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Utica’s E&O Tips — Premium Audit

Posted By Staff writer, Tuesday, April 16, 2019

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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Tags:  E&O  errors and ommissions  Pia western alliance  Utica 

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Carrier Ratings: Do You Have the Necessary Process in Place?

Posted By Administration, Tuesday, May 30, 2017

by Curtis M. Pearsall, CPCU, AIAF, CPIA, President. Pearsall Associates Inc. and Special Consultant to the Utica National E&O Program

Over the next few months, rating agencies such as A.M. Best, Demotech, S&P, etc., will be carefully dissecting the financials for nearly every insurance carrier in the marketplace. Based on these reviews, there is the potential that some carriers’ ratings could change. Does your agency have a process in place to manage this key issue?

Managing Carrier Ratings
Every agency should have an established minimum financial rating for the carriers they do business with. While a minimum rating of “A-,” using the A.M Best rating approach, is common among agencies, how your E&O carrier addresses insolvency in the policy form should be a consideration.

As rating agencies begin to publish their findings, it is vital for your agency to have a process to secure the most up-to-date information. There are many approaches. Based on the number of carriers your agency does business with, including carriers used by the wholesalers you do business with, identifying carriers’ ratings can be a time-consuming process. It is suggested that agencies look for an automated approach to secure this key information.

A.M. Best has a tool that is part of its Key Rating Guide that provides email alerts on important information pertaining to various carriers. There is a fee for this service, but the information is timely. Visit www.ambest.com/sales/krg to learn more. The website includes a video demonstrating the guide’s capabilities and functionality to help determine if this approach is right for your agency.

Get It in Writing
Not many carriers are downgraded each year. For example, an agency could have a carrier going from “A+” to “A.” While agency management may want to examine the situation more closely, there will probably not be any further action needed. But what would your agency process be if one of your carriers was downgraded from “A-” to “B”?

If this happens, identify the clients with those carriers. If the carrier is used by a wholesaler, the wholesaler should be able to provide this information unless that information was captured in your agency system.

It is then suggested to give those clients a written notice. The document should explain the situation advising the client that the coverage was placed with an insurance carrier that was recently downgraded. The explanation of the rating as provided by the rating agency should be included. For example, in the A.M. Best methodology, a “B” rating is defined as “Fair,” a “B+” is “Good,” etc.

Inform your client that you are not in a position to attest to the carrier’s future status and that there is the potential for the carrier to be unable to satisfy its obligation to pay claims. A primary goal of this written document is to educate the client to enable

them to make an informed decision on whether they want to continue or discontinue coverage with the current carrier. Include language advising the client that the agency would be willing to remarket the account to a carrier with a higher rating. In addition, tell the client that there is no guarantee that the premium will be equal to or less than what the client is currently paying or that the coverage will be identical.

The client must make a decision and communicate that decision in writing to the agency. In essence, what direction does the client want the agency to take? Some agencies have the choices noted on a document and require the client to check the box that indicates their decision.

Be Ready
There may not be many carriers whose rating changes in 2017, but what if one of those carriers is one you do business with? Make sure you have the necessary process in place.

Tags:  Carrier Ratings: Do You Have the Necessary Process  Curtis M Pearsall  E&O  Errors and Ommissions  Insurance Content  Insurance Industry  Insurance News  Weekly Industry News 

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When placing professional liability, don’t be the one to make the “error or omission”

Posted By Administration, Tuesday, June 9, 2015
Curtis Pearsall 

by Curtis M. Pearsall, CPCU, AIAF, CPIA, President Pearsall Associates, Inc., and Special Consultant to the Utica National Agents E&O Program

As producers look to place coverage for their clients, there is a good chance that professional liability could be one of the exposures needing attention. When most agency sales staff think of professional liability (a/k/a errors and omissions), the following classes of professional business come to mind: travel agents, real estate agents, lawyers, medical professionals, accountants and others. While these the more common, there are over 100 additional professional occupations including appraisers, engineers, pharmacists, court reporters, funeral directors, speech pathologists, consultants, therapists and teachers that have a professional liability exposure


Identify the exposure

How do you know if the account has a professional liability exposure? Although you can ask the prospect, he or she could be unaware of this aspect of the exposure or may believe his or her general liability (GL) policy will afford the necessary coverage.

A great way to start determining if a professional liability exposure exists is through the use of an industry exposure analysis checklist. When placing the general liability exposure, ask your carrier underwriters whether they will include a professional liability exclusion on the GL policy. This will provide some indication that there is a professional liability exposure and that the GL does not intend to cover that exposure.


Complete the necessary apps

Most professional liability carriers will require a completed application to provide a proposal. The carrier will have its own specific application in many cases, so it is best to secure those necessary apps upfront. As with any app, accuracy is extremely critical. A producer should not look to complete these apps based on the belief that he or she knows the correct answers.It is highly suggested to meet with the client, ask the questions and document the answers accordingly. The client should be asked to review the app and, if the responses to the questions look correct, the client should then sign the app.


Sufficient time

Most professional liability carriers will request the app 30-45 days before the expiration date. There may have been times in the past where a carrier could turn around the app in less time, but dont count on it especially in a hard market where the application activity could be on the rise.


Review of the proposal

This is an extremely important part of the process. Professional liability coverage is normally written on a claims-made form. A key aspect of claims-made policies is that it is rare to find two policies that are similar. Plus, the differences can be extremely significant. For these reasons, producers should always secure a complete specimen policy from the market. This specimen policy should be provided to the prospect for review and comments.


Issues that should be reviewed include:

What activities are covered? A key area for a potential significant difference involves the description of covered professional services. This area must be reviewed by the agency and the client when coverage is being placed initially or being moved to a new carrier at renewal time. Is everything that your client does included? Just because the activity was mentioned on the application does not mean coverage for that exposure is being provided.

In addition, every professional liability policy has exclusions, so these should be reviewed by the agency and the client to determine, to what degree, those exclusions are of concern.  


Who is covered? This issue, typically addressed in the definition of who is insured,is a common area where professional liability policies can vary from one carrier to another. The differences can include positions such as the board, temporary staff, former employees, spousal coverage etc.  

Is there full prior actsor a retroactive date?This issue is huge and has been a major issue with professional liability coverage. For coverage to potentially apply, the date of the error or omissionmust be after any applicable retroactive date as noted on the policy. In other words, there is no coverage for any wrongful act that occurred prior to the retroactive date. For the customer to have coverage for all prior wrongful acts, he or she should look to secure full prior actscoverage. If the professional liability contains a retroactive date,this should be brought to the customer's attention and the significance explained. If the coverage is moved to another carrier at renewal time, the new policy should have the same retroactive date as the expiring policy. If the carrier is providing a more current retroactive date, this is significant and potentially extremely damaging to your customer. Don't be misled by the premium differences because chances are the premium will be less because, essentially, the coverage is less.


The limits and how they work. Since there is probably no rightlimit for your client, it is best for agencies to provide options for the client to consider. In the world of professional liability, limits are provided on a per-claim and aggregate basis, so options involving both should be presented. To avoid your client exhausting his or her limits because of one claim, it is suggested to provide options where the aggregate limit is a multiple of the per-claim limit.


The deductible. Professional liability policies will typically require the policyholder to pay a deductible in the event of a claim. The deductible can involve defense costs and the judgment, or possibly only require payment of the deductible if the client is determined to be liable. This is an important coverage issue that should be reviewed with the client so he or she understands his or her obligations at claim time.


E&O claims involving professional liability can be huge

The professional liability line of business has generated a significant amount of E&O claims activity. When they happen, they can be extremely large, well into the multi-million dollar arena. Agency staff dealing with this exposure should be well trained on the product and how it works.

Tags:  don’t be the one to make the “error or omission”  E&O  Errors and Ommissions  Insurance Content  Insurance Industry  Insurance News  Weekly Industry News  When placing professional liability 

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E&O: How Do You Handle Rejections?

Posted By Administration, Tuesday, March 24, 2015
 Curtis M. Pearsall

by Curtis M. Pearsall, CPCU, AIAF, CPIA, President Pearsall Associates, Inc. & Special Consultant to the Utica National Agents E&O Program

 Every day, agencies provide prospects and customers with proposals on coverages addressing a multitude of exposures. Some proposals are provided at the anniversary of the customers insurance program, while others occur during the policy year, more of a mid-term situation. While it would be nice if the customer bought coverages that were proposed, unfortunately, that is not the norm. Quite possibly, the customer does not see the need for the coverage or the premium could be an issue. Since customers will probably reject certain elements of a proposal, the degree to which the agency has documentation of the rejection is a key element in the event of an uncovered claim.

Good, but not enough

Most agencies have an expectation for handling the issue of rejected coverages. Yet, this could mean that one producer at your agency handles it one way and another producer at your agency handles it differently. This potential lack of consistency can lead to problems. It is important that the agency staff recognizes that if there is an uncovered claim, it is possible that the customer will take a strong position that it was his or her understanding a specific coverage was requested, not rejected. It will now be up to the agency producer to provide some element of proof that the coverage was, in fact, rejected.

It might not be enough if your proof solely involves the documentation you have in your agency management system detailing the discussion between the agency producer and the client. While its better than nothing, the potential inadequacy of this approach is that the documentation in the file is your agencys recollection of the conversation. The customer may allege that he or she had an entirely different understanding of the conversation.

One often-applied approach is for the customer to sign the proposal acknowledging which coverages he or she desired and which coverages he or she rejected. If that is your agencys procedure, how confident are you it is being applied consistently? If there is not a notation next to a specific type of coverage (cyber insurance, for example), will the courts construe this lack of a signature as an indication that the coverage was requested, not rejected? Moreover, what about those situations where the proposal was not personally delivered and the rejection of coverage was provided verbally? What proof will you be able to provide? While the agency can ask the customer to send them an e-mail detailing the conversation, many agencies have become increasingly frustrated by customers delays in honoring these requests.

Written confirmation

The suggested approach for those situations where a customer does not purchase all of the proposed or suggested coverages is to provide that customer with some element of written confirmation of his or her decision. A variety of approaches can be undertaken. A vital element is that the written confirmation should be sent electronically or delivered without delay. Losses have occurred shortly after the binding of coverage and prior to actual policies being delivered, so it is not suggested to wait until policy delivery to review what coverages were bound and which were rejected.

The essence of this approach is for the agency to confirm its understanding of the customers final decision, essentially requiring the customer to advise if this information was not correct. This will help heighten the agencys desire for the customer to be accountable for his or her buying decision.

 A solid defense

Agents will often provide a copy of the proposal (manually or electronically) noting what was purchased and what was not. If the customer wants to think about it, the documentation on the proposal should note no coverage bound at this time. A common and effective approach is for the agency to send a thank-you letter to the customer that includes the necessary detail/decision on each coverage proposed. This serves two purposes: the agency is thanking the customer for the business and it memorializes the various details. Imagine if an uncovered loss occurred and the customer alleged that he or she thought coverage had been ordered. A detailed written document would provide solid defense for the agency.

While the previously mentioned scenarios involved a new business or renewal meeting, the same approach can be used when the customer makes a mid-term request for different limits or additional coverages. When the agency provides the proposal, the proposal should state that no coverage is bound at this time or include clear instructions detailing what is needed to put coverage into effect. If and when the customer rejects the proposed coverage, the agency should provide detailed documentation of the discussion, the decision and the date.

A duty

Since it is not possible to pinpoint exactly which agency file will be the next one to have a loss, it is paramount for the agency to have standards and expectations on how the declination/rejection of coverages will be handled. Ensuring that these standards and expectations are consistently applied is equally important. This is where the auditing of files can bear tremendous benefit. While producers have a responsibility to sell, they also have a duty to ensure that the agency has a solid defense if something happens that results in errors-and-omissions litigation.

Tags:  E&O  E&O: How Do You Handle Rejections?  Errors and Ommissions  Insurance Content  Insurance Industry  Insurance News  Weekly Industry News 

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Is Documentation Really that Important?

Posted By Administration, Tuesday, January 20, 2015

Curtis M. Pearsall

by Curtis M. Pearsall, CPCU, AIAF, CPIA, President, Pearsall Associates, Inc. and Special E&O Consultant to the Utica National E&O program


For some strange reason, this is a common question among agency staff. For those staffers who have never experienced an errors-and-omissions claim, possibly it is hard for them to truly and totally comprehend the value of good quality documentation. Hopefully, the agency veterans can emphasize the significant value documentation provides related to the direction E&O claims can take.

An important element

Documentation is one of the most important elements of a quality E&O culture and commitment within an agency. However, for an agency staff member to state that he or she documented the conversation in the file may not be good enough. What does the documentation say? What story does it tell? A number of components are essential for documentation to possess its true value.

The documentation should be performed promptly

This does not mean at the end of the work day or when I have a minute. Ideally, it means as soon as the conversation has concluded. For those that can multi-task, documenting the discussion while you are having it is great as it enables you to accurately note the various items/topics being discussed.

The documentation should include details such as with whom you spoke, what was discussed, whether there are any open items and who has what responsibilities and duties moving forward.

The documentation should be professional

This may fall into the common sense category, but there is the possibility that the discussion was emotional in some manner. The agency staff should be careful to ensure the documentation does not reflect this emotion. The saying dont put anything in the file that you wouldnt want a jury to read comes to mind. For example, the following statements recovered from actual files did not help the agencys defense:  Im sorry I could not get back to you sooner and Ive been too busy.

The documentation should tell a story

If the customer calls back and the initial staff member is not available, the staffer helping the customer will be able to read the documentation, know exactly what was discussed and determine what any next steps are.

At times, the file should reflect some form of written communication (e-mail, letter, etc.) that memorializes the conversation. When a person documents a conversation, he or she is, in essence, documenting his or her version of it. Is it possible there was a misunderstanding or that the customer didnt provide the information he or she thought?

This does happen, so documenting the details of the conversation back to the customer is a solid E&O loss prevention tool. The goal is to make the customer accountable for his or her insurance decisions.


Documentation is key

If agencies followed these straightforward concepts, there would be fewer E&O claims and a greater percentage of E&O claims that did develop would be closed for no pay. Unfortunately, this does not always occur and, invariably, the most important document in the E&O matter is the one that is not in the file. It involves those declinations/deletions of coverage and explanations or answers to various insurance-related questions.

It is amazing how at the time of an E&O claim, one of the parties (typically the insurance professional) will be adamant that he or she had a conversation with the customer and can almost recite chapter and verse details of that conversation. Ironically, the other party (the customer) will have a totally version of that conversation or may actually allege that he or she does not even remember the discussion ever happening. Therefore, is it to be assumed that this will happen and that everyone will have a different story? Perhaps. This in itself shows the value of good quality documentation.

Imagine an E&O claim has occurred and you are asked to produce various documents as is typically the case. As the agency producer/CSR on the file, you produce records of detailed conversations with the customer. Lets presume that your customer, who will be asked to produce his or her various documents, has nothing. Who do you think will have more credibility in the eyes of the court? Showing a solid track record of providing consistent quality documentation will certainly enhance your credibility.

Now take the opposing perspective. You as the agency staff member comment that you remember explicitly the exact conversations you had with your customer. However, when you are asked to produce details of those conversations, you have nothing. A common phrase used by attorneys in E&O matters is If its not in the file, it didnt happen. Your memory of those conversations will not carry the same weight as the necessary detailed documentation.

There have been a significant number of E&O claims where good quality documentation heavily determined the direction of the claim. In fact, many E&O carriers state year after year that they are closing 2 out of every 3 E&O claims for no payment. That is an impressive statistic which speaks to the quality of the defense counsel, the agencies the carrier insures and the agencies strong commitment to solid E&O loss prevention.

Unfortunately, there have been a significant number of E&O claims where the lack of quality documentation resulted in the agency being responsible for the damages when it probably should not have been. There were cases where the CSR stated that he or she was just too busy to do the proper job of documentation. Imagine being on a jury and hearing that!

Clearly, good quality documentation is the key. As Aristotle once stated, Excellence is an art won by training and habituation. We are what we repeatedly do. Excellence, then, is not an act but a habit.

Sounds like a pretty smart man.

Tags:  E&O  Errors and Ommissions  Insurance Content  Insurance Industry  Insurance News  Is Documentation Really that Important?  Weekly Industry News 

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