Better communication habits can limit E&O exposure

(June 2, 2004) When Independent Financial Brokers of Canada (IFB) announced its errors and omissions insurance (E&O) rates would not rise for 2004, members likely breathed a collective sigh of relief. In recent years, premiums have been under upward pressure due to the shrinking number of companies offering professional liability insurance and higher costs of […]

By Steven Lamb | June 2, 2004 | Last updated on June 2, 2004
4 min read
  • IFB holds the line on E&O rates
  • Advocis conference update: Advocis announces in-house E&O program
  • Your E&O policy: What you don’t know could hurt you
  • Bad things do happen to good advisors (from the March 2004 edition of Advisor’s Edge)

    An insurance professional will likely debate with many clients over what is adequate coverage, with the client suspicious they are being over-insured. In this case, Ionni says it is up to the advisor to document his objection to the lower coverage and make sure the client acknowledges the objection by signing the documentation.

    “The reason E&O claims are so high against life agents, is not so much that life agents make mistakes, but when they are accused they can’t defend themselves,” she says. “It’s not because they’re necessarily wrong, but they don’t have the documentation to prove they are right.”

    These problems can be mitigated by improvement and standardization of practices and procedures. It is not enough to design improved practices, but employees must be reminded and refreshed from time to time to ensure steps are not being skipped out of expediency.

    Ionni says the common complaint from advisors is that putting these procedures in place is time consuming, but she points out that defending against a claim without proper documentation will be far more costly.

    “Claims costs that you see are not always the full cost of the claim. Sometimes it’s just the tip of the iceberg — there’s so much more that goes with it,” Ionni says. “Insurance industry information indicates that losses could be two to five times more in hidden costs.”

    These hidden costs include the administration of the claim, the productivity lost while the advisor sorts out the claim. There is also the damage done to the advisor’s reputation, which can be especially acute if their practice is in a small town where the clients all know each other.

    Sometimes there is no way to avoid a complaint. In the event an advisor receives a complaint from a client, Ionni says it is important they contact their E&O broker immediately, rather than sitting on the complaint until it becomes a full-fledged claim against the advisor.

    Liability insurance claims must be made in the same coverage year as it surfaces, even if the advisor does not need to tap the resources available through their insurance.

    Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

    (06/02/04)

    Steven Lamb

    • (June 2, 2004) When Independent Financial Brokers of Canada (IFB) announced its errors and omissions insurance (E&O) rates would not rise for 2004, members likely breathed a collective sigh of relief.

    In recent years, premiums have been under upward pressure due to the shrinking number of companies offering professional liability insurance and higher costs of litigation. Add to that the higher punitive damages being sought — and awarded — and it comes as no surprise rates have been so unstable.

    But there are steps the advisor can take to help reduce the cost of defending an E&O claim — or better, avoid them in the first place, according to Katherine Ionni, sales and marketing manager and assistant vice-president Willis Canada, the IFB’s E&O broker.

    “You want to use your insurance as a last resort, rather than putting claims through constantly,” says Ionni. “It’s okay to have a claim once. It’s not okay to have the same claim over and over.”

    Like all insurance, an advisor’s premiums will rise with every claim, even if he did nothing wrong, so Ionni says it is important to not only understand the risks the advisor faces, but how to mitigate them.

    “You want to look around and identify opportunities that can mitigate that loss from ever happening again, then institute remedial action,” says Ionni. “It’s not this big, scary risk management regime. There are little things you can do that help to mitigate losses.”

    The leading cause of claims is poor communication, which can include failure to explain a product and disclosure errors. In fact, communication forms the basis of the next leading causes, including not gathering proper client information and lack of technical knowledge. Ionni points out that if the advisor does not fully understand a product, there is no chance they can explain it to the client.

    The leading product line to be hit by complaints and claims is personal life insurance, which may come as a surprise. There is a perception, Ionni says, that the main target of complaints is the mutual fund industry.

    With insurance, the primary cause for client concern is inadequate coverage. Keep in mind this likely becomes an issue only in a time of dire need or tragedy, not at the point of sale.

    Related News Stories
  • IFB holds the line on E&O rates
  • Advocis conference update: Advocis announces in-house E&O program
  • Your E&O policy: What you don’t know could hurt you
  • Bad things do happen to good advisors (from the March 2004 edition of Advisor’s Edge)

    • An insurance professional will likely debate with many clients over what is adequate coverage, with the client suspicious they are being over-insured. In this case, Ionni says it is up to the advisor to document his objection to the lower coverage and make sure the client acknowledges the objection by signing the documentation.

    “The reason E&O claims are so high against life agents, is not so much that life agents make mistakes, but when they are accused they can’t defend themselves,” she says. “It’s not because they’re necessarily wrong, but they don’t have the documentation to prove they are right.”

    These problems can be mitigated by improvement and standardization of practices and procedures. It is not enough to design improved practices, but employees must be reminded and refreshed from time to time to ensure steps are not being skipped out of expediency.

    Ionni says the common complaint from advisors is that putting these procedures in place is time consuming, but she points out that defending against a claim without proper documentation will be far more costly.

    “Claims costs that you see are not always the full cost of the claim. Sometimes it’s just the tip of the iceberg — there’s so much more that goes with it,” Ionni says. “Insurance industry information indicates that losses could be two to five times more in hidden costs.”

    These hidden costs include the administration of the claim, the productivity lost while the advisor sorts out the claim. There is also the damage done to the advisor’s reputation, which can be especially acute if their practice is in a small town where the clients all know each other.

    Sometimes there is no way to avoid a complaint. In the event an advisor receives a complaint from a client, Ionni says it is important they contact their E&O broker immediately, rather than sitting on the complaint until it becomes a full-fledged claim against the advisor.

    Liability insurance claims must be made in the same coverage year as it surfaces, even if the advisor does not need to tap the resources available through their insurance.

    Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

    (06/02/04)

    (June 2, 2004) When Independent Financial Brokers of Canada (IFB) announced its errors and omissions insurance (E&O) rates would not rise for 2004, members likely breathed a collective sigh of relief.

    In recent years, premiums have been under upward pressure due to the shrinking number of companies offering professional liability insurance and higher costs of litigation. Add to that the higher punitive damages being sought — and awarded — and it comes as no surprise rates have been so unstable.

    But there are steps the advisor can take to help reduce the cost of defending an E&O claim — or better, avoid them in the first place, according to Katherine Ionni, sales and marketing manager and assistant vice-president Willis Canada, the IFB’s E&O broker.

    “You want to use your insurance as a last resort, rather than putting claims through constantly,” says Ionni. “It’s okay to have a claim once. It’s not okay to have the same claim over and over.”

    Like all insurance, an advisor’s premiums will rise with every claim, even if he did nothing wrong, so Ionni says it is important to not only understand the risks the advisor faces, but how to mitigate them.

    “You want to look around and identify opportunities that can mitigate that loss from ever happening again, then institute remedial action,” says Ionni. “It’s not this big, scary risk management regime. There are little things you can do that help to mitigate losses.”

    The leading cause of claims is poor communication, which can include failure to explain a product and disclosure errors. In fact, communication forms the basis of the next leading causes, including not gathering proper client information and lack of technical knowledge. Ionni points out that if the advisor does not fully understand a product, there is no chance they can explain it to the client.

    The leading product line to be hit by complaints and claims is personal life insurance, which may come as a surprise. There is a perception, Ionni says, that the main target of complaints is the mutual fund industry.

    With insurance, the primary cause for client concern is inadequate coverage. Keep in mind this likely becomes an issue only in a time of dire need or tragedy, not at the point of sale.

    Related News Stories
  • IFB holds the line on E&O rates
  • Advocis conference update: Advocis announces in-house E&O program
  • Your E&O policy: What you don’t know could hurt you
  • Bad things do happen to good advisors (from the March 2004 edition of Advisor’s Edge)

    • An insurance professional will likely debate with many clients over what is adequate coverage, with the client suspicious they are being over-insured. In this case, Ionni says it is up to the advisor to document his objection to the lower coverage and make sure the client acknowledges the objection by signing the documentation.

    “The reason E&O claims are so high against life agents, is not so much that life agents make mistakes, but when they are accused they can’t defend themselves,” she says. “It’s not because they’re necessarily wrong, but they don’t have the documentation to prove they are right.”

    These problems can be mitigated by improvement and standardization of practices and procedures. It is not enough to design improved practices, but employees must be reminded and refreshed from time to time to ensure steps are not being skipped out of expediency.

    Ionni says the common complaint from advisors is that putting these procedures in place is time consuming, but she points out that defending against a claim without proper documentation will be far more costly.

    “Claims costs that you see are not always the full cost of the claim. Sometimes it’s just the tip of the iceberg — there’s so much more that goes with it,” Ionni says. “Insurance industry information indicates that losses could be two to five times more in hidden costs.”

    These hidden costs include the administration of the claim, the productivity lost while the advisor sorts out the claim. There is also the damage done to the advisor’s reputation, which can be especially acute if their practice is in a small town where the clients all know each other.

    Sometimes there is no way to avoid a complaint. In the event an advisor receives a complaint from a client, Ionni says it is important they contact their E&O broker immediately, rather than sitting on the complaint until it becomes a full-fledged claim against the advisor.

    Liability insurance claims must be made in the same coverage year as it surfaces, even if the advisor does not need to tap the resources available through their insurance.

    Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

    (06/02/04)