If It Ain't Brokered, Don't Risk It
Avoiding Common Errors & Omissions Claims Against Insurance Agents

Insurance agents encounter a lot of risks in their everyday business, and they might not even realize it. Making a mistake on a client's policy or failing to educate them on their coverage can lead to some very tense phone calls that morph into lawsuits down the road.

As you already know, most clients don't know much about insurance, which is why they turn to you, their trusted Beatrice, to guide them through the insurance paradise. (Related reading: "Who Can Sue Insurance Agents and Claims Adjusters for Professional Liability?") And when all that trust rests squarely on your shoulders, the stakes are high. Clients expect to have everything in order if they ever experience a financial crisis, and sometimes, their expectations aren't consistent with the reality of their coverage.

Though you're an awesome insurance agent, you're also human, which means mistakes can and will happen. If you make a slight oversight when procuring your client's coverage, the mistake may have serious consequences on their finances. It's only natural for them to want compensation from the party that might be responsible.

Luckily, insurance agents can benefit from insurance coverage, too, and Errors and Omissions Insurance covers lawsuits over professional mistakes — real or perceived. But it's best to think of E&O coverage as an option of last resort. The goal is to avoid lawsuits altogether, and the first step toward that goal is educating yourself about the various pitfalls you may face.

Insurance Agents: Watch Out for These Common Errors

Insurance Agents: Watch Out for These Common Errors

For insurance agents, the most common errors that lead to lawsuits seem to stem from disorganization, forgetfulness, or lack of expertise. It's important to remember that as an insurance agent, you're responsible for protecting your clients to the best of your ability. That means covering their exposures and minding their budget. It can be a tricky balance, and steering too far to one side can land you in hot water.

So without further ado, here are the mistakes you should try to avoid at all costs:

  • Failure to procure coverage. By far, this is the most common error complaint made against insurance agents. Acquiring coverage for your client is your main duty, so when that doesn't happen, metaphorical heads will roll. Sometimes, this issue is a matter of miscommunication. Perhaps your client thought they asked for a rider, but they didn't. Maybe you thought you made it clear that your client didn't qualify for a certain type of coverage. Communicate with your clients to know exactly what coverage they want, and be sure to follow through. Document everything so you don't forget. If you encounter obstacles when procuring coverage, let the client know, and work with them to find a solution.
  • Failure to adequately explain policy provisions. Insurance policies are full of legalese and jargon that many clients don't understand. If they feel assured they have certain coverage when they don't, they may file a lawsuit against you for failing to make that clear. Like all professionals, insurance agents have a responsibility to inform their clients about what they're paying for.
  • Failure to adequately identify exposures. Clients expect their insurance agent to help them protect their liabilities. If they face a situation that could have been helped with specific coverage, they may blame their agent for not providing that option.
  • Failure to recommend a coverage type. It's important to stay up-to-date with the insurance industry so you can provide coverage recommendations when your client needs them. You're the expert, after all.
  • Provision of inaccurate / incomplete information to the carrier. Keep detailed records and write down important information. Make sure the client understands why you need all their info.
  • Failure to notify the carrier about a claim in a timely manner. As you know, claims are time sensitive. Most policies require reporting within a certain timeframe after a covered event so the client can receive their benefits. If a client needs information from you to complete this process and you don't act in a timely manner, they could sue you when they delay costs them their coverage. That's why it's essential to have a system in place to handle claims quickly.

To see a more comprehensive list of insurance agent errors, check out the Independent Insurance Agents and Brokers of America's list and read the article, "Things that Enable E&O Lawsuits against Insurance Agents."

Ways Insurance Agents Can Avoid Costly Errors

Ways Insurance Agents Can Avoid Costly Errors

Here are some steps to ensure you provide quality service:

  • Communicate clearly with clients and keep records of your interactions.
  • Use agency management software to keep track of clients and accounts.
  • Document client requests, information, and policy changes.
  • Organize duties to take care of time-sensitive claims.

After all is said and done, you might still face a lawsuit from an angry client, even if you did nothing wrong. Good thing Errors and Omissions Insurance can cover meritless lawsuits, too. To learn more about how E&O coverage can help your agency, check out the article, "What Does E&O Insurance Cover for Insurance Agents?"

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