E&O Evolution

Collector, Sep 2008 by St Martin, Janis

The history of ACA's E&O program reflects the credit and collection industry's evolution and diversification

At ACAs headquarters in Minneapolis, a great deal of historical information is available in our archives, on display and in storage. Not too long ago, a project required that we search for background information on the association's errors and omissions (E&O) program.

What an interesting road we've traveled. The history of ACAs E&O program provides an accurate timeline of the credit and collection industry's evolution and diversification.

If you are among the many members who have family owned agencies, you may want to share this article with your parents - it's a walk down memory lane, so-to-speak.

1961 -E&O Task Force

In response to members' requests, in 1961 ACA's Executive Committee recommended that a task force be assembled to review the possibility of an ACA E&O coverage offering.

1965- ACA launches a Libel/Slander Insurance Program

E&O coverage was first launched "pre-FDCPA." The main concerns were claims alleging libel, slander and wrongful attachment or eviction. Today, your E&O program is 43 years old, evidence of its stability and longevity.

The standard policy limit purchased was $1,000 with a per-claim deductible of $30. The annual premium charged was $85. Everyone who participated paid the same premium, regardless of size, and was added to one "master" policy.

1972-Coverage extended to credit bureaus

$ubsequent to the enactment of the Fair Credit Reporting Act (FCRA)-coverage included by ACA - the professional services insurable included credit bureaus. This was a very different exposure, but it fit nicely with the coverage as written.

1978-ACA revises policy to include coverage for the FDCPA

While some litigation was anticipated, no one could have guessed the eventual impact the newly passed Fair Debt Collection Practices Act (FDCPA) would have on your industry's loss trends and members' out-ofpocket expenses.

Claims began to occur more frequently. To "gear-up," limits of up to $1 million were made available - the standard limit purchased was $100,000 with a deductible of $1,500 for the first claim and $2,000 for subsequent claims.

The policy premium was on a sliding scale based upon employee count. Agencies with a staff of 10 and that were loss-free paid $210 for a $100,000 limit. Those with one claim in five years paid $524. With three claims, the $2 10 annual premium jumped to $2,160.

1986-88 - New coverages offered to address industry diversification

Members were still added to one master policy, which returned to a claims-made form in 1986. One common expiration date of Nov. 1 was established, and yours truly was rolling ACAs carbon certificate forms into an IBM $electric III as a customer service representative at ACAs broker, Alexander & Alexander. (If you know what an IBM $electric III was, it dates us both.)

The policy was revised to offer optional coverage as diversification increased. Members needed specific coverage for check recovery/verification, truth in lending, government debt collections and off-premise collections.

1993 - Collectors Insurance Agency Inc. (CIAI) is formed

As claims developed and coverage became more complex, it was evident that members were in need of a specialized segment group solely servicing the collection industry. Development of this service also enabled ACA to retain a portion of the commission income previously paid only to the association's broker representation. Rather than increase profit for insurance agents and brokers, commission dollars were put back into the association, keeping dues low and funding much-needed legislative initiatives.

Additionally, ACA went through the filing process to establish participating members as a Risk Purchasing Group. This status enabled us to write and subsequently own the coverage form to be presented to the insurance marketplace over the next couple of years.

1995 - ACA restructures program during a carrier move

After an extensive market search, ACAs program was moved and members were issued individual policies.

Coverage options were revised to reflect aggressive litigation and continued diversification. Automatic coverage was included, providing that clients were insureds with regards to their vicarious liability.

Options under the new program included coverage for those collecting on owned debt (not a professional service by definition), medical assistance qualification, billing services, and collections of subrogation and child support.

1999 - Program losses soar as class actions increase

Although a legal review of collection notices had been required for many years, it had never been enforced. As a result, class-action lawsuits were increasing, as were member premiums. Simultaneously, the insurance marketplace was "hardening," making coverage difficult to find and expensive.

A limit of $ 1 million was routinely required by members' clients, and perclaim deductibles were based upon an agency's employee count.

Due to an unacceptable offer of rates and terms, ACA once again took its program to market. It was at this time the formal Collection Notice Review (CNR) program was introduced to members. Though it was a difficult change, it has proven to be a valuable risk management tool that serves to reduce losses and, subsequently, premiums for our members. "CNR" has become part of everyday vernacular for members insured through ACA.