Professional Liability Protection Brian Anzellotti Business Development Manager Chartis Private Client Group Average agency E&O claim through June 2008 was $50,000; defense cost average $11,000 6 out of 100 agencies experience an E&O claim Agencies heavy in personal lines have higher frequency but lower severity Losses are split evenly between producer and internal staff Not always clients suing carriers sue agents 1
Today s Objective Review professional liability and the potential exposures presented when placing personal insurance Identify risk management techniques that help minimize your exposure Agenda I. Professional liability insurance II. III. IV. Claims examples Types of exposures that can impact your firms Self evaluation V. Risk management best practices 2
Professional Liability Also known as errors and omission coverage provides protection for you and your company from claims if your client holds you responsible for errors, or the failure of your work to perform as promised in your contract. Professional Liability Originally designed for learned professions Anyone who claims to be an expert in their area of practice and is compensated for their expertise. 3
Are the members of your personal lines team considered professionals? Definition of a Professional Licensed Designations Mastery of body of knowledge Continuing education Fiduciary relationship with clients Trade associations Subject to Code of Ethics 4
E&O Claims Example Flood damage due to flash storm Certain coverage was excluded under NFIP form Client sued broker because they were never offered broader flood solutions provided by alternate carriers E&O Claims Examples Client has a wine cellar at their weekend home During summer storm the power goes off and excessive heat spoils the wine Claim for destroyed wine is denied under contents Client sues broker for failure to provide coverage 5
E&O Claims Example Child makes disparaging allegations on the internet about a teacher Parent group insist on an investigation into the allegations Bad publicity has negative impact on the teacher his tenure is denied Teacher sues for libel slander Liability exclusion applied E&O Claim Example Client owns secondary home titled in an LLC Client s son starts an executive retreat service under the LLC and uses the home as a corporate rental property LLC annual revenues is in high six figures Injury takes place on the j y p property during one of the executive retreats Incidental business exclusion applies Client sues broker for failure to inform them of special conditions 6
Impact of a Claim The producer The agency The carrier Direct Loss: The Cost of a Claim Loss of business Claim may not be covered Loss of time due to litigation-related issues Effect on agency and staff morale 7
Indirect Losses: The Cost of a Claim Damage to reputation Increase in deductibles Potential loss of E&O coverage or increase in renewal premium Cost of replacing business E&O claims research indicates... Courts are increasingly imposing a higher standard on insurance producers Clear negligence is infrequent Inability to prove agent was not negligent is common Human error is primary factor in case of negligence If no documentation is available, agent nearly always loses 8
Most Frequent E&O Allegations Failure to place or provide proper coverage Failure to provide adequate coverage Creation of a gap in coverage Failure to obtain excess coverage Stating coverage exists when it does not Failure to notify clients of cancellation, non-renewal or new coverage restrictions Failure to review or explain coverage or to advise clients about it Self Evaluation Test If yes give yourself 2 points If sometimes give yourself 1 point If no give yourself 0 points 9
Self Test Scoring 24 = Excellent 18-23 = Strong operation 17 or less = Re-evaluate your practice; you have a high potential exposure to liability claims Today s Insurance Marketplace Personal Lines 10
Emerging Personal Lines Risks Exposure Carrier 1 Carrier 2 Carrier 3 Carrier 4 Natural catastrophe Cyber liability Smart Home technology Green technology Domestic employees Hobbies run like business Complex Estates: LLCs, LLPs, Trusts Charitable work or directorships Fraud or Embezzlement Environmental exposures Prevention is the Best Policy 11
Risk Management Techniques Risk avoidance Risk reduction Risk retention Risk transfer E&O Risk Management Best Practices Documentation Know your products & carriers Know your clients Customize your firm s risk management process Use checklists on renewals Watch your website Be discreet Last minute checks Monitor your firm s best practices 12
Documentation The Mack Truck Rule Agency Management System Coverage interpretation, in writing Attach all conversations re: account to file Know your products & carriers Know your binding authority Assign a carrier to each member of your PL team let them be your in-house expert Create coverage comparisons for your top carriers to use as a reference Encourage education not just for CE Hold monthly case study sessions Discuss prospects with your carriers for additional questions or possible solutions 13
Know your clients Establish a process and/or routine Develop a list of open ended questions that staff should used to get prospects and clients talking Use exposure analysis checklists as a resource for uncovering unique exposures Do your own research, e.g. internet Risk Management Process Understand dclient needs Identify loss exposures Prioritize loss exposures Develop alternative risk management strategies es Implement risk management program Monitor and revise program when necessary 14
Use checklists on renewals Keep your check list current Get insight from your carriers, new products = new questions Personally speak with clients prior to renewals Mail clients a request for updated information, include returned addressed envelope Watch your website Keep the information current Establish guidelines for frequent updating Does it tell the public where you do business? Does it accurately promote your agency? If there is a claim could the plaintiff s attorney use your site against you? 15
Discretion Make sure private information is properly p handled Limit access to client information where possible Make sure that client information stays in the office. Last minute checks Do policies come in as requested? Are endorsement received and are they done correctly? Do you have a suspense system that is up to dt? date? 16
Monitoring Identify key areas of workflow Doesn t have to be time consuming Coherent and consistent Certificates of insurance Monitor the use of binding authority Is the account worth it? Late paying? Low limits? Minimum coverage? Bad claims history? Low profitability? Too time consuming? Litigious i attitude? Will commissions from this account even cover the E&O deductible 17
Questions? Key Takeaways Managing risk for highly affluent clients can create E&O exposures for your firm Failure to provide proper coverage #1 mistake Proper risk management can help reduce your E&O exposures Monitor your procedures and the staff that uses them to be sure they are working 18
The End The End Thanks for coming! Don t forget to sign out 19