Six Common Causes of Agency E&O Claims and how to overcome them

Imagine there is a manufacturing firm that hires a consultant to calculate the long-term disability benefits of its employees. Somehow, he erroneously bases his calculations on the employee’s previous income instead of present salary. Due to the consultant’s negligence, the staff does not receive full benefits. As a result, they sue the firm to compensate for loss of income.  The company gets embroiled in an expensive lawsuit and is obliged to pay their actual dues. However, there is a twist. The consultant reimburses the legal costs to the firm as the lawsuit is a consequence of his miscalculations.

What you just read is a common scenario of errors and omission (E&O) claim. According to a report by AXA, E&O claims have increased by 70% in the past 3 years. The cost of such claims can be detrimental. From legal fees, attorney costs to settlement charges; these expenses strike a heavy blow to the firm’s financial health. At the same time, they put the company’s reputation at stake.

As an insurance broker, you must be aware of six causes of E&O claims that can land your insurance business in a soup.

  • Lack of Organizational Structure

    One of the many reasons why E&O claims happen in the first place is due to miscommunication between the agency and its employees.  Whenever transactions are handled by multiple people, the potential of someone “dropping the ball” becomes higher, leading to an E&O risk exposure. Insurance companies should keep both their clients and employees in the loop. They should provide adequate information, documented through a proper recording of these copies.

  • Zero Implementation of Standardized Practices

    Lack of uniform practices and procedures lead to claim denial

    A company without a proper roadmap or structure is equivalent to a ship without a rudder. Sadly, this is the reality of many insurance agencies that lack well-documented practices and procedures. Without proper guidelines, employees tend to work on an ad hoc basis and use their own sense of judgment. While some judgments can bring positive results, others may seem fatal to the business. Each agency employee develops their own method of doing business. This may eventually bring down efficiency. Consistent and uniform practices and procedures can streamline your business operations and help prevent E&O claims.

  • Non-compliance with Guidelines

    Sometimes, insurance employees can fail to comply with company practices, creating exposures to E&O claims. In some instances, agencies skip these insurance guidelines to speed up their policy issuance process. Following compliance practices reduce E&O risk exposures.

  • Insufficient Training of Insurance Agents

    Here’s the thing. Most insurance employees commit mistakes unintentionally. This is due to a lack of proper training. Most of them are kept in the dark about the customer risk analysis process, product knowledge and agency management system. What’s worse, insurance companies deserve a fair share of the blame for their employee’s missteps. Lack of time and instructional resources are some of the common reasons agencies cite to justify their team’s inefficiency. Since the stakes are at all-time high in the insurance sector, firms need to train their employees.

  • Inability to Meet Deadlines

    Time is of the essence. This is highly applicable to the insurance industry as it operates in an intense, time-bound environment. Having said that, agency managers have often stated time crunch as the reason behind the slow processing of E&O claims. They blame it on understaffing and expect that recruiting more people can compensate for time shortage. However, that’s simply not the case. The problem lies in the staff’s inability to manage tasks systematically and complete them within the designated timeframe. The unavailability of tools to reduce time constraints also aggravates this issue.

  • Unnecessary Backlog

    Chronic backlogs can lead to E&O claims

    What sets the insurance industry apart from the rest is that there is a buying date for most of the transactions. Policies must be purchased and renewed on a specific date. Vehicles and buildings must be covered from the day the insured takes ownership of the property. Agencies must proactively report the claims to the carrier to avoid any escalations. All these activities require insurers to work within an appropriate timeframe.

How to Resolve E&O Claims: Turn to Automation

When EPIC brokers, a leading California -based insurance company, was struggling with their outdated policy-checking process, they found a silver lining in automation. The firm invested in technologies to automate its workflows that improved efficiency and reduced costs.

Automation is the best shield insurance companies can use to protect themselves against E&O risks. Investing in advanced insurtech solutions can prevent the need for rekeying data into the systems. Streamlining the policy life cycle management can enhance the quote-to-bind process, enable straight-through processing while leveraging new revenue opportunities.

Policy-checking helps to identify gaps in coverage to prevent E&O exposures. Automating the policy-checking process through Artificial Intelligence and Machine Learning offers unparalleled visibility into the compliance process and security policies. Agents can digitally compare new policies to existing checklists and binders in minutes, verify and authenticate policy language and address discrepancies prior to policy issuance.

Get Rid of E&O Risks through Exdion

A study by McKinsey cites 50% of the claims routing activities will be replaced by automation. Given how the rise in E&O risks is slowing down the growth of the insurance industry, it’s important for insurers to take advantage of technological innovations. Leverage smart insurtech services like Exdion to reduce the risks of agency-wide E&O exposures.  Benefit from our AI-powered policy-checking solutions as it helps in

      • Minimizing backlogs with instant policy review
      • Saving up 90% of your time in policy checking
      • Reducing your E&O exposures by 50℅
      • Ensuring 95% accuracy

De-risk your company by eliminating E&O through the power of automation. Get in touch with us today!

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