1. AGENCY MANAGEMENT BASED E&O AND ETHICS Terry L. Tadlock, CIC, CPCU, CRIS Independent Insurance Agents & Brokers of South Carolina

2. INTRODUCTION The majority of E&O classes I have attended deal with mistakes employees (including owners) have made that may create a potential claim (inadequate coverage, poor documentation, no procedures, etc.). The discussion then turns to the legal environment to paint the picture of what we will face if a claim is filed. Let me assure you they are all excellent courses and are correct in their approach. And yes, we will do some of this! But the majority of this course will attempt to create awareness that there are steps we can take as an organization to eliminate many of the causes before they take place. I think if you ask yourself, why enough times you will eventually wind back to the root problem we all face…Organizational culture and clarity.

3. ITS ALL ABOUT CULTURE A.What is Culture – “The total of the inherited ideas, beliefs, values, and knowledge, which constitute the shared bases of social action.” “The attitudes, feelings, values, and behavior that characterize and inform society as a whole or any social group within it.” “The total range of activities and ideas of a group of people with shared traditions, which are transmitted and reinforced by members of the group.”

4. ITS ALL ABOUT CULTURE 1.What inheritance has you agency received, if any? 2.What “Belief” system or “Value” structure does you agency share? 3.Where does the knowledge base of the agency come from? Is it inherited or acquired?

5. ITS ALL ABOUT CULTURE B.Why is Culture Important? 1.It lays the foundation of the agency’s value system 2.It will project to your clients and companies the purpose and identity of your agency 3.Project a healthy image to the community

6. OUR CORE CULTURE PHILOSOPHY PURPOS E

7. OUR CORE CULTURE Insuring Financial Security Education/Innovation

8. ITS ALL ABOUT CULTURE C.How Does Culture Effect E&O Claims? 1.The “Gloomy Gus” syndrome 2.The “Superiority” syndrome 3.The “YES” person syndrome

9. ITS ALL ABOUT CULTURE D.How Is Culture Changed In An Organization? 1.It all starts at the top 2.Management has to sell the new culture to the staff 3.Staff has to embrace change 4.Management has to be willing to make tough decision to enforce change

10. AUTHOR TO READ Patrick Lencioni Getting Naked The Five Temptations of a CEO The Five Dysfunctions of a Team

11. No Attention To Results Avoidance Of Accountability Lack Of Commitment Fear Of Conflict Absence Of Trust Status And Ego Low Standards Ambiguity Artificial Harmony No Transparency

12. FIVE DYSFUCTIONS OF AN AGENCY ORGANIZATION A.Absence of Trust – I have heard a million times that “Trust has to be earned.” I just don’t know that I believe it! Most of us are trusting until we get burned. What can cause an E&O claim quicker than a bunch of employees that don’t trust each other? This should help.

13. FIVE DYSFUCTIONS OF AN AGENCY ORGANIZATION B.Fear of Conflict – Now please understand, I am not trying to start fights in your organizations! However, healthy interaction based on mutual respect provides many more productive ideas and solutions than employees being gripped in the fear of having conflict.

14. FIVE DYSFUCTIONS OF AN AGENCY ORGANIZATION C. Lack of Commitment – I can’t believe we just used the “C” word! Without commitment from leadership there will be confusion and ambiguity in the organization.

15. FIVE DYSFUCTIONS OF AN AGENCY ORGANIZATION D.Avoidance of Accountability – This may be the greatest weakness of our society in my opinion. We simply feel our actions don’t have consequences, but they do! Every decision we make will affect someone else. This may very well be the key to ethical decision making. If you ever withdraw from allowing others to see your decision making process and build a wall around yourself you are now positioned for an ethical breach.

16. FIVE DYSFUCTIONS OF AN AGENCY ORGANIZATION E.Inattention To Performance Results – We simply can’t make decision in organization based on personality or feelings. Everything we measure (outside of complying with organizational values) should be based on performance. When we lose sight of this and make decision based on personality it destroys morale and credibility within the group.

17. BUILDING A HEALTHY ORGANIZATION A.Build And Maintain Cohesive Leadership – Every organization needs a clear chain of command. In small organizations this may be a single individual. As the organization grows this need will become more apparent. A healthy organization will have less politics and confusion, higher morale, lower turnover and higher productivity. 1.Who should this group of people be? The more diverse the group the better. 2.What should be their role within this group?

18. BUILDING A HEALTHY ORGANIZATION B.Create Organizational Clarity – Every person in the organization should have a crystal clear picture of their role and how success and failure effect the entire organization. Be specific as to: 1.Values 2.Mission 3.Major Goals 4.Objectives 5.Roles and Responsibilities

19. BUILDING A HEALTHY ORGANIZATION C.Communicate Agency Identity And Message – Have a structured plan how the clarity of the organization will be communicated. 1.Repetition 2.Simple messages 3.Multiple mediums

20. BUILDING A HEALTHY ORGANIZATION D.Reinforce Agency Clarity Through Human Systems – In each of the following the organization must present a consistent message based on A-C. 1.Hiring Profiles – Good hires v. the cost of a bad hire 2.Performance Management – An honest assessment is needed 3.Rewards and Recognition – Everything is performance based 4.Termination – Based on performance and values

21. WARNING SIGNS TO ORGANIZATIONAL AMBIGUITY A.Employees (including Leadership) Place A Higher Priority On Personal Gain Than Organizational Achievement – 1.What words do people use in conversation… I and Me or Us and We? 2.Are leadership and staff willing to sacrifice personally for the overall good of the organization or is all about me? 3.Is promotion and power more important than productivity?

22. WARNING SIGNS TO ORGANIZATIONAL AMBIGUITY B.Popularity Is More Important Than Accountability – 1.Is the need to be liked and accepted greater than the need to be respected? 2.A position (i.e. the Presidency) can demand immediate respect, but people have to earn it over a long period of time.

23. WARNING SIGNS TO ORGANIZATIONAL AMBIGUITY C.Choosing Certainty Over Clarity – “A bad plan is better than no plan at all.” 1.Do you make hasty decisions or do you analyze a situation to death before making any decision? Both are obviously wrong! 2.Hasty decisions are generally made based on emotion. Don’t get caught in this trap. 3.Over analyzing a situation makes the entire organization doubt your commitment or your ability to make a decisive decision. 4.Admit when you are wrong and make corrections.

24. WARNING SIGNS TO ORGANIZATIONAL AMBIGUITY D.The Desire For Harmony – Can’t we all just get along! 1.The fear of conflict (discussed earlier) will restrict the flow of valuable opinions. 2.It’s all about ideas; it is not ever to become personal.

25. WARNING SIGNS TO ORGANIZATIONAL AMBIGUITY E.Lack Of Trust – Trust can never be built without risk! It is not earned, it is freely given. 1.Are you willing to get burned? 2.Leadership, will you trust your employees with your career? 3.Employees, will you trust leadership with your careers?

26. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK A.Clients 1.Select client to represent 2.Agree on services to provide 3.Document services and coverage’s not desired 4.Keep promises of services within agency capabilities 5.Notify regularly of important changes

27. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK B.Standardize Office Procedures – (The four “C’s” of procedure manuals) 1.Current – 2.Communicated – 3.Chargeable – 4.Cross Referenced –

28. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK C.Documentation 1.Document all telephone conversations 2.Keep notes on conversations including coverage questions and recommendations 3.Confirm instructions in writing 4.Maintain and keep current all client records 5.Keep your records according to prescribed records retention program

29. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK Hearsay Evidence Rule-Business Record Exception. The record must be made in the ordinary course of business. The record must be made at or near the time of the event. The record must be kept in a secure place. (Chain of custody) The record must be original if possible. “Best Evidence Rule”

30. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK ELECTRONIC RECORDS The same rules generally apply to computer records. You must have a competent person making input. Input must be made by person with knowledge of information or from person with knowledge of information. You may need to demonstrate that the system is reliable.

31. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK D.Product Knowledge 1.Know your products 2.Stay within your insurance expertise or enlist help 3.Try to eliminate coverage decisions

32. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK E.Agency Management 1.Issue binders promptly and correctly 2.Process orders and claims promptly and correctly 3.Examine policy to be sure it conforms to the insurance required 4.Use cover letters when delivering policies 5.Follow company instructions

33. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK F.Equipment 1.Facsimile machines 2.Voice mail/Answering machines

34. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK G.Claims Handling 1.Use ACORD forms when possible 2.Notify company at once 3.Don't offer an opinion on coverage 4.Follow-up until the claim is settled

35. POSITIONING A HEALTHY ORGANIZATION TO CONTROL RISK H.Personnel 1.Hire quality individuals 2.Educate agency personnel 3.Provide specific E & O education 4.Utilize advanced education -- professional designations

36. AGENCY DEFENSE ACTIVITIES A.Assign One Person to Act as Claims Coordinator B.Hold Staff Meetings Including All Involved Agency Personnel 1.Discuss situation in general 2.Have each person briefly describe their involvement C.Coordinator Gathers All Pertinent Information into a Master File D.Prepare to be a Good Witness

37. CONCLUSION Organizations are successful for two reasons, they are smart and they are healthy. Good E&O protection demands we are good at both. I think we spend a lot of time being smart, but I am not sure we spend much time learning what it takes to be healthy. I hope this course has given you one or two ideas you can take back and put into practice a t your agency or company operations. Remember E&O exposure can’t be eliminated, but it can be controlled!