Carrier Ratings and E&O: How It’s Affecting Agencies During the Hard Market

Premium increases. Coverage limitations. Strict underwriting guidelines.

The hard market doesn’t just cause an increase in headaches – it also causes an increased risk of E&O exposures.

But what about when a carrier’s financial rating changes?

It’s something (fortunately) many agents haven’t had to deal with but something (unfortunately) that is a growing issue in this hard market.

And you guessed it – carrier ratings can affect your E&O coverage.

At least once a year, it’s recommended that agencies review their carrier’s ratings. This review should include those that are used by a wholesaler that you do business with.

What should you do if a carrier is downgraded?

If you do have a carrier that is downgraded to a lower rating, what should you do? OIA has researched and provided suggestions for agencies to follow if faced with this situation:

  • Identify the clients who are with those carriers. Don’t forget to check for policies that have been written with a wholesaler, too!
  • Notify the affected clients by written notice. Remember: you work in insurance, they don’t. Be sure to explain the situation as clearly and effectively as possible. Provide details on the situation, make sure they understand that their coverage was placed with an insurance carrier and their rating has been downgraded. Make sure to include an explanation of the rating, for example, A.M. Best defines a rate of B as “Fair”.
  • Inform your client that you cannot indicate to the carrier’s future rating status. A change in status could lead to the possibility of that carrier being unable to pay claims.
  • Your letter should include language advising that the agency is willing to remarket the account to a carrier with a higher rating. It’s important not to include remarks regarding a lower premium or that the coverage will be identical to what they previously had.
  • Documentation, as always, is of utmost importance. The agency must have communication in writing from their client on what their decision is. Provide a document to the client listing their options and require that they select an option, sign date and return the form to your office.

The Goal of Communication

The goal of your communication with your client is to educate. You want them to be able to make an informed decision on if they should continue their coverage with the downgraded carrier or place their coverage elsewhere.

It’s communication and education in times like this where great agents really separate themselves from the pack.

Have additional questions on how to handle situations like this? Our dedicated E&O team is here for you. Email Ashley Riley at

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