How to Avoid a Million-Dollar E&O Claim and Increase Your Commission

“E&O” can be one of the scariest words for an agent. It can take money out of your pocket, hurt your reputation, and cause your customers heartache.  What can you do to avoid that costly mistake before it’s too late?


GET SMARTER. We are all born with certain skills and gifts, but we can all be better tomorrow than we are today. The key to avoiding a million-dollar E&O claim and making more money is education. Shhhh- don’t tell anyone. At this point that still seems to be a bit of a secret (the same set of CE classes every 2 years does not count by the way).


My favorite option so far is the CPCU designation. I feel like the design is not just to teach you facts and coverage, but to shape how you think about insurance so that, as the industry changes, you can stay on top.


Before you say, “I’m an agent, not an underwriter”, stop and think. If you had underwriting and risk management skills, wouldn’t that bring value to you, your customer, and even the insurance companies you work with? In fact, didn’t we used to be “front line underwriters”? I say it is time we bring that back and keep the robots from taking our jobs!


Knowing your coverage and your industry is a pretty clear path to avoiding an E&O claim, but what about the extra commission? Where is the value as an agent? Let’s think that through.




Marketing yourself to customers and carriers alike is what makes you different. Most agents say they know coverage, they build relationships, and  they provide great service. All of those are perfect for an agent, but if everyone says that, what actually makes you extraordinary? In our society, uniqueness often equates to value. If one messed up stamp can go from $.01 to $9.5 million because it is unique, what is the value of an outstanding agent? Only about half of one percent of the industry agents have the CPCU designation, and that would make you very special.




There is an often heard phrase, “sex sells”. That’s a simple and seemingly true statement.  Unfortunately, for me, even if I wanted to use that pearl of wisdom, I don’t think that I have the appeal to pull it off. Instead, I will go with “confidence is king”. People want to feel that they are in good hands. If they don’t feel like you believe in yourself, why should they?


Studying your craft and gaining knowledge can give you the conviction you need to step out and sell that coverage. You have been through the classes, you have taken the tests, and now it is time to show what you have learned.


Live by price. Die by price


It’s that old agent mantra, “selling on price” which is all too often directly followed by selling on price. Let’s be honest. If you have passed that “grueling” state exam, you know a bit about insurance, but in most cases, what do you have to offer a good customer, other than a nice smile and a better price?


How do you  break that cycle? You actually have to be better than the competition. Ideally, you find a program that needs some help, and with your almost clairvoyant understanding of insurance, you can solve all of their woes and and cover all of their gaps. Unfortunately, we all know this is often not the case. More often, you have the opportunity to educate your way to success.


Many times, even if there is a solid program in place, an agent cannot explain the program to a business owner or answer their questions. I have won many large accounts and signed BOR’s simply because I can explain the coverage. It is true, some business owners don’t care, but the ones you WANT to work with WILL. Don’t forget about the E&O issue. The better a customer understands their coverage, the less likely they will call foul if a claim is not covered.


 There is a quiet anxiety for many business owners who don’t understand this important aspect of their business.  Explaining coverage in simple terms relieves their anxiety and builds your trust. Remember that “insurance speak” does not make you look smart, it just makes them feel confused.

If you can’t explain it to a 6-year-old, you don’t really know it.


Making Friends and Influencing Underwriters


Underwriters are people too, and they are not immune to annoyance or charm. Showing an underwriter that you know your stuff will put you in a whole different category. I can tell you that a coverage-savvy agent with a little charm and a complete submission will often find their way right to the top of the quote stack.


Once an underwriter is comfortable with your insurance skills, and, honestly your ethics as well, the game changes. Not only do you move up the list to get quotes, but you have conversations no one else has.  An account that would be an out-of-hand denial for most agents gets some attention. That does not mean it will get written, but you have a chance to make your case.


If you say an account deserves more credits, they trust your judgment and give it their full attention.


When they know you are a strong risk manager and not just a sales guy, doors open. A new account that has had losses might only get a quote because YOU have a track record that shows you can make a plan and fix the problem. Having the knowledge and expertise helps you get quotes that others can’t, get quotes faster, and many times, at a better price as well.


It’s all about the claims, about the claims, about the claims


Insurance is just a sheet of paper until there is a claim. If that reservation of rights letter, or worse, a claim denial letter, hits your desk, what do you do? If you know the forms and the policy, you fight. Otherwise, you cross your fingers and hope for a good outcome.


Fixing a claim issue can make a life-long customer, win you a new client, or fend off an E&O claim. If you have the answer while another agent shrugs his shoulders, you WIN. Sometimes, if you can just explain what happened, you win even if the claim is not covered.


Many claims adjusters are great, but many are also new and overworked. Do not take a denial or valuation as gospel. Pull up your big boy (or girl) pants and read the actual policy. I have even had denials for a coverage that was clearly shown on the Dec pages, and I have certainly won far more “discussions” than I have lost.


If you can’t read the policy, you don’t stand a chance.


The Value Equation- Pulling it all together to make the sale


Since we all seem to agree that we are not selling price, what are we selling? VALUE! What does that mean? What is value? Well, you might get a great price on 15 gallons of milk at Costco, but if you are only going to use one before it goes bad, did you get a good value?


Of course, price is part of value, but it is just a part. Value = (Coverage+Risk Control+Trust + Relationship + Service)/Price. You can change around what you add up and assign different values, but the result of the equation is the same. The more you pile in there before you factor in the price, the better your value for the same premium.  


If you provide great coverage, are a true risk manager, develop trust ,and can get the job done quickly, you are miles ahead before the price even comes into play.


As an agent you may get to pick markets, but you can can’t always control the pricing. The knowledge that you earn from designations like CPCU help you control the equation and take away your dependence on the market cycle and company fluctuations.


Oh, and let’s not forget the extra commission dollars from pollution, cyber, flood, and all of the other truly needed policies that many agents are afraid to discuss, let alone sell.


Learn More and Prosper


In the end, having a few letters behind your name will not make you more money, but the knowledge WILL. Who knows, having a few extra letters may open the door with a savvy risk manager at a large company or make an underwriter a little more open to approving your key account.


So what are you waiting for? Start today, avoid an E&O claim, and increase your odds of booking your next big account!

About Derek Lynch

Derek has been protecting businesses and providing peace of mind for the last 10 years as a commercial insurance agent. He holds the CPCU, ARM and AIS designations.

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