E&O Exposure: The Critical Importance of Documentation for Insurance Brokers
In an industry where intricate policies and rising client expectations are the norm, maintaining meticulous documentation is essential—not just as a best practice, but as a crucial defense against Errors and Omissions (E&O) claims. In this blog, we share insights from Hugh Fardy of Arthur J. Gallagher Canada Limited, a prominent spokesperson in the E&O space, whose wealth of experience offers brokers practical strategies for handling documentation and managing risk effectively.
About Hugh Fardy
About Hugh Fardy
Hugh brings an impressive 50 years of experience in the insurance industry, with 30 years on the company side specializing in commercial underwriting and another 20 years as a broker. His extensive journey has given him a unique understanding of the challenges brokers face, fueling his passion for Errors & Omissions (E&O) insurance.
Reflecting on his early days, he recalls, “In 1974, when I got in the insurance business, it was a time where there was a dearth of young people, and I got exposed to a lot of people who were more experienced and who were real good at the business. I think in those days, I developed an appreciation for what the distribution channel did, and I’ve always been broker sensitive as a result of that introduction.” Surrounded by seasoned experts early on, Hugh developed a “deep understanding of what brokers go through,” making his transition into the E&O space a natural fit in his career.
What is E&O Insurance?
Errors and Omissions (E&O) insurance serves as a safety net for advisors, protecting them against allegations of negligence in the performance of their duties. With regulatory bodies overseeing brokers across Canada, this coverage is not only essential for safeguarding brokers but also acts as a protective measure for the public. Unfortunately, the frequency of E&O claims has been steadily increasing, especially with the consolidation of brokerages leading to a decrease in the number of firms. As the landscape evolves, brokers face a growing risk of claims regarding inadequate insurance coverage—resulting from insufficient information gathering and questioning. Access to up-to-date, side-by-side comparisons of carrier information allows brokers to make more informed decisions quickly, helping to reduce the risk of coverage gaps that can lead to E&O claims. When asked about the biggest driver of E&O claims, Fardy states: “In the last five years, about 50% of the broker E&O claims seen in Ontario are simply clients claiming they do not have the right coverage.”
The Future of E&O Claims
Looking ahead, Hugh anticipates that E&O claims will continue to rise in both frequency and complexity. In today’s increasingly litigious environment, the multi-million dollar broker E&O claim "is here, and it's here to stay, and it's only going to get more expensive in the near future." This risk affects all brokers, big and small alike, making it crucial for everyone in the industry to remain vigilant in their documentation practices to navigate these challenges effectively. Building a culture of accountability starts with leadership; management must prioritize robust documentation and encourage staff to view it as an essential part of their professional duties.
The Importance of Documentation
The importance of thorough documentation cannot be overstated. “A well-documented file is your first line of defense as a broker, and is your one piece of defense that, no matter how long or deep the claim runs, will be constantly referred to.” Proper documentation is not merely a formality; it is essential for effective risk management. Leveraging organized workflows can help brokers ensure that essential details are consistently captured in each client file, creating a reliable record to support E&O defense if needed. Hugh highlights that often, E&O claims arise due to poor documentation, where a lack of detailed records can lead to disputes that could have been avoided with thorough notes. Common pitfalls include vague or generic notes and a tendency to rush the documentation process, which results in incomplete records that fail to capture crucial details.
To combat these issues, brokers should adopt several best practices, including:
- Documentation
- Training
- Accountability
Brokers should prioritize making notes as soon as possible after client interactions—waiting too long can lead to incomplete or inaccurate records. It's crucial to avoid generic language and abbreviations; as Fardy states, “notes are made for other people. All of the things we’re doing to make notes shorter and quicker leads to generic notes, which people don’t even bother using because they don’t understand them.” Therefore, notes should be specific and detailed enough to distinguish one client from another, which helps maintain clarity and credibility. Including concrete indicators or specifics from each conversation, rather than relying on vague summaries, will make records more reliable and believable to others. Additionally, robust internal processes are essential for ensuring consistency and minimizing errors. Workflow tools that streamline documentation and provide access to product and risk information in real-time can support brokers in maintaining these standards. By focusing on thorough documentation and continually building their knowledge of products and risks, brokers can better protect themselves from E&O claims and provide higher-quality service to their clients.
Communication Recording
Communication recording is another area where internal processes play a vital role. While Fardy sees the value in call recording—especially as something offices have taught brokers to use effectively—he emphasizes that it should never replace proper documentation. Without proper broker training and easily accessible workflows for them to refer to, recordings can lose their value and even become unusable in certain situations cases. For instance, if a person on the call doesn’t clearly identify themselves, the recording might not be admissible or unusable. Relying solely on recorded calls could lead to complacency, with some brokers thinking they don’t need to document interactions thoroughly.
The Case for Documentation
Providing accurate advice is becoming increasingly challenging. With such a heavy focus on sales, the role of a broker has shifted, leaving some feeling unprepared to deliver the best guidance to clients. When discussing the impact of this shift, Fardy notes, “in some cases today, people are no longer trained as deeply in the technical side of insurance; they’re just taught how to process and sell policies.” This sales-driven approach has come at the expense of proper training, resulting in a workforce that sometimes lacks the technical knowledge needed to meet evolving client needs. There is now a pressing need for improved training and documented internal workflows to ensure brokers are equipped to offer more comprehensive and reliable advice.
In a landscape marked by evolving risks and client expectations, insurance brokers must prioritize thorough documentation to safeguard against E&O claims. As a broker, leveraging structured workflows can be essential in meeting these demands consistently and confidently. By implementing best practices, putting an emphasis on properly following internal processes, and fostering a culture of accountability, brokers can enhance their resilience and better serve their clients. Hugh's insights remind us that effective documentation is not just a safeguard—it's an essential component of delivering quality service in the insurance industry.
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