Fraternal Advantage - April 2008

Tips on How to Avoid Errors and Omissions Liability

Life insurance agents should be aware that certain practices conducted in connection with the sale and servicing of a life insurance policy or other investment may greatly increase their exposure to an errors and omissions claim. This article will provide agents with a list of practices, which may reduce the likelihood of errors and omissions liability.

In the sales process, the agent should:

·         Refrain from making promises or guarantees as to the future value of the investment at hand.

·         Provide the client with company-approved documentation and policy performance illustrations which clearly state that such illustrations are not guaranteed and are dependent upon certain variables (i.e., interest rates, increases in death benefits, etc.) which cannot be predicted with certainty.

·         Confirm statements in writing; document ALL verbal communications with correspondence to the client.

·         Be timely and responsive to questions asked by the client.

·         Clearly state what is being sold or recommended to the client (i.e., a variable universal life policy, whole life policy, annuity, etc.) and confirm it in writing.

·         Answer client questions truthfully and directly.

·         Save copies of all documentation used in the sale of the policy and/or investment.

·         If asked, fully disclose commission amounts to be received on the policy's or investment's sale.

·         Do not misrepresent a policy's coverage agreement or extent of coverage.

·         Refrain from making statements to clients which are not carefully and fully researched. If you do not know the answer to a question, do not speculate.

In the application process, the agent should:

·         Have the applicants themselves complete the application so that any information left out, or misrepresentations made, will be attributable to the applicant, not the agent.

·         Encourage the client to be completely accurate and truthful if asked to interpret an application question.

·         Encourage the client to err on the side of full disclosure; do not have the client omit any information.

·         Provide full documentation of all discussions and information disclosed when an agent absolutely must become involved in completing the application. At a minimum, the agent should send a copy of the application and a confirming letter to the client to ensure that the policy application accurately reflects the facts given to the agent and that all material information has been disclosed. The letter also should reference that the applicant is not aware of any additional information, and that there is no information which was provided to the agent which is not on the application submitted to the insurer.

·         Timely inform the client of an application's denial, or if additional information is needed to complete the underwriting process.

When providing superior customer service, the agent should:

·         Be responsive to any questions asked by the client.

·         Timely return phone calls and document all communication with follow up correspondence.

·         Timely inform clients of changes to their investment; refrain from undue delay.

·         Confirm an investment's performance before making statements to clients.

·         Expeditiously forward all documentation to a client concerning a policy's lapse and/or cancellation.

·         Not misrepresent the policy's performance.

·         Provide to clients all reinvestment options when asked.

·         Fully inform clients of all charges which may be incurred should the client wish to prematurely surrender a policy or other investments.

By following these procedures regularly in connection with the sale and/or servicing of a client's investment, agents may reduce their risk of becoming involved in an errors and omissions claim.

Now, more than ever, agents must be sure that they are limiting their exposure to errors and omissions claims and secure adequate insurance protection. It is sound risk management to require all agents to carry Agents’ E&O insurance, and that the insurance currently reflects past and current exposures to risk. These considerations will not only help agents achieve that goal, but will assist them in servicing their clients better.

For more information regarding NFCA Member-Society Insurance Programs, click here.
 

Author: Aon Risk Services, the endorsed insurance broker for the NFCA Member-Society Insurance Programs.


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