30 Jul Which Area Generates More E&O Claims – New Business or Renewal Business?
Please put your thinking hat on regarding this question, and promise me you won’t cheat by looking at the answer further in this article. The question again is: Which area generates more E&O claims – new business or renewal business?
Let’s look at some of the key issues.
New Business: Several issues could occur that could generate an E&O claim. Here are some of the more common ones:
- Standard of care issues: Standard of care involves promoting yourself to the public. Many agencies have faced an E&O claim because their website made more promises than the agency could ever honor. Statements such as “we will guarantee all of your risks are covered” were pulled from an actual website. That type of guarantee is impossible because the client determines what coverage they purchase, not the agency.
- Exposure analysis: How well do you know the risk? Did you use a quality checklist to understand the risk fully, or did you trust your memory to perform this vital task?
- The application to the marketplace: Is it accurate? It better be, because your markets trust that you are presenting them with an accurate description of the risk.
- The proposal: Is it accurate? Does it have any errors in it? E&O claims have occurred when the client relied on the proposal even when it was different from what the policy provided. Add to this any potential misunderstandings on what the client purchased and what they did not. Document, document, document! Memorialize your understanding of the final purchase decisions back to the client.
- Policy checking: This is definitely one of the more underrated tasks an agency will need to perform. Even when the task is outsourced, the agency is still responsible for addressing the “discretionary report.” Policy checking on new business is absolutely critical since, down the road, presuming you write the account, you will be comparing the renewal policy against the new business policy. But what if the new business policy was wrong?
Renewal Business: Several issues could generate an E&O claim. Here are some of the more common ones:
- The standard of care does not disappear just because the account is renewed. For any agency staff dealing with the customer, please note that you can be held responsible for what you say and what you put in writing.
- Renewal exposure analysis: How often have you found that the client “changed” from one year to another? This is why the renewal questionnaire is needed to ask the client key questions and account for any changes.
- Final purchase decisions: Is there total clarity and understanding of what coverages and limits were purchased? Is there documentation in the file that goes back to the client memorializing these decisions?
- Policy checking is still and always will be an issue, especially to verify whether any changes/endorsements made during the policy period are accurately included in the renewal policy.
OK, now to answer the question. Based on some statistics I have seen, new business wins. New business appears to generate more E&O claims than their renewal counterparts (and by a significant margin). So, agencies should ensure that their new business process and commitment are at a very high focus. Many agencies audit close to 100% of all of the new business the agency generates. Their philosophy is “Let’s ensure everything was done as expected right from the beginning.”
I tip my hat to those agencies for this extensive commitment.