A client’s unhappy. And what you do next will either make things better or worse. With so much on the line, it makes sense to get help. That’s the idea behind pre-claim assistance, a little extra help to give you the best shot at smoothing things over before they can go further south.
Available with some Professional Liability and Errors & Omissions (E&O) insurance policies, pre-claim assistance can give financial professionals access to experienced help while a problem may still be manageable. Depending on the policy and situation, that early intervention may help keep an informal dispute from escalating into a formal claim. Pre-claim programs can involve experienced claims professionals and attorneys who help evaluate and respond to a developing situation.
Here’s what to know about what it covers, how it works and when to use it.
What Is Pre-Claim Assistance?
Pre-claim assistance is a benefit offered with some Professional Liability and Errors & Omissions (E&O) insurance policies that can provide access to professional support when a situation could reasonably be expected to develop into an insurance claim.
Depending on the policy, that support may include help from claims professionals, attorneys or other specialists, and is offered to the policyholder before a formal claim for coverage has been made. Think of it as a sort of early intervention.
A traditional E&O claim generally involves a formal allegation that a professional’s services caused a client financial harm. Depending on the policy, E&O insurance can help pay certain legal fees, judgments or settlements resulting from such covered claims and their litigation.
However, most disputes don’t start out as lawsuits. There’s often a period when something has gone wrong and a client is unhappy, but the situation hasn’t escalated into a formal demand or legal proceeding yet.
Pre-claim assistance is designed for this earlier stage of conflict resolution. The details vary by policy, but pre-claim assistance often gives an insured advisor access to claims professionals, attorneys or other specialists who can assess the situation, recommend next steps and potentially help resolve the matter.
In order words, advisors aren’t stuck waiting for a small problem to turn into a big one — you can actually get started working on a solution now.
What Does Pre-Claim Assistance Cover?
The answer to what pre-claim assistance covers depends on the language of your particular E&O policy and the circumstances involved.
Depending on the policy, pre-claim assistance can involve covering expenses for legal or technical expertise used to investigate, respond to or mitigate a developing problem. Some insurance programs also pay eligible pre-claim expenses without requiring the insured to satisfy the normal claim deductible, and some may allow expenses to be covered without eroding the policy’s liability limit. Every policy is different, so it’s important to ask for an explanation of how your particular coverage responds.
Pre-claim help may involve:
- Reviewing the facts surrounding a potential dispute
- Determining how to respond to a concerned or unhappy client
- Helping manage communications before a wrong move makes matters worse
- Developing a strategy or plan for resolving the dispute
- Working with appropriate legal or technical specialists
- Taking reasonable steps to reduce the chance the matter develops into a claim
These services can be valuable because the early stages of a dispute are often when an advisor is faced with critical choices that can determine whether an insurance claim has to be filed.
When Should You Consider Using Pre-Claim Assistance?
A key point to understand about pre-claim assistance is that you generally don’t need to wait until you’re served with a lawsuit to flag a concern. Certain warning signs may be enough to warrant contacting your insurer.
For an advisor, those warning signs might include a client who:
- Alleges that your advice or services caused a financial loss.
- Complains repeatedly about a recommendation, transaction or fee.
- Threatens legal action or says they are consulting an attorney.
- Requests an unusual volume of account records or documentation.
- Challenges what they were told about a product, investment strategy or risk.
- Makes other complaints that cause you to reasonably believe a claim could follow.
Note that these are examples rather than universal triggers for coverage. Since policy definitions vary, an event that qualifies as a pre-claim circumstance under one policy could be treated differently under another.
But in general, a situation that makes you think, “This could turn into a claim,” likely deserves a follow-up with your insurer about possible pre-claim help.
Another benefit is that this type of early reporting gives claims experts a chance to get involved early while the situation still has a possibility of being contained.
How Does the Pre-Claim Process Work?
Now knowing a bit about what pre-claim assistance is, what it covers and when to use it, you may be interested in knowing more about how it works. Although procedures vary by insurer, the process often looks something like this:
1. You spot a potential claim warning sign.
A client complaint, request, disagreement or other event makes you concerned that a claim may develop.
2. You contact your broker or follow your policy’s reporting procedure.
The situation should be communicated promptly and before taking any other action. Be prepared to provide relevant facts, documents, dates and communications.
Note: Pre-claim programs commonly require insurer involvement and/or approval before covered expenses are incurred.
3. The situation is carefully evaluated.
The insurer or its designated professionals in law or technical fields assess the matter and determine an appropriate strategy based on the insurance policy and the incident’s circumstances.
4. You receive professional guidance.
Help is provided according to the situation and the insurance policy’s terms. You could be provided assistance by a claims professional, attorney or other specialist, with the goal of responding appropriately and limiting the possibility that the dispute escalates.
5. The matter is either resolved or transitions into a claim.
Sometimes early action can help address the issue before a claim develops. Other times, a formal claim results, despite proactive steps to prevent it.
Either way, involving your insurance resources promptly can help you navigate the situation with professional guidance rather than handling it entirely on your own.
Why Does Early Insurance Intervention Matter?
When it comes to a potential claim, early intervention by an insurance provider is almost always the best option. That’s despite the fact that insureds often feel worried they’re bothering a busy representative, risking looking foolish for being too cautious or negatively impacting their future insurance rates by reporting “false alarm” claims. Usually, none of these are the case.
What’s more risky is often what happens when an insurer isn’t looped in on pre-claim matter. Consider these potential negative outcomes:
1. High costs and denied claims
When initial concerns aren’t reported early, lawyers on both sides are more likely to get involved, the situation is likely to take longer to resolve and costs are therefore likely to be higher.
Additionally, if your insurance is cancelled, modified or expires, or you switch providers between when you first became aware of the incident and you reported a claim, it’s possible your claim may be denied coverage for not meeting the terms and conditions of your policy.
2. Missing documentation and lost evidence
In some situations, an advisor may be in the right but lack the documentation or evidence to prove their version of events in a court of law, leading to a settlement or judgement against them.
One of the first things an insurer will advise is the preservation of any relevant records, correspondence and details about what happened, as well as encouraging complete documentation of any professional advice.
3. Assumption of legal liability
When confronted with an unhappy client, an advisor’s first instinct is often to quickly try to resolve the situation themselves. However, a desire to smooth things over can result in statements you may later regret.
Pre-claim assistance can provide access to attorneys and communications specialists trained in claim negotiation matters. Sometimes, these experts can help draft letters to clients or coach you on what to say in meetings to solve problems without assuming legal responsibility.
4. Unreimbursed expenses
While inaction in the face of a potential claim is bad, racking up expenses to resolve it without prior consent from your insurer can be equally problematic. This can lead to an insured advisor facing costly expenses that aren’t payable by or reimbursable under pre-claim programs.
Even when an insurer would have recommended, approved and paid for the same course of action, such a request for payment or reimbursement will often be denied, according to the policy terms, for having occurred outside the purview of the pre-claim process.
Does Pre-Claim Assistance Have Other Benefits?
The benefits of pre-claim assistance can go beyond avoiding a formal claim. Early guidance may help a professional respond more effectively, preserve important documentation, avoid missteps and manage the time and disruption associated with a developing dispute.
Pre-claim help can also help support healthy client relationships. A claim could damage a relationship you’ve spent years building. Yet with the right support, confusion and misunderstandings are more easily overcome and client trust preserved.
Of course, advisors are still encouraged to lead the way in professional interactions with their clients. The goal of a pre-claim program isn’t to turn every client complaint into an insurance matter. It’s to recognize situations where early professional guidance may keep a small problem from becoming a much larger one.
Make Sure Your E&O Coverage Is Ready Before You Need It
Even experienced advisors can face client disputes. Miscommunication happens. Clients question recommendations. Markets change rapidly. And even when you’ve done everything right, an unhappy client may still hold you responsible for a disappointing outcome. The right E&O protection can help you respond.
Lockton Affinity Advisor specializes in insurance solutions for RIAs and other financial professionals, with access to proprietary solutions as well as a broad range of carrier options. Our RIA E&O coverage is designed to help protect financial professionals from covered claims arising from the services they provide.
If you’re unsure whether your current policy provides the protection or pre-claim resources your business needs, now is a good time to find out — rather than waiting until there’s a client dispute.
Contact Lockton Affinity Advisor to discuss your coverage or request a price indication for E&O insurance today.
