The purpose of an E&O audit is to:
review the practices and procedures an agency or brokerage follows;
identify those areas where the agency/brokerage is doing things correctly; and
pinpoint other areas where changes or improvements are needed.
During an audit, technology, marketing and prospecting, policy review and delivery, policy servicing, claims handling and sales and renewal processes are scrutinized. While no two agencies or brokerages are alike, the following provides a general summary of what’s examined in each of the above mentioned areas during an E&O audit.
Technology is at the heart of the modern-day agency or brokerage. Accordingly, there is a close inspection of the type of technology in place and how that technology is used. It’s an important step in the audit process. Almost all insurance agencies and brokerages now use an agency management system. When used properly and consistently, the agency management system will create and/or retain key documentation that can help defend against an E&O claim or lawsuit. During the audit process, we closely examine how an agency management system is used by employees to document communications with insureds and insurers. Additionally, we look at diary matters for follow-up. And, the agency’s use of form letters, applications and other forms, as well as key disclaimers on emails, voice messages and proposals, are also reviewed.
Marketing and prospecting are other areas examined during the audit process. For example, an agency’s website content is evaluated to make certain the information is accurate and does not create potential E&O issues or regulatory problems. The agency’s advertising is also reviewed to ensure there are no potential E&O problems or regulatory issues.
Since the sales process is an area often used as the basis for filing an E&O claim or lawsuit, it is scrutinized in depth during an E&O audit. Some aspects of the sales process we focus on are how information is gathered from customers and whether coverage checklists are used to promote consistency and help protect against an E&O claim or lawsuit. We also examine how notes are created and maintained, applications are used, proposals are prepared and coverage is ultimately bound.
Policy review and delivery is another aspect of agency/brokerage operations closely scrutinized during an E&O audit. Policies, as well as the time it takes to review and deliver them, are assessed to make sure procedures are being followed that comply with good E&O practices. For example: are policies being delivered by U.S. mail, hand delivery or email? Depending on the type of delivery, certain procedures must be followed in order to ensure receipt by the insured. We also review whether a policy delivery letter is consistently used, does the letter contain crucial language designed to protect against an E&O claim or lawsuit and is the letter being altered in some way.
Policy servicing is an area where good E&O practices can go a long way in protecting against a claim or lawsuit. The procedures followed by customer service representatives who handle the servicing of customer accounts are reviewed in detail. The goal is to ensure policy servicing is done correctly and consistently. During this process, we examined every aspect of workflows that apply to the CSRs who handle customer accounts.
Claims handling can also often lead to E&O claims and lawsuits. Accordingly, the claims process is an area closely reviewed during an E&O audit. In particular, we examine the process for accepting claims information from customers and reporting claims to insureds. We also look at an agency or brokerage’s level of follow-up and continued involvement once a claim has been reported.
The renewal process is yet another area we examine during the E&O audit process. We look at the procedures in place to review policies well in advance of renewal. The focus is to make certain the agency or brokerage is aware of changes in exposures or premium and can explore other options, if necessary, well in advance of the renewal date.
Over the past 15 years, the partners of Keidel, Weldon & Cunningham, LLP have performed more than 500 E&O audits for agencies and brokerages in New York and across the United States. Many of those agencies and brokerages initially signed on for an audit to receive a discount on their E&O policy premiums. However, an overwhelming number of them indicated afterward that they were so pleased with the results, they would have done so even without the credit.
The cost involved in conducting an audit depends upon an agency or brokerage’s size and number of locations, but usually the cost is less than the first-year savings from the premium credit. Besides the discount and protection against E&O claims and lawsuits, E&O audits also help promote better customer service. Plus, they can frequently help identify practices and procedures that, when followed, enable agencies and brokerages to sell more insurance. In our experience, the prudent insurance agency or brokerage reaps many long-term benefits after conducting an E&O audit. If you are interested in learning more about the audit process and what is required of your agency or brokerage, please contact us to discuss in greater detail.