In the age of the Internet, e-commerce continues to grow at a blistering pace, revolutionizing the way we communicate, shop and purchase insurance. Independent agents are increasingly utilizing the Web in an effort to expand their businesses. Whether through email, electronic advertisements or the agency website, digital consumer outreach will only continue to grow.

While utilizing the Web comes with many benefits, it is also fraught with pitfalls if agents fail to conduct their business in accordance with the requirements of the jurisdiction where they are licensed.

The Internet is altering insurance transactions in many states, but the rules for properly conducting business remain unchanged. It is imperative for agents to stay up to date on the risks associated with digital marketing and sales—and take the necessary steps to avoid the potential E&O problems presented by e-commerce.

One problem area associated with online marketing is proper formatting. If you decide to utilize the Internet in order to sell policies, you must ensure that the documents located on your website comply with the formatting requirements of the licensing state. For example, in Pennsylvania and many other jurisdictions, digital illustrations must be clearly labeled (as a “life insurance illustration,” for example) and must set forth basic information, including the name of the insurer, the initial death benefit and necessary disclosures concerning the projected rate of return.

Signature validation is also critical. For example, in New York, while payments of life insurance premiums may be made electronically, such payments must be accompanied by a valid electronic signature. Similarly, in Pennsylvania, a life insurance policy may only be purchased by the person insured or by someone who has an insurable interest. Agents who allow clients to submit life insurance applications and payments virtually must take steps to verify who is submitting the application and make sure that they are permitted by law to make the purchase.

Most states also require a completed life insurance policy to be delivered to the policyholder. In the past, such delivery primarily occurred by hand. But documents are now often “delivered” electronically, creating potential difficulties for the insurer and agent if policy delivery fails. For example, the law might state that when a policy is delivered by means other than by-hand delivery, the insurer must verify the date and method of delivery.

Want more information on protecting your agency from Web-related E&O claims? Clarification of the regulations is available through the insurer's compliance department or the State Insurance Department where you do business.

At civil defense litigation law firm Marshall Dennehey Warner Coleman & Goggin, shareholder Jeffrey Chomko and associate Allison Livezey focus on professional liability matters including insurance agent E&O defense.