22 Jun Doing a Comparison When Moving Coverage
It is estimated that around one-third of all E&O claims involve scenarios where an agency looks to move coverage to a new carrier and the replacement coverage is not as broad as the expiring coverage. That statistic speaks for itself – this is a significant issue and agencies should pay close attention to it. You are probably thinking that you know it is important, but it is so time consuming to do a real, extensive comparison. I understand – and you are right, it can be very time consuming.
While most agencies really try to avoid moving coverage to a new carrier at renewal time, there are times when it is necessary. This could be due to a carrier non-renewal, a significant rate change or the expiring carrier making major changes to its policy form. There are probably other reasons as well.
When you are involved in proposing a new carrier at renewal time, it is vital you understand that an in-depth comparison must be done. What could go wrong that could generate an E&O claim? When an account is moved, the client is often losing some coverage, but the reduction in coverage was never brought to their attention. If the client had a loss that would have been covered by the previous carrier but is not covered by the current one, they may have grounds to bring an E&O action against the agency.
Ideally, a side-by-side spreadsheet noting the key coverage issues should be used to list and compare how each of the carriers address the various coverage issues. Many agencies using this approach share the spreadsheet with the client. This serves to show that the coverage differences were brought to the client’s attention with some degree of documentation acknowledging the client’s decisions. Another very common approach is to include the coverage issues uncovered as a result of the comparison in the proposal.
There are a variety of situations where there could be coverage differences including, but not limited to:
- Sub-limits
- The definition of an insured
- The coverage grant
- What is excluded
- The carrier’s financial rating
From an E&O perspective, bringing the negative issues (i.e., the reductions in coverage) to the client’s attention is critical. It is not uncommon for a client that saved money by moving coverage to a new carrier to say they were not aware that saving some money meant they would lose coverage. This is why documentation of the reductions is so important.
Most agencies are performing some type of a comparison (this is one of the E&O Plus audit questions) but the issue is often the comprehensiveness of the comparison. For example, in your personal lines’ comparison, are you addressing the HO limits for ordinance or law sub-limit? If you are duplicating the expiring coverage, that’s fine – but if the sub-limit is at a lower level, the client should be notified. The client may contend that ordinance or law is not an important coverage, but from an E&O perspective, the bottom line is that you have now brought it to their attention.
I will admit that it is extremely difficult (maybe even impossible) to do a full 100% comparison in many situations. So what do you do? A suggested approach is to include language such as the following as standard wording on your proposals.
“In proposing the moving of coverage for _____ to a different insurance company, we have reviewed and noted in this proposal some of the coverage differences between your expiring coverage (policy) and the possible replacement coverage. It is important to note that during the review of the coverage differences, there may be other additional coverage differences that have not been stated in this proposal. We encourage you to read the policy completely and contact us with any questions.”
This disclaimer will hopefully help if a problem develops down the road.
In conclusion, when the replacement coverage is not comparable to the expiring coverage, look to bring the reductions (in writing) to the client’s attention. If the client is agreeable to the reductions, they should be required to acknowledge the reductions in writing.