With very few exceptions, for an agency to be successful and to achieve its growth goals today, effective use of the wholesale community is extremely important. The agency’s ability to access a wide range of markets could be the key to placing various risks. However, effective utilization of the wholesale marketplace has some uniqueness to it that agents need to understand and account for. Specific processes and procedures need to be put into place to minimize the potential for errors and omissions (E&O) problems to occur.
But all wholesalers are not alike, and it is important to not assume that the procedures that apply to one wholesaler are consistent with the others. Some of the key issues to be sensitive to are the following:
- When the agency sends in an application to various wholesalers, the proposals received from the wholesalers must be reviewed for any differences. It is common for there to be a difference in the premiums. That may be because there is a difference in the coverages. The proposals should be analyzed, and any differences noted. If the premium is higher with one proposal as compared to another, there is a good chance that is because the coverage is better. It is suggested to offer the client multiple proposals to allow them to make the decision.
- The application is needed. The markets of some wholesalers are willing to quote based on a standard generic application while others might require a specific carrier application. It is best to know that information up front to avoid any potential delays.
- Be diligent in your follow-up with your wholesalers. The last thing an agency would want is to get the proposal the day before the coverage would be effective. This timeframe does not allow the agency to properly review the proposal and to note any key issues/coverage exclusions or limitations. A recent E&O claim involved the agency placing a General Liability policy that contained a Specified Operator Exclusion. It is highly questionable that the agency producer was aware of the exclusion as the issue was never brought to the client’s attention. The producer merely advised the client to read the policy.
- Don’t assume the policies are correct. Policy issuance in the industry continues to be a significant area of concern with some agencies citing that there is at least one error on every policy they receive. Be sure to check the policies to see if they have been issued per the agency’s instructions. In another recent E&O claim, the agency placed a property policy and at renewal requested that the business income form be changed from a co-insurance form to a monthly limit option excluding ordinary payroll. The renewal was issued by the wholesaler, but the requested change had not been made. It appears that the policy was not checked and was presumed to be correct.
- The wholesaler may not have all of the facts. Face it, they are essentially only handling a specific issue, a specific coverage. Do they know the entire story of the account? No. For example, with personal umbrellas, there is a requirement regarding the amount of the underlying coverages (auto, homeowners, boat, etc.). When an agency asks the wholesaler to write a personal umbrella, the wholesaler will provide a proposal that probably stipulates what those underlying limits need to be. A standard market may follow up on this issue, but there is no guarantee that a wholesaler will. A common E&O issue involving personal umbrellas deals with the actual underlying limits being less than the required limits. In a recent E&O claim, the gap was $250,000 before the umbrella policy kicked in. Agencies need to have specific procedures that compare the required limits with the actual limits and to address the issue when there is a difference.
Wholesalers are a key segment of the industry. Due to how they do business and the potential differences among wholesalers, it is vital that agencies be aware of the differences and to not assume that all wholesalers are the same. Dealing effectively with your wholesalers can be a key issue to minimize your E&O exposure.
NOTICE: This information is provided solely as an insurance risk management tool. It is provided with the understanding that the member insurance companies of the Utica National Insurance Group are not providing legal advice, or any other professional services or advice. Utica shall have no liability to any person or entity with respect to any loss or damages alleged to have been caused, directly or indirectly, by the use of this information. You are encouraged to consult an attorney or other professional for advice on these issues.