Beware The Order Takers

It is not clear if brokers have become nervous as a result of the war Eliot Spitzer has waged against the insurance industry, or if they have collectively attended one too many Errors & Omissions seminar. What is clear, however, is that some brokers are becoming increasingly dependent on their clients to do their work!

Policy transmittal letters from brokers to their clients often contain "boiler plate" language, the purpose of which is quite evident. Reduce E&O claims! One broker's transmittal letter suggests that their client should "examine it [the policy] carefully to make sure the limits of coverage meet your needs and that no items have been omitted." Will the client know or understand what has been omitted? Shouldn't the broker offer some advice on limits? Selecting or recommending liability limits is, admittedly, no easy task and determining their adequacy is often impossible, but has the broker gone too far to protect itself against E&O claims by telling the client to be sure the limits meet their needs? Policyholders do have a responsibility to review their own insurance policies, but expecting some input from their broker is not unreasonable.

Another broker's transmittal letter says, "We have received and reviewed the enclosed policy." That's a good start, but the letter goes on to say, "The policy sets out the benefits and coverage of the (re)insurance we have placed for you in accordance with your instructions. We recommend that you read the policy very carefully; particularly sections that make references to exclusions/special or unusual conditions, warranties and claims notification." Obviously, the client is on its own here. In this case, the broker didn't even bother to amend their form letter to differentiate between insurance and reinsurance!

Another broker's binder transmittal e-mail, told (warned) the client that the coverage bound was written on a "CLAIMS-MADE and REPORTED form." Not true! The policy form was claims-made, but not a claims-made and reported form. The obvious intention is, again, to mitigate E&O claims against the broker, but it's doubtful that inaccurate descriptions of coverage such as this will aid in that endeavor.

In this new era of "commitments to transparency," some brokers may be going too far. When commencing a marketing process for a client, one broker now uses a "Placement Strategy Letter" in which they establish the guidelines of what they will do, or more accurately, what they won't do! In such a letter the broker actually states that if the client wants the broker to employ certain strategies through which specifically described information would be disclosed to competing insurers, the client must so direct the broker in writing. For example, the client would have to direct the broker (in writing) if the client wanted the broker to (1) disclose the names of prospective insurers to other prospective insurers, (2) disclose price, price ranges or coverage terms that the client wants, (3) disclose the terms, conditions and pricing of the expiring policy, (4) disclose certain aspects of quotes from prospective insurers to other prospective insurers, or (5) provide insurers an opportunity to improve their quote (i.e., give them a "last look"). Insurance buyers should expect their brokers to employ the marketing strategies that will serve the buyers' best interests and that such strategies will be conducted in an ethical and legal manner.

When clients have to specify in writing to their broker how the broker should conduct its business, and when brokers warn policyholders to look out for policy exclusions or unusual provisions without offering advice or input, the broker has been relegated to the role of "order taker" and the buyer should beware. Some buyers may even conclude that it's time for a new broker!

-- Charles H. Cox

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