By Michael Ryder
Firms employing the best practices related to internal control and risk management tend to sway (and justify) the underwriter’s decision to apply premium credits to these subjective attributes.
Large firms, including many of those on RISMedia’s distinguished Power Broker list, are also likely to have a claims history, as it typically comes with the territory. Since large firms generally have a significant presence and market share in the communities they serve, they are also viewed as having deep pockets. Even if the firm and its agent did everything right, there’s no shortage of plaintiff attorneys willing to listen to a firm’s former client if they feel something was amiss in the transaction.
In other words, not all claims are the result of something the firm or its agent actually did wrong! Underwriters understand that, yet they are also taught to follow the insurance axiom of “frequency breeds severity,” which simply means the more claims a firm has had, the higher the likelihood that a severe claim may be just around the corner. Since claims history is both a fixed and discretionary attribute in the underwriter’s rating review process, it’s extremely important that the underwriter has sufficient details on the nature and facts of the claim(s) to ascertain whether the firm or its agent actually made an error or omission.
When a firm discloses that they have had claims and is required to provide their prior carrier(s) loss runs, more often than not those loss runs do not provide sufficient details. In most instances, carrier loss runs only provide dollar values for paid or reserved (anticipation of what will be paid) claims. If any description of the claim(s) is provided, it is usually minimal at best (such as failure to disclose, misrepresentation, negligence or fraud). Therefore, in the absence of sufficient details, the underwriter is left to conclude that an error or omission was actually made and effectively removes the underwriter’s ability to apply any (positive) discretionary attributes in their evaluation.
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