04 Aug Moving Coverage to a New Carrier
When was the last time you moved an account to a new carrier? For many agencies, this is a common occurrence as clients are often looking for coverage at a lower premium. This scenario of moving coverage from one carrier to another typically occurs at renewal time but can certainly occur mid-term as well.
For many years, over 30 percent of E&O claims involve the scenario of coverage being moved. What goes wrong and generates an E&O claim? When an account is moved, the client is often actually losing some coverage, but the reduction in coverage is never brought to their attention. If the client had a loss that would have been covered by the previous carrier but was not covered by the current one, they may have some ground to bring an E&O action of some type against the agency.
The agency would probably contend that the client wanted to save money, while the client will state that while they did want to save on their premium, they never would have approved going with this new carrier had they known they were giving up coverage.
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
Actually, there have been E&O claims that arose due to the premium payment obligations being switched from an agency bill basis to direct bill. The client’s coverage was cancelled when they did not pay their direct bill invoice. This was due to the agency producer not being aware of the change in the premium arrangement and also advising the client to disregard any invoices from the carrier. You cannot make this stuff up!
Recently on a conference call with one of the agencies I am honored to work with, the following question was posed: “When we moved the account, the coverage for the Ordinance and Law coverage was less. Should we have brought this to our client’s attention?” Without a doubt, the answer is yes, the client should have been advised of the reduction in coverage.
If the account is on a claims-made form, issues such as the policy retro date and the list of covered professional services should be reviewed. Also, if the coverage is on a claims-made and reported form, the client should be advised to submit all potential claims to the prior carrier to avoid a potential late notice situation.
There will also be situations where a change in carriers is being discussed or proposed with the client and the client is actually gaining some coverage. That is great, but if the client is also losing coverage in some areas, these areas should be brought to their attention. On those areas where the coverage is being reduced, it is strongly encouraged that there be written confirmation to the client of the coverage reductions. Bringing these issues to the client’s attention allows the client to make an educated decision.
The agency should have a detailed procedure and checklist that analyzes the suggested replacement coverage comparing it with the expiring coverage. A key starting point is for the agency procedure to include an analysis of the carrier proposal to verify the coverages requested are the same as the coverages proposed. Just because the agency included various coverage options / requests on the application does not mean that the carrier provided these enhancements. This is definitely a more significant concern with the excess and surplus market. A solid policy review process is an additional time to perform this necessary review.
Bottom line, when the replacement coverage is not comparable to the expiring coverage, agencies should 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.
What is the procedure in your agency to address this significant issue?