Best Practices for New Business

The lifeblood of the independent agency is new business and this is a real opportunity to demonstrate the value agents provide in an insurance transaction. However, there are several E&O concerns that are specific to the handling of new business:

  • Failure to process applications in a timely manner
  • Failure to obtain the coverage requested by the client
  • Failure to obtain the best coverage available
  • Failure to advise the client of any coverage gaps, limitations, or restrictions
  • Failure to advise the insurer of coverage bound on their behalf

In this section:
Best Practices Ideas for:

Case Studies
Self-Audit
Sample Letters / Documents / Wording
Sample Procedures

New Business in General

The Best Practices for Avoiding E&O Claims When Handling New Business in General

  • Producers should advise clients who will be responsible for the daily handling of their account
  • Arrange to introduce the service staff to the client, either by phone, mail, or in person, as soon as possible
  • Confirm in writing the coverages that have been arranged and those that have not – this is a opportunity to cross-sell other lines.

Applications

One of the frequent allegations made against an agency is the failure to process applications for coverage in a timely manner (See Case Study #3). Agency agreements specify the amount of time an agent has to transmit applications to the carrier.

The Best Practices for Avoiding E&O Claims When Handling Applications

  • Prepare a list of company application transmittal requirements and distribute to all personnel
  • NEVER sign an application on behalf of a client
  • Advise the client to review each question and answer on the application—not just the “highlighted” items
  • Require a client’s signature on all applications
  • Document in writing any coverages declined by the applicant
  • Establish a policy to transmit applications to the carrier the same day as the coverage is bound (See Case Study #2)
  • Prepare a written procedure for handling applications (See Case Study #4) (See Sample Procedures)

Binders

Use of binders is a common practice in the property and casualty industry. An agency’s use of binders is governed by state statutes, regulations, and the agency’s contracts with insurance companies. The binder is written representation of coverage that is to be issued by the company, and therefore must contain enough specifics that it can be relied on to make a coverage determination if a loss should occur prior to policy issuance. 
Because the binder is a substitute for a policy and is subject to all the terms and conditions of the policy, it must be canceled in accordance with the cancellation provisions specified in the policy.

The Best Practices for Avoiding E&O Claims When Handling Binders

  • Summarize all agency agreements with regard to binding authority and distribute to all personnel
  • Prepare written binders the same business day as coverage is put in effect
  • Use the ACORD binder form (unless the insurance company requires a different form) and follow the ACORD forms instruction guide
  • Stay within your binding authority—generally speaking, you do not have binding authority with MGAs and surplus lines agents
  • Obtain prior written approval from the company if in doubt of authority
  • Do not issue binders for a longer period of time than allowed by law – 30 days is typical
  • If the company has issued a policy number, include it on the binder
  • Binders should include, at minimum, the name of the insured, the locations or operations insured, the insurance company, and the coverage forms, including any special or unusual restrictions, limitations, and exclusions
  • If the insured has declined to purchase offered coverage, send a transmittal letter with the binder acknowledging the declination of coverage (See Sample Letter [#1])
  • Transmit binders to the company on the same day that the coverage is bound
  • If continuation of the binder is dependent on obtaining additional information from the insured, make it clear in the binder or a cover letter, and follow up at the appropriate time if the information is not received (See Case Study #1)
  • If you don’t have binding authority, attach a copy of the company’s written authority to bind
  • Establish and maintain a binder log
  • Create a suspense for receipt of the policy
  • Cancel binders using the same method as a policy if requested by the insurer or insured
  • Invoice the customer for coverage placed under binder or earned premiums for binders that have been cancelled
  • When policy is received, verify against binder
  • Prepare a written procedure for handling binders (See Sample Procedures)

Policy Delivery

Although it may occur weeks or even months after the effective date of coverage, delivery of the insurance policy is an important event in the client life cycle. It gives the producer or account manager an opportunity to once again review the client’s decisions regarding coverage options and to cross-sell needed coverage. When possible, policy delivery should be in person rather than by mail.

The Best Practices for Avoiding E&O Claims When Delivering Policies

  • Verify the policy against the application, proposal, binders, and any communication with the company
  • Deliver the policy as soon as possible
  • Include a transmittal letter with all policies, whether delivered in person or by mail (See Sample Letter [#2])
  • If you use a coverage summary form, keep it simple and accurate (See E&O Tip)
  • Document all attempts to deliver the policy
  • Review coverages provided and options offered and rejected with the client, in person or in writing
  • Prepare a written procedure for checking and delivering insurance policies (See Sample Procedures)