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Director of Marketing, Professional Development and Education
The CalSurance Connector is a monthly e-newsletter distributed to all NAIFA Members. This valuable e-newsletter will assist you in understanding the value of the CalSurance® program available exclusively to NAIFA members. Each month you will receive this email newsletter that will include information about the CalSurance program, a direct link to the NAIFA E&O program website as well as risk management and loss prevention tips.
For more information and/or to apply online visit www.naifaeo.com or call 888-833-2304. The NAIFA team at CalSurance is ready to answer your questions and provide any assistance.
NOW AVAILABLE! The NAIFA Risk Management/Loss Control Seminar - a FREE online risk management course that can save you 10% over the next three policy terms. (As referred to on your E&O application). Click here for more information and to register.
Fee Activity and Your E&O policy
As the Patient Protection and Affordable Care Act progresses to a reality for the nation, health insurance agents have already begun to feel the effects in their business. The NAIFA Endorsed Error’s & Omissions team at CalSurance has been receiving numerous inquiries from agents who are considering changing the way they are compensated for their services as health carriers reduce commissions or indicate they will be quoting “net” of commission. The agent is interested in determining if changing the way they are paid will impact E&O insurance coverage.
For the 2013 NAIFA endorsed E&O program, coverage is provided for those services rendered to others as a life, accident and health, insurance agent, general agent, broker, insurance consultant, or registered representative, solely with respect to the sale and servicing of covered products. The manner is which you are paid to provide these services are not defined in the NAIFA policy and the carriers’ underwriting application provides a place for you to report your commission and fee revenue so it is considered in the underwriting process.
Tip: A couple considerations: Your individual state may have rules regarding charging a commission AND fees for service, so consulting your state department of insurance or an attorney is recommended. You should also consult your carrier contracts for any possible limitations. As respects your individual situation, facts and circumstances vary and may impact coverage under your policy. It’s always worth a review of your policy and a call to your insurance agent, broker or provider to verify the impact of a change in your business and its impact on your E&O coverage.
Performing Due Diligence
Sam was in the market for an annuity product for his client, so he consulted with a company representative he knew from past dealings. He had just moved to a new company and advised Sam his annuity had an excellent rate of return.
Sam was so comfortable with his representative, he directed other clients to this product. After about 10 months, Sam received word from an attorney that the company in which he placed business was under investigation and rumors of a ponzi scheme were surfacing. The company assets were frozen and his company representative had disappeared. Sam’s clients began calling him for assurances and ultimately Sam faced lawsuits from those clients seeking their money back.
Sam acknowledged doing very little in the way of independent assessment of the company or the product. Had he done so, he may have learned the company owners had a colorful history that included dealings with regulators in a number of previous businesses and he would have placed business elsewhere.
Tip: Your clients depend upon you to seek out and find the product that is the best fit for their unique life situation. Pursuit of the best rate of return is always a consideration, however, performing due diligence with respect to the product and company you select should be paramount. Relying on others, even long time business associates, is not a good substitute for doing your own research.
Agents E&O Policy Tip – The Insolvency Exclusion
Many agent E&O Insurance providers attempt to limit their exposure to claims arising out of the insolvency of a product provider. This is typically handled through an insolvency exclusion on the agent E&O policy that indicates the policy will not apply to claims arising out of the insolvency of an insurance company, a financial institution, a specific product or a specific plan. The terminology will vary; however, most E&O providers are simply not interested in being the default insurer of an insolvent company or product through E&O claims made against the agents it insures. At the same time, some insurers are willing to provide some level of coverage to the agent for insolvency when the agent is placing coverage with companies or products it deems secure. They are willing to “carve back” the exclusion by adding language like “this exclusion shall not apply to any insurer that was rated A- or better by AM best at the time of the insured’s acts”. Again, the language will vary but the insurer is attempting to give back some coverage within the insolvency exclusion.
Tip: In order to minimize your risk to uncovered claims, make sure you are evaluating the carriers and products in which you are placing business. Perform appropriate due diligence by researching the companies with whom you do business. AM Best provides one tool to evaluate insurance companies, but don’t stop there. Seek out company financials and stay current with insurance and financial news. Additionally, take the time to review your E&O policy. Does your policy have an insolvency exclusion or any other exclusions that deal with a failed product or company? Be familiar with these exclusions and understand how they impact your business. When evaluating a new E&O policy, look for a “carve back” to the insolvency exclusion that may provide you with additional security when placing business. By understanding your E&O coverage and minimizing your exposure to insolvency claims, you may save yourself a great deal of time, money and emotional distress.