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E&O Risk Management: Meeting the Challenge of Change

E&O Risk Management: Meeting the Challenge of Change. Minimizing E&O Exposure From Excess & Surplus Lines. INTRODUCTION. Agents need to familiarize themselves with the laws affecting the E&S marketplace Find a quality broker with financially stable insurers,

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E&O Risk Management: Meeting the Challenge of Change

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  1. E&O Risk Management: Meeting the Challenge of Change Minimizing E&O Exposure From Excess & Surplus Lines

  2. INTRODUCTION Agents need to familiarize themselves with the laws affecting the E&S marketplace Find a quality broker with financially stable insurers, Carefully scrutinize policy forms By performing proper due diligence and implementing agency proceduresthe agency can reduce exposure to E&O claims.

  3. Admitted vs. Non-admitted Insurers An admitted insurance company is one that is authorized and licensed to do business in a given state. The insurance company must conform to the regulations of state insurance departments and file its forms and rates, which the state must approve. A non-admitted company is not licensed in specific states and therefore is not regulated by state insurance departments

  4. Admitted vs. Non-admitted Insurers The admitted company has the benefit of falling under the state’s guaranty fund Policyholders of non-admitted insurers don’t receive the benefit of the guaranty fund should they become unable to pay claims. Agents should be familiar with guidelines of guaranty funds in states where they place business

  5. Admitted vs. Non-admitted Insurers An advantage that non-admitted insurers have is increased flexibility in their pricing and can modify their policy terms more easily This allows them to more effectively manage and price risks, expanding their underwriting appetite Non-admitted policies usually include taxes and fees and often have minimum earned premium requirements that should be explained to policyholders

  6. Admitted vs. Non-admitted Insurers Prior to placing any customer in the non-admitted marketplace agencies should verify the insurer is approved to write business in a specific state. A list of approved non-admitted markets can be found in what is called a “whitelist” provided by the insurance department. This list is often updated on a quarterly basis so agencies should have a process for periodically reviewing it

  7. Admitted vs. Non-admitted Insurers No matter admitted or non-admitted, agencies should have a process in place for periodically tracking the financial strength of their insurers and notify customers of any changes in ratings.

  8. Working With E&S Brokers • Licensing: Be certain the broker is properly licensed in the state where it does business. • E&O Coverage:Determine how much E&O coverage the broker carries before placing coverage. • Experience and Knowledge: Confirm that the broker has significant experience in the E&S market and check on the broker’s reputation

  9. Working With E&S Brokers • Multiple Financially Strong Markets: It is a plus if the broker has access to multiple markets to provide good representation of products available in the marketplace. These markets should be financially strong with a preferred rating of A- or above. • Responsiveness:E&S submissions often occur with little time prior to expirations so the responsiveness of the broker is key.

  10. Working With E&S Brokers • Presentation of Quotes:The broker should provide the quotes terms in writing and in a way that is clear and understandable • Redundancy:The broker should have a system of backup personnel in place to make sure there isn’t a lapse in service.

  11. Carrier Financial Stability • Placementin the E&S market involves careful consideration of the non-admitted carrier • This becomes an even bigger priority given that non-admitted carriers are not subject to guaranty funds in many states • Most E&S laws place the burden on the E&S broker to do business with only financially secure, non-admitted carriers. • Agents should not rely only on the E&S broker for monitoring the financial strength, additional confirmation by the agency is a good idea

  12. E&O Considerations of E&S Placements Know Your State’s Law • Agents should know the requirements that must be met before “exporting” businessto the non-admitted market Educate your Customers • Before reviewing the offer of coverage with your customers, educate them on the implications of placing business with a non-admitted carrier

  13. E&O Considerations of E&S Placements Thorough Review of Policies • A thorough understanding of any gaps in coverage, unusual exclusions or provisions is necessary to be able to fully explain the coverages to the customer. Binders, Certificates, and Claims Reporting • Retail agents will not have binding authority and must rely on the broker to bind coverage with the carrier. • The retail agency is not an agent for the non-admitted carrier and therefore, cannot issue certificates of insurance, as their representative.

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