The insurance market is currently experiencing a hard phase. Certainly, you may have noticed its effects. In a hard market, insurers are not performing as well financially—to the extent that business may be unsustainable for both insurers and reinsurers if something does not change. As a result, things change, and consumers face increased premiums and more restrictive terms. As to the reinsurance market, a hardening market can mean increased reinsurance rates and a lack of capacity for direct insurers to cede risk, further increasing rates for consumers.

How does this relate to potential errors & omissions claims? Generally, when consumers feel they are paying more and receiving less in return, problems arise. Consumers are not interested in insurance company survival and are certainly not interested in insurance company profits. Instead, they focus on repairing their house or car and protecting themselves from bankruptcy due to an alleged tort claim. If needed, consumers will blame their insurance agent.

Hardening insurance markets, especially recently, have been closely tied to inflationary pressures. Things cost more, including construction and health care, which are significant value drivers for insurance claims. A common E&O claim scenario involves the customer claiming that the agent improperly valued their property, resulting in lower limits than needed.

When it comes to property valuation, providing estimates—preferably more than one—is common, and several software programs make it relatively easy. However, it is crucial to communicate in writing that valuation estimates are only estimates. Ultimately, it is the customer who knows their property best. Customers should always be advised, in writing, of the option and desirability to retain the services of a certified or licensed appraiser.

Property valuation claims often arise after several renewals when prior valuations become outdated. During the last four years, given the increase in costs, limits have become outdated, even with an inflation guard endorsement in some policies.

During a hard market, there is often an increase in insurer instability, usually in the form of increased carrier insolvency concerns. State regulators may lower an insurer's rating, place them in rehabilitation status or, worse, begin liquidation. As an insurance agent, you should notify your customers of these changes in writing, so they can decide what they want to do. Do not make the decision for them.

As a direct result of carrier instability, customers may be required to shop for coverage. This increase in shopping for coverage takes time, and with the insurers being inundated with coverage requests, should be started and followed up in a timely manner. But remember your duty: In most states, an insurance agent must place the coverage as requested—or tell the customer they were unable to do so.

With insurers tightening their belts, coverage is more restrictive at renewal, especially if you have to go to the non-admitted market. It's crucial to point out these differences to the customer. If not line by line, at least generally and in writing. Instruct your customer to review the coverage and be sure it meets their needs. Never use the term “apples to apples." Coverage is never identical and, even if the policy wording is the same, the claims departments will vary in how they interpret the policy language. If you are unable to obtain replacement coverage, let your customer know you were unable to do so and that they should look elsewhere for coverage.

In this climate, don't forget the umbrella. Frequently, umbrella and excess carriers, even if they are so-called “follow form" may now have different, more restrictive language. Regardless, check the terms, especially during a hard market period.

Nathan Dulle is a claims manager employed by SR Corporate Solutions America Holding Corporation. Insurance products are underwritten by Swiss Re Corporate Solutions America Insurance Corporation and Swiss Re Corporate Solutions Capacity Insurance Corporation, Kansas City, Missouri, a member of the Swiss Re group of companies (“Swiss Re").

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of Swiss Re and/or its subsidiaries and/or management and/or shareholders.