20 May Use Care When Changing Carriers
We are often forced to change insurers for our clients. This is usually because the insured has received a premium increase or because a company has not renewed a policy for claims history. It is also possible that the company no longer writes the type of account or is no longer writing coverage in the state. Having a procedure for changing carriers is critical for E&O loss prevention.
We all know there can be significant differences in coverage among the carriers we represent. I teach many classes using standard ISO forms, but I always caution students that few carriers use the ISO form without modification. They often use ISO as the basis of the policy and then make changes to the form. Other companies might use AAIS forms or have their own proprietary forms not based on ISO or AAIS.
Clients buy insurance to pay any losses. They expect us to write the broadest coverage at the lowest cost. We can usually do one or the other, but not both. Independent agents are expected to offer the broadest coverage of any company they represent. If there is no coverage under a policy at the time of loss, but we represent another carrier that would have covered the loss, the question is, “Why didn’t you write the coverage with that company?” We know there are various reasons why a particular company may not be available. We often become comfortable with two or three companies and don’t consider other companies we represent.
Unfortunately, a lot of insurance is sold based on price rather than coverage. This trend is very true in personal lines. I came into the industry in 1973 as a personal lines underwriter, and one of the first things I learned was that the company had to charge a rate “commensurate with the exposure.” In other words, they must charge an adequate rate to cover anticipated losses and overhead expenses and provide an allowance for profit. If they provide broader coverage, they need to charge for it. Sometimes, a company will use low rates to enter a new market or territory. Invariably, they eventually raise their rates and maybe reduce coverage.
We are now in the hardest market I have seen in my 52 years in the business. We are using more E&S markets. Occasionally, we can get a better policy or price in a non-admitted market, which is unusual. We use the market because it’s the only one we have. We realize that insurance written in the non-standard market often uses much more restrictive forms than our standard markets. They might use ISO forms, but they add 15 exclusions or change loss conditions. E&O losses always increase in a hard market because we are not used to the differences in the market and forms.
When we change carriers, we must advise the insured of any reduction in coverage and include a disclaimer. The E&O Plus Operations Guide has a sample disclaimer on page 34 and a discussion of “The Mirror Test” on pages 81 and 82. Get familiar with these tools.
Remember, it’s a jungle out there and we don’t want to become prey. It’s much better to be a lion than an antelope.