17 Feb E&O Risk Management for AORs and BORs
I recently received two questions from agents regarding Agent/Broker of Record (AOR/BOR) issues. I thought I would combine them into one blog post.
Question 1: It has always been best practice to have the AOR/BOR letters executed on the client’s letterhead. We send them blank letters, and they execute them accordingly.
The question has come up: What if the client does not have letterhead? The example is a single purpose entity for real estate properties (LROs). What is your suggestion for these instances? I have producers either creating the letterhead themselves or sending blank letters, which some carriers return because it’s required to be on letterhead, and then we are asked to create the letterhead. What are your thoughts on this matter?
Answer: If a prospective client does not have letterhead and the carrier requires it, you will need to produce the AOR/BOR letter for them. Make sure that you have the correct legal name and address. The important thing is that you have a signed letter in the file. You might even note in the file you created it for them.
Question 2: As a rule, our agency hasn’t obtained applications from clients who have chosen to move their business to our agency via an AOR/BOR form. Some of the commercial carriers require signed apps, but none of our personal lines carriers do.
Should we contact the former agent to obtain any signed application forms? Are they required to provide this once requested? Should we just create new application forms for the clients to sign? What is best practice for agencies?
Answer: AOR/BOR letters are temporary to give you time to rewrite the account with a signed application. If you rely on the letter to transfer coverage, you are just taking on the errors of the previous agent. The previous agency is not obligated to send you signed applications.
You should do your own applications as part of your coverage check process. It is possible the previous agent made some mistakes, and without a thorough review, you will just be repeating them. An expert witness friend of mine said he has seen E&O lawsuits against the agency that took over an account, promising better service, only to continue the previous agent’s mistakes.
For your agency’s protection, obtain new, signed applications as soon as possible so you have them on record that the insured agrees to the current coverage. As part of best practices, review those coverages and make appropriate recommendations.
It is recommended that an AOR/BOR include a disclaimer such as the following:
“By signing the agent/broker of record letter, you acknowledge and agree that our agency will have the authority to request, receive, and review policy information from insurance carriers, including policies currently in force. We will review your exposures and require a new signed application. Signing this letter does not alter your existing premium, coverage terms, underwriting status, or renewal dates. It solely changes the agent authorized to service and manage your policy. You also acknowledge and agree that our agency is not responsible for errors made by your previous agency.”