Lack of Customer Care Leads to E & O Losses

By Jack Fries

In October of 1991 a very upscale area of Oakland California was decimated by fire.  Over 2,000 homes were razed by the firestorm and resultant loss to insurance carriers was over $600,000,000. The average replacement cost on the dwellings was in excess of $300,000. 

After reconstruction had begun, more claims are arising.  Claims against the insurance agents!  Claims of omission caused primarily by the fact that the agents didn't do their jobs properly.  They didn't take the time to provide true customer service.  I define customer service 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 under insured.  Finally, as you would imagine, most of the claimants did not have proper coverage for jewelry, furs, silverware, fine arts, etc. 

These failures on the part of the agents will cost them dearly. Deductibles for agents' E & O are high and because most personal insurance agents tend to write in a localized area, they will have multiple losses.  If that were not enough, if a pattern of sloppy procedures is determined by the E & O carrier, their renewals could be refused or at least an increase in premium or deductible. There is never a good time for a tragedy like this, but today is probably the worst time for any agency seeking economical E & O coverage.  As you already know, E & O premiums are skyrocketing.  Worst of all, losses like this could be prevented if the agents do the job for which they are paid and trained.

For years agents have been receiving commissions on personal insurance renewals and not contacting their customers to conduct an annual exposure and coverage review.  In many agencies, the CSRs merely compare the continuation policy to the expiring contract, look at the pricing and then file it away.

So what can an agency do to prevent this type of loss from happening?  Well, first the agency needs to write and implement a workflow manual that incorporates the proper procedures and accountability.  The manual should include forms and form letters to be used by the agency personnel.  The completion and use of these documents should be a "Non-Optional" activity in the agency. An excellent manual which contains the procedures, forms and form letters is "The Gold Book – A Compliance and Risk Management Procedure Program", offered by Fries & Fries Consulting.  The completion of a coverage and exposure checklist when writing a new policy is a must.  An annual protection review should also be conducted either by direct mail or on the phone.  Both of these activities will not only limit the agent's exposure to errors and omissions, but also will provide the CSR or agent with additional sales opportunities.  If that weren't enough, it will also give more than lip service to customer service.  Properly used, the checklist and annual review will assist the agent in fulfilling the definition of Customer Service.

For those 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 not only assist the agency in writing and implementing procedures, but also provide E & O carriers the opportunity to grant schedule credits reducing the annual premium. Members of Gold Seal Risk Management Services have been approved by some carriers to provide these services and in many instances have qualified for additional credits on their E & O premiums.

The choice, inevitably, is yours.  Implement detailed written procedures that incorporate excellent customers service, Errors & Omissions protection and account development or provide the "me too" process of attacking renewal declarations, ignore the opportunity of increase the income per account and subject your agency to a loss of dollars, Errors & Omissions coverage and public opinion.  THE CHOICE IS YOURS.

Jack Fries has over 46 years of experience with both companies and insurance agencies. Fries & Fries Consulting is an automation, sales and management consulting firm aimed at improving agency profitability and customer service by implementing "Non-optional" procedures designed to also eliminate exposure to errors and omissions losses. In this capacity he has trained personnel in over 500 agencies.