Q: What are the biggest risks involved in being an independent insurance agent?
A: You're an insurance agent, but you're also a small-business owner. You've probably had to learn a lot on the fly about running your business and managing its risks. While you're intimately familiar with risk management (it's your job after all), your business's risks are different than your clients'.
What risks do independent insurance agents have?
- Cash flow problems. Timing how your business spends money is harder than many business owners realize. Revenue can vary month to month, and sudden expenses can drain your business's bank account, leaving you short on cash and unable to pay your bills.
- E&O lawsuits and client disputes. Before striking out on your own, you may have worked for a large insurance agency. During that time, you were shielded by that business's insurance coverage. Now that you're on your own, you'll be exposed to professional lawsuits. If a client alleges you've made a mistake, you'll need E&O insurance to protect you from the cost of these lawsuits.
Avoid the mistakes that other small-business owners make. Carefully plan your cash flow, and be sure to have adequate Errors & Omissions coverage.
What can independent agents be sued for?
While there are countless things an insurance agent can be sued for, let's look at some of the more common mistakes that lead to lawsuits:
- Failing to procure coverage for a client (including after a policy expires).
- Forgetting to notify insured about policy cancellations.
- Incorrectly explaining the coverage offered by a policy.
- Misidentifying risk exposure.
- Failing to recommend adequate insurance.
- Failing to add an additional insured to a policy.
- Misreporting or late reporting of a claim to carrier.
How do you cover your professional liabilities and reduce the risk of lawsuits?
In addition to covering your financial risk with commercial insurance, agents can practice good risk management by adopting a strategy to prevent lawsuits. Countless studies have shown that good customer service is the key to preventing lawsuits.
- Make sure you always adequately explain the coverage a client considers.
- Send follow-up emails, which document exactly what is discussed with clients.
- Communicate consistently, always sending the same reminders, cancellations warnings, and other alerts to each client.