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Are You Aware of the Power of a Signed Application?
Are You Aware of the Power of a Signed Application?
By Curtis M. Pearsall, CPCU, AIAF, CPIA of Pearsall Associates Inc.
Going back to my days at the agency side of the business (late 70’s), it was definitely rare that we were able to get the client to sign an application. Actually, there were probably some situations where if the carrier wanted the app signed, we would give the client a blank app, advising them to sign it and we would fill it in later. If this agency was the norm, I certainly feel confident that much progress has been made in this area. Is there room for further improvement – I don’t think that there is any doubt on that!
Let’s presume that your agency sent an unsigned app to the carrier for a quotation. The quotation is provided based on the contents of the app and the client gives you the go ahead to put the coverage into effect. A loss occurs and the carrier discovers that there were some misrepresentations on the application. In fact, based on these misrepresentations, the carrier contends that they would not have written the account had they known the correct information. They could decide to either rescind the coverage or to honor the claim and then take action against your agency. If you don’t believe that your carrier would sue you, think again. It is happening with tremendous frequency. In either of these noted situations, your agency is in “a heap of trouble”.
Now let’s change the above scenario to a “signed app” as opposed to one that was not signed. The same claim occurs. Now while the carrier may still decide to rescind the policy, your agency is in a much better position. Basically this is all due to the position taken by most, if not all states, that the client is held responsible for the contents of a signed application. A signed application (signed by the applicant) possesses tremendous power if a problem were to develop.
Some key issues to consider:
-When completing applications for coverage, the first thing you want to insure is that the application is complete. Don’t leave some questions blank since the answers to these blank items could significantly impact the account’s desirability or pricing. The best approach is to complete the application face to face with the prospect, asking them the questions exactly as they appear and accurately noting the response on the application. After completing the application, request that the prospect/customer review it to ensure you have accurately stated the exposure. Then have them sign it. This is one of the most important procedures for an agency to insist upon.
-If you are completing the application in the office, what is your position if you’re unsure of the correct answer? Don’t “presume” to know the answer – contact the prospect to get the right answer and certainly document the conversation. It is fair to say that carriers rely heavily on the application and presume the information to be truthful.
-The signature. Is your agency signing the app on behalf of the client? While the agency may believe the customer has authorized you to do so, after a loss the customer may disavow giving you this authorization. Handwriting experts have found their way into E&O claims, so extreme caution should be exercised in this area. Even if the client gives you the okay, it is still not advised. It is going to be very difficult to hold a client accountable for the contents of an application when they never knew what was in it. If this approach is necessary due to time or distance between you and the client, it is suggested that the agency provide the client with an electronic copy of the application, asking them to review and approve it. This “blessing” by them should be documented in your system.
-If a renewal app is necessary, what is your agency’s practice for the completion of the renewal app? Is “this year’s application” completed using the information from “last year’s application?”Definitely avoid this as it is extremely dangerous and fraught with potential problems. Because of the possibility that your risk has changed, it is always best – to ensure complete accuracy – that the application is completed through current discussion with the customer.
Take time at the next agency staff meeting to review and reinforce with your staff the issue of providing your carriers with complete, accurate applications signed by the customer.Applications should not be submitted to the carrier unless they are complete and accurate. Empower the CSR’s to return an application to the producer if the app is incomplete or if the CSR is concerned about accuracy.
Applications you submit to your carriers are extremely important and must be handled accordingly. In regards to applications, your agency’s goal should be the 3 c’s - complete, current and correct and that the application is reviewed and signed by the customer. While it may take time to secure the insured’s signature, the power of this signed app cannot be emphasized enough. Anything less could spell trouble if a loss develops and the carrier believes they were misled. By mandating and enforcing these requirements, you are turning the power of the application to work in your favor.
In the event of an Errors & Omissions claim, this document could play a huge role in the outcome of litigation. Conversely, an application that doesn’t accurately portray the account’s true exposure can be an agency’s worst nightmare. The role this document plays is up to you. If you are serious about reducing your E&O exposure, proper handling of applications is a great place to start.
Curtis Pearsall is President of Pearsall Associates Inc., a Risk Management Consulting firm specializing in helping agents protect themselves. He is the former SVP of Utica National's Agents E&O program where he oversaw their Underwriting, Marketing Services and Claims divisions from 1987 to 2009. Mr. Pearsall holds the following designations: CPCU, AIAF, ARM, AU and CPIA.
He graduated from SUNY @ Oswego in 1975 and immediately started in the insurance business. After spending 5 1/2 years at the agency side of the business in the Utica area, Curt started with Utica in 1981 as a commercial underwriter. He then held the positions of Assistant Underwriting Mgr, General Manager of Uni-Service Excess (Utica's E&S division) before being promoted to the VP of the Utica Agents E&O division in 1987 and SVP in 2008.
Curt believes in giving back to the community. He has served as President of the Utica United Way, President of the Boy Scouts and President of various foundation boards. He was also President of the Utica Chapter CPCU in 1984.
Curt regularly provides free E&O tips for agents on his blog www.agentseotips.com.
