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The Missing Stamp: A New Spin on an Old E&O Problem

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This article is courtesy of E&O Guardian.

Ten to 15 years ago, a common errors & omissions claim against insurance agencies stemmed from a client experiencing an uncovered loss due to an agency’s failure to forward a premium check to the carrier. Perhaps the agency misplaced the check or just procrastinated on getting it in the mail. Whatever the reason, under these circumstances, an agency would likely be found to have breached the standard of care.

If its customer sustained a loss that was denied by the carrier, either because the customer's policy was not procured or the policy was canceled due to non-payment of premium, the agency would generally be liable for its customer's loss.

With advancements in technology over the past decade, an insurance agency can act more efficiently with easy access to carriers' websites to procure insurance, submit claims and more. However, there are downsides along with the benefits technology brings.

Advances in technology have resulted in new E&O exposures. Although the failure to forward a premium check to a carrier has become an unusual occurrence, insurance agencies still encounter E&O claims relating to the failure to pay premiums—but for technological reasons.

In one typical case, an insurance agency faced an E&O claim due to its customer's expired credit card information. The carrier only allowed customers to make premium payments via autopay. The insurance agency's customer's policy was coming up for renewal and, prior to policy cancellation, the customer received an email notification from the carrier to say that their automatic payment could not be processed because their credit card information had expired. The carrier advised the client that the credit card information needed to be updated, so the customer reached out to the insured agency for assistance.

The agency received updated credit card information from its client, contacted the carrier and spoke to one of its representatives to have its customer's credit card information updated in the carrier's system. This occurred while the customer's policy was still in effect. The carrier's website reflected that there was no amount due when viewing the customer's account.

Unfortunately, the carrier's representative who received the updated credit card information and uploaded it into the carrier's system did not advise the insurance agency representative that, in order to make a payment, such a request had to be made through another department at the carrier. The insurance agency believed that by providing the updated credit card information to the carrier, which was uploaded into its system, any required premium payments would be processed accordingly. However, no automatic payment was made.

It was not until the customer was in an auto accident and filed a claim that it came to light that the carrier did not process a payment for the premium and the customer's policy had been canceled for premium non-payment.

The customer brought a claim against the insurance agency for the non-covered loss. Although the insurance agency has good arguments regarding the carrier's and the customer's own responsibility for the customer's loss, the insured agency must deal with a claim.

Here are some steps the insurance agency could have taken to potentially avoid this kind of exposure:

  • Provide the customer with the correct customer service contact information and tell them they must contact the carrier directly to have the customer's payment information updated and ask for their account to be made current with the payment of any outstanding premiums
  • After providing the updated payment information to the carrier, the insurance agency could email its customer to advise that the payment information was updated with the carrier and instruct the customer that the customer is responsible for ensuring that the missing premium payment is paid
  • Follow up with the customer to ensure the premium payment was paid and the customer received a copy of the renewal policy.

In another recent claim, an insurance agency reported that a third party had hacked into its computer system and sent emails to the agency's customers. The insurance agency was procuring commercial general liability insurance for a customer and provided them with the appropriate bank details in order for the customer to wire a six-figure payment to the carrier.

Less than an hour later, the customer received a second email advising that the initial wire instructions the insurance agency provided were incorrect and provided new bank details. The email that the customer received appeared to have been sent from their account service representative contact at the insurance agency—but it was the hacker who sent the email. The customer did not question the request and paid the substantial premium to the hacker.

The insurance agency did not discover that its system had been hacked until a few weeks later when the agency followed up with its customer regarding the status of the premium payment. Again, although the insurance agency has good arguments regarding the carrier's and the customer's own responsibility for the loss, the agency must deal with a claim.

Here are some steps the insurance agency could have taken to potentially avoid this kind of exposure:

  • Consider having its computer system evaluated by a cyber specialist for recommendations to make its computer system less susceptible to becoming the victim of a hacker
  • Suggest the customer make any premium payments via check.
  • Ensure that all customer emails contain a warning that prior to wiring any monies, a customer should do their due diligence and contact the individual requesting the wire transfer to confirm payment details.
  • Obtain cyber and crime insurance.

As technological advances continue to evolve, so will the E&O risks to an insurance agency. It is of utmost importance for an agency to learn about these technological advances, adapt to new platforms and consider potential E&O risks that come with them.

About the author

Kristina Miller is an assistant vice president with Swiss Re Corporate Solutions and works out of the Chicago office. Insurance products underwritten by Swiss Re Corporate Solutions America Insurance Corporation, Kansas City, Missouri, a member of Swiss Re Corporate Solutions.

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group ("Swiss Re") and/or its subsidiaries and/or management and/or shareholders.

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