Insurance Agent Tips: Identifying and Reducing E&O Claim Risks

By Joseph Peters

When clients contact you, their trusted insurance agent, they expect to receive expert advice regarding their insurance concerns and important updates on insurance industry changes that could impact them and their coverage. If you mistakenly provide erroneous advice — due to a misunderstanding of changing insurance laws or forgetting a vital piece of client information — that results in significant financial losses or failure to secure much-needed coverage, you could be held liable.

Four Common Agent Mistakes That Can Lead to E&O Claims

How do insurance agents become the target of an errors and omissions (E&O) claim? These issues usually arise from the basic transactions and day-to-day services commonplace for agents and agencies of any size. Because these activities are considered standard, it’s essential to understand how even these basic services can expose you to professional risks. Familiarize yourself with some of the top error and omission risks for insurance agents and agencies: 

• Failing to disclose important information to clients – If there is a change in policy coverage, your clients need to know as soon as possible. If you fail to disclose these changes, it could compromise their coverage. Depending on the blunder’s scope and impact on their finances, you could be liable for their losses.
• Providing incorrect advice – If you give your client the wrong piece of advice, there’s a possibility you could jeopardize their insurance coverage. If a policy is voided due to an action you endorsed — such as, “Don’t worry about that claim, it’s nothing” — they could pursue a claim or litigation following a loss. Every time you advise your clients to take action, remember you’re opening the door to possible legal action. Ensure your advice is correct.
• Failing to correct a mistake or misunderstanding quickly – Miscommunications are a fact of life. If a client does not understand the point you're trying to make, it's vital to take the time to ensure you're on the same page. Additionally, be upfront about mistakes as soon as they occur to reduce their impact on your client and firm. When these conversations happen, document them in detail. Provide your client with a summary of the discussion to address any lingering questions.
• Inadequate Coverage – Underinsurance is insufficient insurance coverage that leaves the policyholder responsible for a large percentage of a total loss or expense; it may lead to financial hardship for the insured. Ensure you are reviewing as much information as possible about a potential case and avoid promising anything to your client that might misrepresent the truth.

Four Ways to Reduce Your Risk of an E&O Claim

As an insurance agent, many things can go wrong while providing professional services to clients. Making an error or omission in the sale or service of an insurance product, such as by giving incorrect advice or failing to correct a misunderstanding, can trigger costly client lawsuits that require thousands of dollars to defend your career and business. E&O claims against agents are common across personal and commercial insurance lines. Stay a step ahead of client claims or lawsuits by following these tips to reduce your risk:  

• Stay up-to-date on insurance laws and regulations – Keeping yourself informed of insurance law changes is essential for your business and career. Not only is it one of the essential attributes your clients look for in a good insurance agent, but it can also help you protect your career from the disruptive effects of litigation. Improve your insurance knowledge by subscribing to trade journals, setting up automated alerts or joining a trusted professional association. Additionally, insurance agents who are members of the Association of Insurance Professionals (AIP) can get access to continuing education (CE) credits through AIP. CE courses are a powerful tool to ensure you’re always on top of insurance industry developments.  
• Provide clear and concise communication to clients – Clear communication is key to developing positive client relationships, managing expectations and avoiding misunderstandings. If you’re a professional association member, see if they offer educational opportunities such as training or webinars. To help get you started, refer to this article from Indeed for a primer on the five elements of client communication and tips for improving it.
• Document all interactions with clients – If an unhappy client pursues litigation, all your communications with your clients will be entered into evidence and closely examined by experts. If you fail to record a client request in writing and it results in a lawsuit, you can increase your risk of significant fines or settlements. A customer relationship management (CRM) system, a set of integrated software solutions, can help manage, track and store information related to current and prospective clients. This article from Microsoft explains the basics and benefits of a CRM.
• Always be transparent with your clients – As the saying goes, “Honesty is the best policy.” One of the easiest ways to help avoid an E&O claim is being upfront with your clients about any fees, penalties and coverage limitations their policies might have. For more information on avoiding E&O claims, visit 25 Tips For Insurance Agents To Avoid E&O Claims.

Errors and Omissions Insurance is vital for businesses that provide professional services. Whether you’re an independent agent or a member of an insurance firm, failure to obtain proper E&O coverage can result in significant financial losses and have repercussions on your client relationships and career. Protecting yourself from E&O claims is vital in preserving the longevity of your career.

The Errors and Omissions Insurance Program from AIP is powerful insurance coverage that provides valuable protection in case of a claim or litigation due to a professional error or omission. Whether your professional focus is life and health, property and casualty or all of the above, AIP offers coverage options for agents and their firms. Read our article to learn more about how to select proper E&O insurance coverage for your professional needs. Visit our site today to learn more about E&O insurance and how it can help safeguard your career.