Agents' Standard of Care for E&O Purposes

The #1 way for agents to avoid E&O claims is to sell clients the coverages they truly need, no more and no less.

To begin on a dreary note, I feel like I am beating a dead horse discussing agencies' standard of care. This would not even be a valid topic, except: 1. Too many attorneys are involved who cannot see the forest for the trees. They look at every situation with the idea that, if the agency had not done this or that, they would have an easy time winning the suit. Their ability to win a suit easily should not be a factor in advising agencies to shirk their standards. Telling an agency to not advertise that they are professionals so that when they are accused of failing to provide services at a professional level they can win a case more easily is horrendous advice. Agents do not need attorneys who cannot win hard cases. See also: Are P&C Insurers Failing Agents?   Furthermore, advertising is not the issue. To even bring it up is evidence the attorney or other adviser is completely missing the point. The real point should be to act as a professional so that the agency can advertise as a professional. By acting as a true professional, the agency does not have to worry about using better advertising. It does not have to worry about being called out as a hypocrite for advertising one thing while doing something less. 2. A preponderance of agencies seems to want to be considered incompetent. A low standard of care is evidence of incompetence. At the very least, a low standard of care encourages amateurism. This combination of advice from on high, attorneys and advisers, with a willing audience that WANTS TO BE TOLD to act amateurish, is a death knell for independent agencies because NO ONE NEEDS AMATEUR AGENTS! The need for professional agents is stronger than ever. With so many new distributors of insurance, including ones that do not seem to think insurance licenses are even important, existing amateur agents are being made redundant. Some of these new distributors are going one level of dumb further, but cheaper. Other new distributors are far cleverer because one has to read their advertisements carefully to understand that they create the impression of professionalism but not the promise of professionalism. They are using the difference between implying and inferring. They have larger budgets to hire more professional advertising experts that can craftily navigate between appearance and reality. I do not agree with their approach, but I understand it, and I expect some will be successful. This group's success further negates the value, whatever value ever existed, of amateur agents. The space that is left, which is largely uncontested, is the space of a true professional agency. This requires closing your ears to those advisers and attorneys who incompetently cannot understand the difference between a professional agency’s E&O exposures advertising professional services and an amateur agency's E&O exposures created when they advertise professional-level services or images. A true professional agency will incur far less E&O exposure because its clients are far more likely to buy the coverages they need! What is the cause of most E&O claims? The client not having the right coverage. If the agency sells clients more coverages, then the odds of a client not having the right coverage decreases. E&O is not that complex. The #1 way to avoid E&O is to sell clients the coverages they truly need, no more and no less. Executing at a professional level is harder than the strategy, which is why this space is open. It is difficult, and, if it was easy, the space would not be available. Here are a few key points for becoming a true professional agent:
  1. Learn your coverages.
  2. Use a coverage checklist with your clients. No single better tool exists, by far, than a checklist for determining coverage applicability other than my proprietary exposure training process.
  3. Read your forms. I flat do not understand why anyone would assume what coverages exist or do not exist in a non-ISO form without reading it and without regard to how well someone knows the ISO form. If one is not selling an ISO form, then one has to read the proprietary form to know what is or is not in it. This is work. This is what you get paid to do as a pro. Amateurs take short cuts.
Why do more agency personnel not take these three basic steps? To date, they've learned to make a living being partially ignorant, so why start now? Please understand, I am not trying to be cynical, satirical or facetious. The fact is, based on the E&O claims I have seen and the hundreds and hundreds of interviews I've conducted of agency personnel, ignorance and incompetence is not an overstatement. People with 10, 15 or 20 years' experience cannot describe basic coverages, and yet they have made a living. Hence, they have made a living while remaining ignorant. See also: Insurtechs: 10 Super Agents, Power Brokers I can't argue about past success, but, going forward, I do not see how this business model has much opportunity. The new disrupter agencies can achieve the same level of amateur knowledge for much lower commissions. If an agent knows the coverages, identifies the coverages the client actually needs, sells the client those coverages and obtains the client's sign-offs on the coverages he or she needs but will not purchase, and then reads the forms to determine whether the coverages actually exist, the odds of a client having an exposure is quite limited. Additionally, the agency's sales will increase, and the agency can have more fun by advertising more powerfully. I think a smart agency owner would build the entire sales strategy around identifying other agents' mistakes, which should be like shooting fish in a barrel. Hiding behind an attorney's caveats is no way to go through the world, and it is not much of a business strategy. Be bold by doing what your clients truly need you to do, enjoy your success and sleep better at night.

Chris Burand

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Chris Burand

Chris Burand is president and owner of Burand & Associates, LLC, a management consulting firm specializing in the property-casualty insurance industry. He is recognized as a leading consultant for agency valuations and is one of very few consultants with a certification in business appraisal.


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