So you want to be a Risk Manager?
Updated: Mar 19, 2021
Maybe you've been tempted to call yourself a "Risk Manager." A couple of sales consultants have charged agencies tens of thousands of dollars advising them to change their producers' titles to "Risk Managers" and the agents have sucked it up like a problem drinker who hasn't had a drink in the last six months. The agents think no risk exists in changing their title to "Risk Manager," and it is not in the sales consultants' best interest financially to tell them otherwise.
Reality is almost certainly otherwise. When you tell the world you are a "Risk Manager" your standard of care is elevated to an extremely high level, maybe the highest level possible. Consider this key E&O ruling, "Insurance agents or brokers are not personal financial counselors and risk managers..." This was New York's highest court's reasoning in finding for the agent in Murphy v. Kuhn.(1) Lots and lots of court rulings from around the country over decades have more or less followed the same logic. So now that you are calling yourself a Risk Manager, the courts' rulings no longer likely protect you.
I have heard these same producers and agency owners, the ones using the "Risk Manager" title, whine about how unfair it is that the plaintiff’s bar can sue them for anything or how unfair it is for direct writers to have lower standards of care. If you don't want a higher standard of care, then do not pretend to be something you are not. If you want to call yourself a risk manager, then you have a duty to manage your clients' risk. If you are not up to the task, don’t pretend that you are.
Someone said to me, "But 'risk manager' sounds so much better!" Become a politician if you want to claim to be something you are not, or dye your hair, wear heals or a toupé, or borrow lots of money you can't afford so you look richer than you are, but only pretend to be an expert or a risk manager at your peril. If I was a plaintiff attorney, I might even troll agency web sites for this wording.
A large proportion of E&O suits involve accusations against an agency for the "failure to procure" appropriate coverages. I am of the firm belief that E&O risk management should focus on avoiding E&O suits and not simply winning E&O suits. If you like adversity, fighting in court, spending money on attorneys, and generally devoting your time to defending yourself in lawsuits rather than focusing on building your business, the rest of this article is NOT for you. Stop reading HERE.
Failure to procure evolves from situations in which an insured finds themselves with an uncovered claim. A different way to put this is the insured finds themselves in a situation in which they personally become the insurance company. They are the ultimate self-funded program but by default and not by planning. This is not a fun position.
The failure of an insured to possess the right coverage derives from a few relatively simple scenarios. The first is that the agent did not know the insured needed a coverage and the insured did not request a coverage, so the insured was not offered the correct coverage. The second is the insured was offered the coverage but declined to buy it. The third scenario is the aggregation of all the weird situations that no one can honestly predict. Those three scenarios likely account for 99% of the situations in which an insured has inadequate coverage.
The failure to procure the right insurance allegation derives from an insured arguing that the agent should have provided them with the necessary coverage, either in scenario #1 or scenario #3. The failure to procure coverage allegation rarely has legs if the agent offers the coverage and the insured refuses to buy it. This is why signed coverage checklists are so critical to avoiding E&O claims and especially in defending such claims.
The duty to procure coverage standard, i.e., the standard of care an agency must abide by depends on many factors and each case is different. In general, just as you have learned in your E&O classes, your standard depends on whether you generally complied with your client's request and a few other basic obligations UNLESS you create a "special" relationship. A "special" relationship can be created and is created by specific actions that vary from court to court, but a key consistent way to create a "special" relationship is by advertising you are "special." As the authors of Understanding Insurance Law state, "An individual who holds himself out as having professional expertise in a given field is expected to conduct her affairs in the manner expected of similar professionals." In other words, if you tell the world you are a risk manager, clients have full reason to believe you are as knowledgeable and capable as any third-party risk manager or a person who has a risk management degree or others in that area. If you are really nothing more than a producer selling insurance, you almost certainly are not up to that standard. You may be a sitting duck for an E&O claim.
The question will likely revolve around this, "Would a real risk manager have asked the questions required to identify the insurance coverages for which the client's risk variables needed a solution?" The only possible way to do this is with some version of a coverage checklist and I've found almost none of these so-called risk managers use a coverage checklist.
The next factor is that if you call yourself a risk manager, you are a risk manager to all your clients, not just the clients you like. You arguably owe risk management advice to the $500 account holder at the same level you owe to the client paying $50,000 in commissions. Does your business card give the title, "Risk Manager -- but only if you pay me more than $10,000 -- otherwise I'm just an agent." What the courts have generally ruled in non-legal terms and just to get to the point is this, "You can’t advertise something you are not and get away with it in an E&O situation." This is pretty simple. You may not like this conclusion but arguing against reality and a completely reasonable position is only for those with little brains.
If you want to be a true risk manager, which is admirable, it requires a lot of work and considerable knowledge. Furthermore, you must spend more time with your clients than almost any regular producers are used to doing outside of golf courses. Taking the time to really learn about your clients' needs and matching those needs to applicable coverages and other risk management solutions requires roughly two to ten times more hours per client. I hear most producers advising that their clients will not spend time with them. That is obviously true for many clients, but to some degree when clients do not want to spend time with their "risk manager," what are they really communicating?
If they won't spend time getting your professional risk management advice, from an E&O perspective, you probably should send a letter or email confirming you are not acting as a risk manager for them because it is impossible to be a risk manager without spending time with a client.
True risk management generally falls outside the duties of a regular agent. Therefore, if providing true risk management advisory services, a question then arises as to whether rebating is involved, not that many insurance departments care much any longer, but for rules followers this may be important. Fees are also a factor and potentially a great new revenue source if the risk management is real.
Real risk management is a phenomenal service. It is a service that brings considerable good to the world and the best risk managers can make great incomes. A win-win scenario exists which is rare in this world today. The absolute only way in which a person can be a true risk manager is to first learn insurance deeply and second, spend time with your clients to learn their exposures. An amateur risk manager is oxymoronic which is why these people are easy targets for E&O claims.
Amateur vs. professional is the equivalent of a zero or a one in programming. A grey area does not really exist even if your sales consultant promises you otherwise. It is your choice. Will you become the true professional or continue to just be an agent? Neither is right or wrong -- just don't advertise you're something you're not.
(1) 682 N.E. 2d 972 (N.Y. 1997). As quoted in Understanding Insurance Law, 6th Edition 2020.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.