E&O RISK MANAGEMENT: MEETING
THE CHALLENGE OF CHANGE
Minimizing E&O Exposure From
Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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 procedures the agency can reduce exposure to E&O
claims.
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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.
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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.
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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.
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
Carrier Financial Stability
• Placement in the E&S market involves careful consideration
of the non-admitted carrier
• This becomes an even bigger priority given that nonadmitted 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
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
E&O CONSIDERATIONS OF E&S
PLACEMENTS
Know Your State’s Law
• Agents should know the requirements that must be met
before “exporting” business to 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
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)
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.
Minimizing Exposures from Excess & Surplus Lines
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 10/09-2)