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Even though advances in technology are revolutionizing agents' business practices, avoiding errors and omissions liability on the Internet is a matter of old-fashioned common sense.
Confidentiality of information and unauthorized access probably will be the main issues surrounding E&O exposure on the Internet, said Bruce B. Coates, profit center manager for the Insurance Industry Professional Group of Employers Reinsurance Corp., both based in Overland Park, Kan.
As agents and insurers contemplate a future of doing business on the Web, they also will have to consider ways to keep their systems secure. For example, hackers might be able to gather sensitive information on an insurance company's clients if the insurer's World Wide Web site has weak security.
"There are additional (E&O) exposures -- though not insurmountable, by any means -- that the traditional insurance policies haven't kept up with," said Chip Lawson, senior product manager at IVANS in Tampa, Fla. For example, agents' Web sites may contain complicated or inadequate explanations of coverage. IVANS provides information technology and networking services to the insurance industry.
But, agents' future Internet E&O liability exposure will depend on how much business is transacted online, he said.
It is the end users, after all, who will determine whether selling insurance online will be a successful endeavor, let alone whether E&O liability will be a significant issue, said Mr. Lawson.
"There is a question whether consumers will realistically buy insurance on the Internet," he says.
At the same time, agents and insurers "need to understand how their customers are probably more eager to start using these new technologies than they are," said Virginia M. Bates, president of Boston-based VMB Associates, an agency consultant.
Mr. Lawson said he is not aware of any agents or insurers that bind insurance policies on the Internet, though many do online marketing and provide informational Web sites. "The focus is on customer service and marketing, not selling, and there is a big difference between shopping and buying," he said.
Selling an insurance policy is a fairly complex financial transaction and, therefore, not ideal for the Internet, Mr. Lawson explained. "Making claims payments, renewing a policy or changing a policy are far simpler transactions with far less financial risk than buying insurance," he said.
If selling insurance online never takes off, it's possible the problem of E&O liability for Internet transactions will barely exist, Mr. Lawson added. Other E&O exposures may crop up among the community of users -- among agents or between agents and insurers -- but he said he doesn't foresee much E&O exposure for direct sales of insurance over the Internet.
Although the law of supply and demand ultimately will determine whether producers can take advantage of the Internet, reducing the number of mistakes in online transactions will make doing business over the Internet more attractive to buyers and thus increase demand.
Using disclaimers is one step agents can take to reduce their E&O liability, said Madelyn Flannagan, manager-information services for the Independent Insurance Agents of America Inc. in Alexandria, Va.
"Every agency has disclaimers on their answering machines about what you can and can't do via the voice mail or the telephone messaging system," she said. "Agents will need to have those same disclaimers on their Web sites. . . .Those are things that we'll be working on and recommending as these things develop."
Ms. Flannagan said Internet E&O liability hasn't been a significant issue because most agencies have disclaimers on their Web sites to protect against potential E&O lawsuits. For example, a disclaimer may state that coverage can't be bound immediately if an e-mail is sent on Sunday evening when the agency isn't open. "Those are places where misunderstandings can arise, so it is incumbent upon the agent" to make sure that the proper disclaimers are in place," she said.
Ms. Flannagan predicts best practices will come to the forefront as agencies conduct more business on the Internet. "An agency that operates itself ethically and always has will do so using this method as well," she said. "You sort of have to trust business to be conducted in an ethical manner using this method, just as you would any other way." Checking the authenticity of e-mails, for example, is no different from checking someone's identity on the telephone, she noted.
Ms. Bates of VMB Associates agrees that producers can avoid errors and omissions if they apply the same principles for electronic communications as they have for conducting business in the office environment. "An agency shouldn't be canceling a policy from an e-mail transmission, any more than they should be canceling a policy from a simple note in the mail," she said. "All e-mail is, is fast regular mail."
"Agencies should use their same E&O thought process for fast mail as they do for traditional mail. They're really not two separate thought processes," Ms. Bates said. Indeed, agencies should be more sensitive to e-mail transactions, because those are easier to forge. "It can be electronically clipped and saved to the electronic file much more credibly than paper can be copied and saved," she said.
There are four categories of risk involving E&O liability over the Internet, she said. They are:
* Marketing. Because Internet access is worldwide, agents and insurers have to put disclaimers on their Web sites that list the states or jurisdictions in which they are licensed to operate.
* Agency licensing. This category reinforces the licensing disclaimer of the first category by listing the states or jurisdictions in which the insurers they represent are licensed.
* Viewing online transactions as normal operating procedure. For example, explaining coverage incorrectly on an agency Web site can lead to an E&O claim just as explaining it incorrectly in policy documents would.
* Accuracy of databases and e-mail transmissions in a new work environment. Because agencies are beginning to link their databases to their Web sites, the agency is not the only user. "For instance, the insured contractor who is putting a bid together at night who needs to have a certificate won't have to wait until 9 o'clock in the morning and ask the agency to get a certificate to him," Ms. Bates said, because he will have access to the agency's database.
"What e-mail is going to do is make the agent totally accessible, which means the agency's database is going to be totally accessible, which means the database has to be right, and agents are not in the habit of keeping their databases right," she said. In addition to being accurate, databases also have to be up-to-date, she added.
To reduce the potential for Internet E&O claims, agents will have to improve the accuracy and timeliness of their internal operations; they will have to advance technologically in a very short period of time, Ms. Bates said. "Agents are going to have to change their internal operations to make them good enough not only for inspection but for use by the outside world."
However, Web site technology and e-mail might actually reduce E&O exposure, Ms. Bates stressed, because they allow agents to work more accurately and efficiently. She predicts that within two years, half of all business transactions now done via the telephone will be done through e-mail.
Electronic commerce holds opportunities as well as pitfalls, agreed Mr. Coates. "It gives agents a tremendous opportunity to provide very fast, very efficient service and information to their clients whenever they want it -- seven days a week, 24 hours a day," Mr. Coates said.
But a technological advance such as e-mail can be a two-edged sword. Because e-mail is permanent documentation, it can reduce the "he says, she says" confusion inherent in regular mail, such as when an agent mails an updated policy to an insurer but it never arrives. It is far easier to prove that an e-mail was sent and received, as opposed to a letter, phone message or fax.
Agents need to understand, however, that deleting an e-mail message on their screen doesn't mean it's gone. The permanent nature of backup copies and electronic "carbon copies" should cause an agent to think twice before putting something in an e-mail that he or she wouldn't put in a letter to a client, said Mr. Coates.
E-mail poses another potential threat in that computer viruses can be attached to such communications, he added. If an agent gets an e-mail from an underwriter with a virus attached and sends that e-mail to a client, "does a general liability policy cover that? I'm not sure.'