The duties and responsibilities of being an insurance agent have expanded significantly over the past
decade. One needs look no further than the recent national health care debate to see the
accountability being placed on all parties in the business of selling insurance to Americans.
“Insurance agents, brokers, and marketers are becoming more exposed to risk every day,” says Glenn
Clark, President of Rockwood Programs, Inc. “Industry figures show an insurance professional now has
as much as a one in eight chance of receiving a complaint during their career.”
What’s Your Risk
Many causes exist behind the potential liability we face as insurance professionals. Things such as
insufficient coverage, inadequate review, and mishandling of information all contribute to the risk of a
potential complaint. The National Association of Insurance and Financial Advisors recently analyzed the
frequency of claims made against life & health agents, and the results were illuminating:
| CLAIM FREQUENCY BY ERROR TYPE |
|---|
| Failure to explain 38% |
| Disclosure error 18% |
| Policy change error 9% |
| Insolvency 8% |
| Premium error 8% |
| Office error 4% |
| Cancellation error 4% |
| Delay error 4% |
| Beneficiary error 1% |
| Other 16% |
| *Totals exceed 100% due to multiple
claims. |
It’s interesting to note that nearly half of all claims result from inadequate systems or training, and fully
one out of twelve from an agent not having enough capital to maintain their business.
Another area of exposure is the handling of confidential client data. Individuals who handle sensitive
information such as patient medical histories have a specific responsibility to safeguard the
confidentiality of that information—failure to exercise the appropriate amount of care can have a huge
financial impact on an agent. The federal Health Insurance Portability and Accountability Act (HIPAA)
specifies large fines and other penalties for failing to comply with its regulations. “Civil lawsuits can also
result from certain breaches of confidentiality,” says Rockwood’s Clark.
What You Can Do About It
Fortunately, there are several things you can do to increase your probability of satisfied clients and
reduce your risk of complaints.
- Choose your carriers well. Make sure the carrier you want to represent is licensed to do
business in your state and check their financial ratings; A.M. Best is a great resource for carrier
information. Selling an unauthorized or poorly underwritten product is a short path to a certain
complaint.
- Understand the products you are selling. Learn all aspects of the policies and plans you offer,
including coverages, conditions, exclusions, etc. You can’t be too familiar with the products
you’re selling. Also, focus your efforts on a manageable group of carriers and products—like the
restaurant with too many items on the menu, you can’t be good at all of them.
- Staff and train your associates appropriately. Review your training methods, marketing
materials, and internal policies and procedures regularly, and invest the time and money to get
them right. Saving a penny or nickel now will cost many dollars later, so don’t skimp on this
investment.
- Maintain full and complete policy files. Recording and retaining key information from the
outset of a client appointment will reduce the chances of a missed expectation later. Investing
in systems and software to capture everything necessary to write a policy will ensure against
potential errors and omissions in the future.
- Carry adequate E&O insurance. If adequate measures have been taken upfront to deliver a
suitable policy and the client is still unhappy, errors & omissions insurance can help defend you
against spurious claims.
The Bottom Line
No agent’s risk management strategy can be complete without taking the fundamental steps outlined
above. Obtaining and investing capital in your business can address over half of your professional
exposure, and maintaining appropriate errors & omissions coverage can protect against the remaining
risk. Of course, no amount of preparation will fully eliminate an agent’s exposure, however, sound
businesses practices and the fundamental steps outlined above can go a long way toward reducing your
and increasing your bottom line.
For more information on how you can obtain capital and increase your bottom line, contact Dan
Williams of TWG Capital at 877.TWG.CPTL (877.894.2785), or by e-mail at
sales@TWGcapital.com.
For more information on obtaining Errors & Omissions insurance for your business, contact Glenn Clark
of Rockwood Programs at 800.558.8808, or by e-mail at Glenn.Clark@RockwoodInsurance.com.
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