits on a Property risk in Protection Class 9 or 10 when it didn't have authority to do so (or had authority, but exceeded the property limits). The person responsible for keeping company contract files in order should follow through on individual company binding limits. Some companies use their manuals as the source for outlining binding authority; others outline it in their contract. This wasn't as important 20 years ago as it is today. Most carriers in the 80s took the attitude that if a mistake were made with no intent on the agent's part to misrepresent the facts, they would give the agent the benefit of the doubt and pay the claim. Unfortunately, that's not the case today. Companies don't make “business payments” for agent mistakes any more — and it's not likely that they ever will again. In many ways, agents were lulled into thinking that the carrier would step in and back them up. This caused a lot of agencies to naive in their relationships with their carriers. After the past five years, I doubt whether any naive agencies are left! There's absolutely no excuse for not operating in a professional manner. When you control the binding process, the likelihood of someone hanging you on an E&O claim arising out of binding is remote. 15. Maintain a binder log and use a sequential number on all binders. Most agency-integrated automation systems make this an easy process to control. If you don't have this capability, you can still set up a log using software programs through MS Access, Word, Excel or other software. As a last resort, use a handwritten log. Almost every agency uses ACORD forms, which include a log with the binder packet. Just as important, follow up on binders that have been issued. Never issue a one-year binder. Few, if any, carriers permit them. Issue a 30-day binder in every case unless specifically authorized to issue a longer one; but in no event issue a binder longer than 60 days. If you issue a 30-day binder and don't have a policy when it expires, issue another one. Keep sending copies to the insured and the company. If you find that 60-day binders are necessary, get written authorization from the carrier, outlining the circumstances under which a 60-day binder might be used. 16. When preparing endorsements or change requests, be sure to send them to the company in a timely manner. If coverage and binding is involved, it's wise to acknowledge the change by sending a copy of the change request to the insured as well. In most cases, uploading and downloading data solve and control this problem. Follow up with the company if you don't have the change endorsement back within a reasonable time, especially when coverage and binding are involved. Don't use the excuse that the carrier is backlogged and endorsements are done last. Regular follow-up will eventually impel most carriers to start getting your endorsements out faster: they'll know you'll be following up. If you never follow up, you lull them into thinking that you aren't concerned — and the longer this lasts, the greater your exposure to a problem that can affect every area of your agency. If a loss occurs and company files still show the old terms, you'll have to spend an inordinate amount of time explaining the situation to claims and underwriting people, not to mention the insured. On the other hand, don't allow change requests to sit in your own office and become low-priority processing items. This might cause major problems later, when getting a routine claim handled. Ultimately, your credibility suffers. 17. Contact every insured on your expiration list well in advance of expiration and make an appointment to do a renewal review. Use your system to prepare a coverage summary and review such items as limits, amounts of insurance, and provisions with the insured. The summary should show all current coverage and amounts of insurance. Once you've agreed on the new amounts and other provisions, note the changes on the summary, give a copy to the insured, and keep one for yourself. Don't forget to review all certificates of insurance and additional insured endorsements (including the need for new ones). By all means, have the insured initial all changes. If the insured wants to get an idea of increased premium (if any), estimate it. Give them some idea of what to expect with respect to a renewal premium. Once you both have an understanding, order the renewal from the carrier. There are (at least) two ways to renew: Send a copy of the summary with the changes noted, and request the renewal. Be sure to send a cover memo with a narrative about any updating the carrier file needs. If you have any concerns or questions about the renewal, include them in the narrative. You might be able to do this by e-mail. With the renewal narrative, send instructions to the carrier to renew the expiring policy noting the changes. That way, you're highlighting only the changes to be made. You might do this by e-mail. Although either alternative is OK, No. 1 is preferable because it forces you to be more specific and thorough, rather than leaving it to the carrier. Be very careful about certificates of insurance and additional insured/interest endorsements. Changing conditions might alter the need for them or keep the carrier from providing what's requested. Take care of this is before you have the problem. Update all of this information after discussing it with the insured. Be sure that all payrolls, receipts, sales, and so forth represent the expected amounts for the new year, and prepare the insured for the audit to come, especially if a large additional or return premium is forthcoming. 18. If shopping a renewal for a client and you expect to move the account to a new market, contrast the previous and new carriers' coverages. If your client moves from one of the enhanced BOP programs to what's basically an ISO BOP, there are some significant differences in how coverage, if any, is provided. The same holds true when you move from a BOP to a CPP or vice versa. The ways in which signs, glass, transportation, off-premises coverage, etc. is provided are significant and need to be contrasted. If you move the account to another market, complete a revised coverage summary to go with the policy. Stress that this only a summary — and that the policy should be consulted for specific provisions and contract language. Where coverage differs, have the insured initial acknowledgment that he or she understands the difference. You often have an insured on a renewal who's looking for a way to reduce cost and wants you to give advice on increasing deductibles, eliminating coverage, reducing amounts, cutting limits, and so on. When faced with this, confirm the changes with the insured in writing, both in an acknowledging memo and on the summary. Have the insured initial all changes. Some agents don't like to go to these lengths because they feel it disturbs their relationship of with a client. But that's not true: on the contrary, taking these precautions improves the relationship. The client will look at you as a professional who's concerned about helping and careful enough to have taken steps to communicate. By all means, be consistent. If you have more than one salesperson, have them all do this process the same way, following the same guidelines. Plaintiff attorneys look for inconsistencies, and frequently focus on how work is handled and processed. 19. When the renewal policy or coverage comes in, review it to ensure that it's issued in accordance with your renewal instructions. Carriers show little consistency in renewal cycle processing practices. For example, if the carrier gets your renewal instructions the day after beginning its renewal-processing cycle, it might already have processing underway. It might put your instructions aside, intending to correct the policy once the renewal processing is complete by issuing a correcting endorsement. Quality control by the carriers also varies, so you might receive the policy just renewed “as expiring,” which requires more correspondence and suspensing (on your part) to get it issued in the way that you instructed. Rather than build procedures around carrier inefficiencies, take initiatives to handle all renewals the same way (professionally, on a timely basis). Don't allow carrier processing problems to create a problem for your agency. That way, you don't worry about how the carrier handles the file. By documenting and being consistent and thorough, you can resolve any situations before they become problems. You might even go so far as to follow a written or system generated renewal review checklist with all renewals. This has two obvious benefits: It establishes consistency and continuity with all renewal activity. (Plaintiff E&O attorneys always try to find inconsistency and damage your credibility.) It provides an excellent training tool for less experienced staff and a quick method for senior staff people to review the work output of those under them. These advantages save time and permit you to have your most technically competent people use their time and experience in the best way. Another area that should be discussed with respect to renewals is restrictive endorsements. A case in point is the pollution exclusion, which has evolved from the 1960s versions of the General Liability policies, in three main phases over the years: No contamination or pollution exclusion Accidental contamination or pollution coverage only (no occurrence coverage, with accident generally defined as a sudden and unforeseen event causing damage) Total exclusion on all contamination and pollution Even though most carriers stamped the policy, added cover notes, or otherwise highlighted the fact that coverage was becoming more limited or totally excluded, more and more agents will probably be brought into contamination and pollution claims for failing to notify clients properly about limitations and exclusions. There are a number of reasons for this: The stakes are so high for potential loss that the attorneys handling this type of claim are going to try to reach much deeper for a source of funds. Just look at the asbestos litigation activity. In the broad scope of CERCLA legislation, the party responsible for the contamination and pollution loss cleanup might not be the person who did the contaminating and polluting. Your insured might be responsible for cleanup just by virtue of being the property owner or landlord. This can leave your agency vulnerable to an E&O claim. By doing a careful review at renewal, you should be able to identify any limitations and changes that might have an impact on your client. Highlight them. You might end up defusing a potentially explosive situation. Although the carrier usually adds notes all over the policy to explain changes, just delivering the policy without going the extra step of pointing changes out to the insured might come back to haunt you. If you enter forms and edition dates in your automation system, you already have a quick checklist method of noting differences. By comparing the previous policy with the renewal, you can immediately see if the edition dates have changed or if forms have been added — highlight these. If you review the differences and aren't quite sure what they mean, have the carrier interpret them for you and then give the insured this interpretation. When the carrier adds an explanatory note to the policy, note its important points with a highlighter and mention them in your renewal transmittal cover letter. 20. Check all policies being cancelled to be sure that certificate holders, additional insureds, loss payees, mortgagees, and so on have been notified, as well as the insured. (This also applies to binders.) Don't assume that a carrier will send a notice of cancellation to someone just because you've sent it a copy of a certificate or other form. With accounts that generate a lot of activity (certificates or loss payees, for example), the agency often neglects to send copies to the insured, or the insured either fails to process them or just notes them in the files. Because the agency is a two-way conduit (from the client to the company and from the company to the client) agents must be very careful about handling these exposures. It's possible that you might be held harmless if the carrier mishandles something of this nature, but the damage with a client is done — and you might have to pay legal fees on your own or a deductible under your E&O policy. There's a lot of discussion and activity related to both agent and company duties with respect to notification. Here are three suggestions for handling this exposure: Determine how each of your carriers handles this type of exposure. Get their procedures in writing, and ask them to notify you in writing if they change. Once you know how individual carriers each handle the exposure, you can proceed accordingly; Get in the habit of conveying to the carrier, in writing, instances in which proper notice has not been sent to the various parties involved. In other words, document your file and always leave a trail; If the carrier elects not to notify, ask if you can send a letter notifying the interest that the policy has been canceled. As long as that's your procedure and you're consistent, you would probably be off the hook if the worst happens. In plain words, don't just assume that things will happen. Take initiatives to see that proper procedures are followed. 21. Have a complete monitoring system for certificates of insurance. There's more to be concerned about than cancellations. Certificates figure in a number of situations that create a need to communicate with a third party or the company, especially when the certificate also requires adding an additional insured endorsement. There are many types of additional insured endorsements, of course. Most carriers are conservative about the process: They want to know as many facts about the relationship between the insured and the additional insured as possible. Recent form changes have introduced many new, specific-use endorsements. The additional insured and certificate requests often come at the same time and generally need to be done immediately. Contact the carrier in advance on any certificate/additional insured request that isn't a standard ACORD request. Although your contract with the carrier or an underwriting manual might define your binding authority, it might not clearly define your authority with respect to certificates and additional insured requests. Have an experienced CSR, producer, or principal check all nonstandard requests so that the carrier can be contacted for authority to use the proper form, if necessary. Faxing is great when speed is essential. You can call or e-mail the underwriter, discuss the issue, and fax or e-mail the form or instructions for perusal. If approved, the underwriter can fax or e-mail back instructions. If the approval is verbal, send a memo or e-mail confirming your understanding of the instructions. Then set the certificate up so that the carrier, the insured, and your file get a copy of what was sent to the holder. It's always wise to ask the insured making the request whether the certificate fills a long-term or a short-term need. If it's a temporary-need certificate, show the start and finish time on the certificate when issuing it. You then probably won't have to take any further action, nor will the carrier; in case of something like a non-pay cancellation, this eliminates the need to notify the certificate holder. When the producer does a renewal review, always include all certificates and additional insureds in the review to determine whether they're still needed or if new ones need to be added. 22. Monitor reports of values on reporting policies. You have two major responsibilities in this area: Be sure that the insured is filing reports on time and as required. If values exceed the provisional amount of insurance, contact the insured to see if the provisional amount should be increased, and then follow up. Most reporting forms include the provision that if the report isn't made, the amount of insurance applicable in case of loss will be the same as the last report filed. If that amount was significantly below the actual values for that month, you (and your insured) will have a problem. Send a reminder to late insureds, pointing out the problem with a loss settlement if they fail to report. If that doesn't take care of the situation, have a CSR call to check on the report. Because the process is somewhat complicated, an improperly insured loss will be easy for a plaintiff attorney to use against you. The carrier isn't likely to step in and help. Thus you will be putting your E&O to the test. The plaintiff attorney will undoubtedly make the case that you failed to explain the coverage properly or to follow up to inform the insured of the consequences. Since 9-11, Property forms have been under the microscope. The second area — reports that come in with values higher than the provisional amount — also requires action on your part. Any time that the values exceed the provisional amount, contact the insured to see if there have been changes in the operation, unusual growth, and so forth. Once you learn what's going on, let the carrier know. It might have a clerk who isn't monitoring the provisional amount carefully. If you rely on the carrier to point this out to you, you're risking an E&O claim. Monitor audits on monthly, quarterly, semi-annual, and annual policies as well. The same reasons for monitoring reports of values apply to audits, although you might not have the same degree of E&O exposure. While significant changes from what's expected might lead only to an increase or decrease in expected payroll, they might also signal a major change in the insured's operation. Your client might begin an operation prohibited by the carrier and which you don't have authority to bind. Although that might not be a problem with most insurers, it could be, especially with a Surplus Lines carrier. Whether or not this is a problem, you need to be aware of it, contact the insured, and make needed changes. 23. Ask your clients to report all claims to you, unless they claim happens on a weekend or holiday when your office isn't open. (Some agencies have “after-hours” claim numbers for their clients to report a claim.) Some carriers require all claims to be reported directly to them, so follow their rules. This topic alone could fill a chapter, since it's so important from the standpoints of both the agency and the client. A client's loss might be your first chance to shine in their eyes. Don't let this opportunity slip away by allowing an uncaring company employee do your job for you. The worst thing you can do is to turn the claim over to a company service center and lose your importance to the client. When a client calls to tell you of a loss, advise, direct, and sympathize — show them everything in its best light, and demonstrate a sense of control. Never advise the insured that you'll try to get the carrier to take care of an uninsured loss. Don't argue with the company to reverse its position on a denial; you might become liable. Be a mediator, not a player! Never authorize repairs. They should be handled between the adjuster, the insured, and the repair shop. Once you've taken the pertinent information and told the insured what to expect, report this to the carrier immediately online or by fax, or phone. Try to get the assigned claim number. Advise clients as quickly as possible that the claim has been reported and when they should expect to hear from the carrier. Give them the claim number if you have it. Advise them to call if they don't hear from the carrier in a reasonable time (letting them define what's reasonable), or if a problem exists with the adjuster. Have the adjuster call you if there's a problem with the client. If something goes wrong, the insured won't be inclined to blame you. Follow up to see that the claim is progressing properly. For that matter, regularly follow up on any open claims. This tells carriers that you monitor them and provides an opportunity to ensure that carrier reserving practices are in line — especially at year end, when you're concerned about maximizing contingent commission. These steps should help keep you informed of any problems before they become big ones. Stepping in and defusing a potentially explosive situation can be a major step toward reducing the potential for an E&O suit. Finally, monitor client satisfaction by sending the client a reply card form evaluating your claims-handling practices. 24. When a client or the agency is presented with legal papers relating to a claim, alert the company to the fact that you (or the insured) have received them. Document the call and then fax, e-mail, overnight-mail, or hand-deliver the papers to the company. Get evidence that you have forwarded them to the company. Make sure that the claim file or computer file documents what has taken place. Ideally, if you have procedure manuals, outline the steps to be followed. As always, the best defenses are consistency in your processing this type of situation and conformity with standard industry practice. Once notice of a hearing or suit has been filed, you or the insured will continue to receive various legal documents, which might require a time-specific response by the company, the agency, or the insured. When you get them, notify the company immediately. Impress upon the insured that time is important when they get anything, and that they need to communicate with you. Even when the insured communicates directly with the company adjuster, the agency must know what is going on so it can step in and help when needed. 25. If the agency has claim draft authority, monitor activity closely. Details of agency authority should be available to those who handle claim drafts routinely. More important, make sure that there's a complete understanding of what might be used and when. Restrict the use of claim drafts to those in the agency trained to use them. Never use drafts to cover a situation in which no coverage exists because the agency made a mistake in binding or arranging coverage. The problem you solve and the “face” you save might create a much larger problem. Track claim drafts before and after they've been used, and be ready to show them to the carrier if it wants to do an audit. Keep the unused drafts locked up. Do your own internal audits of claim draft use by randomly checking drafts against the client claim file. Monitor client satisfaction by sending the client a reply card form evaluating your claims-handling practices. Have the card addressed directly to agency management, so that you're aware of positive or negative comments.