Does the Carrier Proposal Provide the Coverages You Requested?

By Curtis M. Pearsall, CPCU, AIAF, CPIA

President – Pearsall Associates Inc.

Consultant to Assurex Global and E&O Plus

Your agency is looking to grow and is actively soliciting new business. As you look to be awarded with these new customers, you do an extensive review of the prospect’s exposures and determine what issues or gaps in coverage the prospect is currently facing. In the preparation of the applications for the marketplace, your agency notes what coverages including modifications to endorsements will be needed. It is certainly your expectation that the markets you are working with will in fact provide the coverages requested.

The carrier proposals begin to arrive. Are you under the impression that the carrier proposal provides all of the coverages requested? Does it include reference to any manuscript endorsements that you are looking to have developed? As your agency looks to develop your own proposal for presentation to the prospect, is your proposal being generated based on the coverages you believed to be part of the carrier proposal?

If the answer to the above questions is “yes”, then your agency may have some issues to deal with. These issues, if not properly addressed certainly have some significant potential to cause some E&O headaches down the road.

In my travels with the E&O Plus agencies I am honored to work with, when this issue is discussed, invariably the agency staff member will advise me of how often the carrier proposal does not mirror the coverages requested. In fact, one firm advised me that on a recent account they were looking to secure, there were over 30 areas where the carrier proposal was lacking. Over 30! Fair to say that the agency had a very detailed approach to comparing the coverages requested versus the coverages provided. Having a detailed approach is definitely needed!

Probably the best practice is to presume that the carrier proposal does not exactly meet the coverages requested on the application. A spreadsheet / checklist should be developed and the comparison completed. It is best for the producer working on the account to be involved in the comparison process as theoretically, who knows better the coverage that is needed to sell the account than the producer? This comparison would then serve to be the basis for ongoing dialogue with the underwriters to resolve the issues. Based on the seriousness of the issues and coverages / modifications requested, this could take some time. This speaks loudly to the importance of securing the carrier proposal well in advance of the date the agency will be presenting the proposal to the prospect. You may need some time to do the thorough review so be sure to plan for it.

In some situations, the agency may be looking for some custom designed “manuscript” language. If the agency has not provided the carrier with the language suggested, the agency should request the carrier’s draft to review it to verify that it meets the expectations.

In addition to the potential for the absence of some coverages that were requested, there is the distinct possibility that the carrier may include some exclusions / limitations that were not anticipated. Possibly the agency is looking for drone coverage for their potential client. The proposal may have an exclusion for this exposure so it is best to verify these details. As minor as they may appear, this could be a significant issue in the event of a claim involving the drone exposure.

This issue is also especially key when dealing with the surplus lines marketplace. As great as this industry is, it is probably very rare that the proposal from the wholesaler will include the exact coverage requested on the retailer’s application. The E&S market is known for excluding exposures they are not willing to cover or for placing significant limitations on the coverage. Bottom line, the responsibility for reviewing the proposal to determine how well it provides what was requested falls squarely on the retail agency. Don’t expect the wholesaler to advise of the differences; it is not their responsibility.

Some may believe that the issue of “does the proposal provide the coverage requested” is solely a large commercial lines account issue. Clearly this issue can occur on any size account. While it is probably more prevalent on commercial accounts, the same process should be considered for personal lines accounts, especially those in the Private Client Group area. There is the distinct possibility that the carrier underwriters may be looking to take a “cookie cutter” approach by providing the standard form and the standard exclusions. They may not be willing to modify the coverage per your request but will they tell you? Possibly not! The retail agency ultimately bears responsibility for verifying whether the coverage proposed matches the coverage requested.

Bottom line, without a doubt, there are numerous situations where there is a disconnect between the carrier proposal and the application. Performing a comparison is the only true way to verify this and face it, without performing this comparison, how confident are you that the agency proposal actually matches what the carrier proposed?

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