Errors & Omissions (E&O)Loss Prevention Tips
Your insureds don’t like surprises, especially when it comes to the topic of audits. Without proper explanation and timely, adequate handling procedures, policies subject to audit can lead to surprises and E&O claims against your agency.Your agency works long and hard to establish a relationship with a prospect. You learn about his or her business, analyze loss exposures, develop and present a comprehensive risk management plan, including insurance coverage, and win the case.
Now it’s time to think about audits, as a number of policies are subject to audit.
The following are some suggestions for your agency to ensure that your customer understands what it means to be audited and what he or she can expect.
• Identify which policies are subject to audit.
• Determine why the policy is subject to audit, whereas some other policies are not.
• Improper Workers Compensation class codes and territory issues are often discovered during an audit, and can result in premium changes.
• Check with the carrier prior to choosing classifications and developing premium.
• Document your conversation.
• Notify your client in writing, on the proposal, that his or her exposure will be audited.
• Explain the audit process and timing.
• Clarify the difference between a physical audit, phone audit, and self-reporting audit.
• Explain why the client’s premium can change from the initial proposal or policy premium. Talk to him or her about how growth, previously unknown exposures, changes in operations, new products and/or operations, acquisitions, etc., can result in premium changes.
• Reinforce his or her responsibility to maintain adequate records. Advise what specific information will be needed to complete the audit.
• Utilize proper premium calculation forms. If the carrier has its own form for calculating premiums for policies subject to audit, use that form.
• Strategize how to respond to an audit.
• Discuss with agency management, or the producer, the best approach to promptly disclose premium increases to the client.
• In the event of a mistake, advise your client that you are looking into the matter.
• Collect your information and contact your E&O carrier.
• Together, determine if there are any solutions to the problem.
• Discuss how best to communicate with the client.
While not all premium audit problems can be avoided, proper knowledge, explanation, and planning go a long way toward maintaining a positive relationship with your customer and minimizing the E&O exposure to your agency.
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