Everything has a price and sometimes the insurance industry forgets this . E & O answers are all black and white and underwriters ’ answers are all yes or no . Insurance is about pricing risk and moving risk to other entities . Maybe it ’ s time to put a price on risk in our own agencies and transfer some of that risk to the people creating the exposures . •
AGENCY OPERATIONS
More complicated issues , such as record retention , are more difficult . Truly addressing record retention properly will likely cost an agency several thousand dollars and considerable time . The odds of improper record retention resulting in a suit may be small . If one in twelve agencies are sued , and assuming the same ones are not sued over and over , then out of one hundred agencies , 8 will be sued in any one year . So at the next convention , look around the room at the grand opening and you will see eight agencies with ongoing suits for every one hundred agencies .
I do not have access to the statistics showing E & O suit by type , but I imagine maybe 25 % or less of suits involve record retention . So for every one hundred agencies , maybe 2 agencies in the room will have suits involving record retention at any time . If only two percent of agencies per year are sued for E & O issues involving record retention , is it worthwhile to take proper steps to minimize such claims ? Extend this over ten years and this mean 20 % of agencies will incur such a claim .
IS IT WORTH THE MONEY ?
Some agencies are willing to take chances of being sued , provided they believe they will win . This is more difficult because in my experience , many of the claims won by agencies are ridiculous suits . The plaintiff attorneys should lose their license for even bringing the suit , so good procedures may or may not positively impact these situations . But let ’ s assume all are legitimate suits . Agents win 80 % of E & O suits based on reports I have seen . So all else being equal , only 4 agencies out of every 20 sued will lose suits related to record retention over the next ten years ( of course , they will still have to spend a considerable amount to twin the suits ). Is the investment of several thousand dollars to mitigate this risk worth it ?
This depends on your risk appetite of course . Some issues seem to carry such little risk , it might be worth the risk relative to the cost . But most E & O preventative measures cost very little . In fact , most E & O preventative measures increase productivity , often result in increased sales , and improve the professional appearance of the agencies , all for a price far less than the return . Yet so often , agency owners and producers balk at the price of the change .
The real issues they are resisting are accountability and responsibility . It has nothing to do with the financial expense . Good E & O procedures result in agency owners and producers being held accountable for doing their jobs well . They hold the producers and agency owners responsible and accountable for treating staff and often carriers well and with respect . Good procedures hold producers accountable for making sales . This is the price they are paying and it is a dear price to them . Often it is a price they will only pay when no other alternative exists .
So when your producers desire to not be accountable , why not let them ? Make them 100 % responsible for all deductibles . Plus , they should pay for all the time the agency spends to defend themselves . For instance , if fifteen hours of attorney meetings and depositions are required , then multiply fifteen by the average cost per hour per person . This may run between $ 30 and $ 450 per hour . Then , if your E & O premium increases as a result , they can pay that cost too . You may want to add in another 10 % just for the aggravation . Sometimes the frustration of getting people to follow procedures is more than can be bared . If they want to take the chance , let them ( for a price ).
Everything has a price and sometimes the insurance industry forgets this . E & O answers are all black and white and underwriters ’ answers are all yes or no . Insurance is about pricing risk and moving risk to other entities . Maybe it ’ s time to put a price on risk in our own agencies and transfer some of that risk to the people creating the exposures . •
Chris Burand is president of Burand & Associates , LLC , an insurance agency consulting firm . Readers may contact Chris by e-mail at chris @ burand-associates . com .
NOTE : None of the materials in this article should be construed as offering legal advice , and the specific advice of legal counsel is recommended before acting on any matter discussed in this article . Regulated individuals / entities should also ensure that they comply with all applicable laws , rules , and regulations .
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