06 Jul I Thought Coverage Was Bound
Using alternative markets can often be a challenge – and at times, a very stressful challenge. Whether the alternative market is the E&S market, the Fair Plan, Assigned Risk, or JUA, it is important to realize that these markets operate differently. Agents must completely understand the guidelines for binding coverage in these markets.
Let’s look at this scenario:
You complete the necessary application (paper or online) and if everything is in order, your agency receives a proposal. You review it and contact the client who gives you authorization to put coverage into effect.
What could go wrong? This is where you must pay particular attention to the requirements for binding coverage. While some may require you to complete a specific application, others commonly require payment of the premium. Until the entity receives payment, there is a good chance they may not consider the coverage bound. By the time payment is received, there is the potential that the effective date is not what you initially requested, thereby resulting in a gap in coverage. When a loss occurs and there is no coverage, this is a common formula for future E&O litigation.
Thus, when you are dealing with an alternative market where your agency does not technically have binding authority, it is vital that there is a strong focus on the requirements for coverage to be officially bound. The market proposal will typically make those requirements clear.
The guidelines for binding coverage should be spelled out if you are including alternative market coverage in your agency proposal or using the market proposal (including a wrap document is suggested to address any other issues such as disclaimers, surplus lines language, carrier rating, etc.). Also, extra time in advance of the proposed effective date should be factored in to allow for any unique market issues to be addressed in a timely fashion. It is not uncommon to use language in the proposal such as:
“For coverage to be bound, our agency must be notified by no later than [date]. Failure to do so may result in a gap in coverage.”
Additionally, when dealing with alternative markets, there is a good chance your agency does not have the authority to issue a binder. Issuing a binder should be avoided unless it has been authorized by the other party (and be sure to get the authorization in writing).
Other key issues when dealing with alternative markets:
- The application. The specific market may require its own application to bind coverage or to even provide a quote. It is best to know this as early as possible.
- The timeline. Depending on the status of the overall marketplace, it may take the alternative market longer to work on an account. Not only is it best to allow 60-90 days for a proposal, but it is also suggested that you periodically follow-up with the market to determine the status of the application in the system. You do not want to encounter a situation where the account renews tomorrow, and you still don’t have a quote.
- Did the market provide the coverage you requested? The proposal should be reviewed to discover if there were any coverages requested but not quoted. It is up to the retail agent to identify any differences.
Regardless of the overall insurance marketplace, using alternative markets is common. It is important to know the rules so you can avoid scenarios in which the binding of coverage is misunderstood.