Insurance Technology and E & O Claims:  What’s the Connection? (Part 2 of 4)

Part 2:  InsurTech and the Impact on Agents’ E & O
Kitty Ambers, CIC, CPIA, CISR
Chief Operating Officer, AVYST

In part one of this blog series, we review the concept of the digital ecosystem and the impact of consumer expectations on today’s insurance agencies.  There is a correlation between consumer expectations today, the ever-expanding digital ecosystem, the variety of insurtech (or insurance technology) solutions out there, and their collective potential impact on agency Errors & Omissions.

Consider this:
Which of the following events will most likely happen to you?

A.  Get struck by lightning
B.  Be audited by the Internal Revenue Service (IRS)
C.  Receive a traffic ticket
D.  Be the subject of an insurance agent errors and omissions (E & O) suit

If you guessed A, you really missed the mark. There is a one-in-3,000 chance that an individual will be struck by lightning over the course of their lifetime. Did you go with B? Wrong again. The average American has a one-in-160 chance of being selected for an audit by the IRS, although these odds unsurprisingly increase as annual income rises. If you opted for C, you were close. One out of every five drivers will receive some sort of traffic citation during the year. But that’s not the most likely occurrence.

Unfortunately, as you’ve figured out by now, the correct answer is D. Studies indicate that one insurance agent out of three will face an E & O claim in any given year. Over time, the numbers are even worse: It is estimated that three out of four insurance agents will have an action filed against them within a five-year period. Remember, agents have to worry about more than legitimate actions; even unfounded or frivolous allegations need to be defended against. And the cost of the average E & O claim is around $60,000 according to a recent report.


Leading Causes of E & O Claims Today
The leading causes of E & O claims today haven’t really changed all that much over the years.  What has changed is the impact of technology on the agency – company – client relationship. Consider:

  1. It’s estimated that 25% of claims arise out of the failure to procure the proper coverage.  The definition of Procure is to obtain, especially with care or effort.  This type of claim can often be traced back to either the risk analysis process or how non-renewals are handled within the agency.  If you as the agent aren’t aware of a client’s exposures, it’s difficult to procure coverage.  This can also come from requests from clients that allude to “all risk”.   Especially important is the handling of non-renewals, endorsement requests, and cancellations.  It’s critical that the agency act promptly to maintain appropriate coverage whether that’s explaining changes to coverage availability in the standard market or coaching a client on the coverage gap that can be created when limits are lowered, or endorsements are dropped.  The bottom line, if your insured suffers a loss and thinks you should have known to provide coverage for said loss – or even a certain limit of coverage – you could face an E & O allegation.
  2. Failure to Explain Coverages Correctly is cited as the cause of the E & O claim approximately 7% of the time.  It’s important to point out to your client all of the coverage limits, exclusions, and terms.  Take care to answer questions asked by clients with factual information highlighted in the policy language.  Casual or inaccurate explanations, or grandiose marketing language around what a policy will cover can result in this type of claim.  Terms like “full or total coverage available” plastered on your agency website, for example, can get you into trouble.
  3. Failure to Adequately Identify Exposures causes about 6% of E & O claims. E & O carriers frequently encourage the use of coverage checklists to ensure client exposures are systematically uncovered during the fact-finding interview.  This could involve important nuances like service contracts an HVAC contractor is obligated to fulfill for his clients.  This creates a level of exposure that may not be considered without in-depth fact-finding.
  4. Failure to Recommend Coverage is a byproduct of identifying exposures and causes about 5% of E & O claims.  Once an exposure has been identified during the risk analysis process, professional agents should be sure to point out applicable coverages.  For example, learning that a homeowner is an art collector should prompt the agent to explain the coverage limitations in the homeowner’s policy and suggest additional coverage for the fine arts. Using a declination of coverage form, signed off on by the client, is another tool to assist with reducing claims in this area.
  5. There are 3 crucial funnels for information under the Law of Agency – the agent to the client, the client to the agent, and the agent to the insurer.  What the agent knows, the insurer should know.  We see “failure to inform” as the cause of E & O allegations when the insurer was notified late, or not at all, about a claim.
  6. There are numerous claims that end up citing administrative errors as the cause – clerical mistakes and losing files or records, for example. All prospect and client interactions should be documented in an unalterable system that date and time stamps the records.


Elements of Your Agency’s Digital Presence
Now let’s take a look at some elements of the digital agency of today so we can then ensure your agency’s processes and procedures reduce or eliminate E & O exposures that these new tools and technologies might create if not implemented properly. Construct a solid inventory of what is currently in place in your agency to help ensure you’ve outlined a comprehensive strategy for how you are implementing, auditing, and managing these various tools and technology.

Which of these elements make up your agency’s current digital presence?

  • Website / Blog
  • Social Media
  • SEO Strategy
  • Purchased Leads
  • Pipeline Management System
  • Drip Marketing / CRM System
  • Comparative Rater
  • Digital Data Capture (forms) solution
  • Mobile App
  • Proposal System
  • Submission Tracking system
  • Agency Management System
  • Download
  • Data Analytics System
  • Automated Policy Checking Service
  • Client Portal
  • Client Newsletters / eNewsletters

There is considerable breadth and depth to the elements that make up an agency’s digital presence.  Anything that an agency is adding to their digital presence should be routinely reviewed to ensure security of data as well as to ensure that communications are being sent, received, and acted upon as expected.  Test and ask for client feedback regularly to be sure things are working properly.  Remember those top causes of E & O claims!




AVYST eForms Wizard provides sales professionals with a digital solution to gather complete and accurate information at the point of sale.  The ability to enter data once, directly onto digital eForms, minimizes errors and omissions.  Learn more at


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Wave Insurance Technologies, Inc. dba AVYST
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