Creating
a Risk Strategy
The first part
of your risk strategy should be prevention. The best course of action is always
to prevent errors and omissions from happening in the first place. There are a
few steps you can take to aid in your prevention efforts.- Have a process for every activity that you do on a regular basis. Create a list of tasks that you must do to bring a new client on board, develop a financial plan, complete an application for each product type that you provide, or conduct an annual client review, to name a few.
- Two sets of eyes are better than one. Have a second person look over your applications, financial plans, and client review notes. The second person could pick up something that the first person misses, preventing a claim by a client.
- Have an action plan in the case of a complaint. If a client files a complaint, whether it’s informally with you or formally with a regulatory agency, have a plan in place for what to do. The sooner you can get out in front of a complaint, the sooner you can begin to resolve it.
- Document everything you do. This goes for the producers in the office, like financial advisors or insurance agents, as well as administrative staff. Keep paper notes or electronic files in a contact management system, but have a record of every contact you have with every client, what was discussed, and what was decided.
Part
Two: Errors and Omissions Insurance
The second
part of your risk strategy should be to mitigate any losses from claims with
insurance.Errors and omissions insurance is sometimes referred to as E&O or professional liability coverage. It covers your agency for claims or lawsuits that arise because of something that you did that you shouldn’t have done, or something that you didn’t do that you should have done.
Why
Do Financial Services Professionals Need E&O?
Ours is an
extremely litigious society. It seems as though, every time we turn on the
news, there’s another story about a lawsuit that seems to be ridiculous, but a
plaintiff is awarded tens or hundreds of thousands of dollars.If a client sues you or threatens to sue you, it’s usually because they think you caused them financial harm. You may have recommended an investment that does not perform well, causing the client to lose money. Or you may not have had a conversation with a client about long-term care insurance, only to have the client have to go to a nursing home for several years. Even if the claim is unfounded, you can still incur costs.
What
does E&O Insurance Cover?
If your client
files a formal complaint with the state insurance department or with FINRA, you
may have to pay a fine if you cannot prove that the complaint is unfounded. If
the client files a lawsuit, you may have to pay a settlement or judgement. An
E&O policy can cover these costs, even if you didn’t do anything wrong.Even if a lawsuit never gets to court, you may have to pay an attorney to defend you or to provide you with advice on how to proceed. You may also lose time from work to meet with your lawyer, give depositions, and try to negotiate with the plaintiff. All of these things cost money, and your errors and omissions policy could cover these expenses as well.
In a perfect world, there would be no unhappy clients and no need for a risk strategy to protect your firm. But given the environment in which we operate, having a comprehensive strategy to address any complaints, claims, or lawsuits makes good business sense.
All information provided in this blog is for
informational purposes only. The sources used are presumed accurate. CalSurance
Associates, Brown & Brown Program Insurance Services, Inc. and Brown &
Brown, Inc. will not be liable for any errors, omissions, losses, injuries or
damages arising from its display or use and will not assume responsibility for
any misguided information. No guarantees are implied.
