As Hurricane Harvey’s floodwaters recede and Irma’s winds diminish, leaving significant damage in their wakes, it is a good time to review the potential impact of catastrophes on insurance agencies and on Insurance Agent E&O, and steps that can be taken to mitigate the exposure.
Insurance agents face an increased risk of E&O (Errors & Omissions) claims from the large numbers of claims that clients may incur from a hurricane (or other catastrophe). In addition, there may be insolvency risk from insurers that cannot sustain the catastrophic loss and the agency itself may be directly impacted.
We noted the increased exposure, dubbed the “Cat Echo” in Insurance Agent E&O, in a post-Katrina posts here and in a post-Sandy post here. Claims typically emanate from a difference between the insurance coverage an insured expects to receive and what the insured actually receives. One example of this is the exclusion of flood and wind from homeowners policies, and the potential for litigation if wind and flood coverage is not provided elsewhere (here).
Superstorm Sandy generated a tremendous amount of E&O activity. Obviously, a lot of flood issues, but also a lot of business interruption claims.
We have already received an Insurance Agent E&O incident report out of Irma from an insurance agency client. The client of the agency requested coverage be bound, but the order was not communicated immediately by the agency to the insurer. The order to bind was received by the insurer after the hurricane moratorium went into effect, so no coverage was in place for the hurricane.
In addition, an agency’s own operations can be directly impacted by a hurricane, and agencies should have a viable disaster recovery plan in place to ensure that they can get back in business quickly. As Curt Pearsall, author of Agents E&O Tips, points out (see here), hurricane-exposed agencies may discover first-hand how their own disaster recovery plan works.
What was a surprise following Katrina and Ike was the number of agents that completely lost all of their records, did not have them backed up, and had no plan in place to resume business as rapidly as possible. This made defense of claims that were made against them particularly difficult, especially as key employees dispersed and were hard to contact. (see here)
Good internal procedures can go a long way towards reducing exposure from cat-related Insurance Agent E&O claims including recommending comprehensive coverage, using checklists and documenting all communications. A viable disaster recovery plan is also essential. The sources linked in this post and our prior posts are good sources of information on exposures and mitigation steps, as well as an III presentation on catastrophes & E&O (here, start at p 67).
Insurance Agent E&O is a necessary coverage, and Tennant Risk Services has the expertise and markets for all types of insurance agent/broker E&O risks. Hard to place accounts, as well as excess and tail placements, are no problem. Other specialty situations include startups, underwriting, specialty operations, adverse claim experience, and unique operating characteristics.
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