What key factors spark E&O claims against brokers?

Senior broker retirements, a labour shortage that’s spurring firms to bring new, inexperienced employees into brokerages, and a hybrid office may be combining to increase a broker’s errors and omissions (E&O) exposure.

“It’s very difficult to track [broker E&O] claims as being specifically because people are working from home, but I think there are some things we need to consider in our industry,” Hugh Fardy, senior vice president of professional liability (Ontario Region) at Arthur J. Gallagher Canada Limited, commented in a Live with CU livestream on LinkedIn.

“We need to understand that a huge percentage of our employees in the brokerage world right now are five years or fewer in the business. And you don’t learn our business in five years, or two years, or in my case, 49. It’s an ongoing process.

“If you don’t have people around you, osmosis learning disappears. If there’s no water cooler university, you don’t have those kinds of opportunities. Anecdotally, I can tell you, I have a lot of brokerage clients, owners and managers who are telling me it is difficult to supervise. It is difficult to train [brokers], and it is starting to show in claims.”

Broker E&O claims frequency is on the rise, Canadian broker E&O experts said.

Fardy estimated frequency is getting to be less than one claim for every 1.5 insurance policies. While frequency flattened during the first two years of the pandemic, claims have increased now that the industry is no longer limited by public health restrictions.

Some said the pace of business and the urgency of meeting insurers’ expanding premium growth targets has increased brokers’ exposure to making mistakes.

Direct written premiums (DPW) have jumped 16.4% since the start of the pandemic, from $60.3 billion in 2020 Q4 to $70.1 billion in 2022 Q4. But it’s still not enough, as MSA Research president and CEO Joel Baker noted in his Q4-2022 edition of the MSA Quarterly Outlook Report.

“The overall growth in DPW [in 2022 Q4] is barely keeping pace with inflation,” Baker wrote. “Net premiums written are slipping behind with a tepid 1.5% growth. The industry is flooring the accelerator, but the car isn’t speeding up.”

Added to this, broker recruitment is a high priority for the P&C industry’s HR professionals.

The pandemic saw ‘The Great Resignation,’ in which almost a quarter of Canadians switched jobs, the Financial Post reported in July 2022. Finding qualified talent was cited as a key challenge by 68% of respondents to Canadian Underwriter’s 2023 national survey of more than 150 brokers nationwide.

That level of concern has tracked consistently since 2019 – and ranged from 62% to 69% over the most recent five years. One comment in the 2023 survey from a broker at a smaller firm pointed to ongoing stress from the baby boom generation’s gradual retirement. “Who will take over the businesses?” he asked.

For every broker hired, two brokers exit the occupation, according to a 2018 demographic study commissioned by the Insurance Institute of Canada. Age is a central factor for the entry-to-exit ratio, the study suggested.

Only 13.8% of brokers/agents were under the age of 30, and 25.1% of brokers are 55 or older. And, over 60% of Canadian P&C brokers fall into the 35 to 64 age category.

 

This story is excerpted from one that appeared in the May print edition of Canadian Underwriter. Feature image by iStock.com/Sergei Chuyko