18 Aug What Are You Telling Clients Regarding Policy Limits?
Based on the latest numbers from the E&O Plus program, allegations involving inadequate limits are generating around 6 percent of all claims. As a result, it is definitely an issue that agencies should focus on.
I remember a discussion around five years ago where the client broached the issue of limits with an agency staff member. The conversation essentially went like this:
“I have a $2 million umbrella and was thinking of raising it up to $5 million. What are your thoughts?”
Surprisingly, the agency staff member replied, “I think $2 million is enough.”
You can certainly count on the client remembering this discussion if they experienced a loss where the $2 million umbrella was not going to be enough.
Many agents might believe that this type of discussion could never occur in their agency, but they would be wise to not assume and instead make sure that the topic of limits gets the attention it deserves.
When an agency is faced with an E&O claim, the end goal is for the agency to have a strong defense. There are two E&O claim buckets: one is filled with the issues that are going to be part of the agency’s defense; the other is filled with those issues that the plaintiff attorney will be looking to use to find your agency negligent. The goal is that the agency bucket is overflowing with strong defense items.
A good starting point when dealing with limits (especially liability limits) is to acknowledge that it is basically impossible to predict what the proper limits are for every client. Benchmarking data is available for many commercial industry classifications – and while this has benefit – caution should be exercised. Benchmarking data advises what clients of certain size (revenue, sales, etc.) are carrying. This data does not mean that the limits noted are appropriate for every client, and especially for your client.
Some suggestions to consider:
- For a new client, don’t just duplicate the coverage they currently have. Make a concerted effort to better understand your client and to determine what the potential liability issues and ramifications are. Every day, we hear stories of events occurring in our country that were probably not considered and may even redefine the “worst that can happen.” Fortunately, this should help agents to navigate the issue of liability limits. It might be appropriate to replace the question, “What is your typical liability claim?” with “What is the worst that could happen?” This may help to determine the proper limit.
- The client may insist on getting the same limits they have now. In this scenario, it is best to include in the proposal either additional limit options (such as additional umbrella limits) or a statement such as, “Higher limits are available upon request.” The objective is to advise the client of options to consider. Requiring the client to sign off on the limit they are choosing or memorializing in writing their decision back to them is suggested. Customer accountability should be a goal of every agency.
- DO NOT recommend a specific limit or imply (as in the example above) that their current limit is enough. The problem with recommending a limit is that this implies to the client that the recommended limit will be adequate at the time of a claim. Since the size of a claim is not possible to predict, recommending a limit should be avoided. Once again, it is suggested to provide options for the client to consider.
Bottom line, predicting the size of a liability claim is virtually impossible to do. Following a few best practices could play a key role in filling up your defense bucket should a problem develop.