The Essentials of E&O Insurance for Insurance Agents
The Essentials of E&O All professionals in the financial services industry, and especially insurance agents, need errors & omissions insurance, or E&O, insurance for insurance agents. In the same way that doctors need malpractice insurance, independent agents are advising customers daily on how much and what protection they need in the event of their own financial loss. It is incredibly important to make sure you have coverage to protect yourself and your agency staff in case you make an error or are accused of making an error. These occurrences could include something as simple as failing to locate a required document, such as a waiver of coverage, or even a miscommunication between you and your customer.
Here are four things you need to know about E&O coverage for your insurance agency.
1. Understanding the Nuances of E&O Insurance
There are many E&O carriers in the marketplace that offer this type of coverage, but not all are the same or as comprehensive, especially in what they cover if a claim lands you in the courtroom. For example:
- Policies may pay for the settlement amount but if it’s not specified, may not cover attorney’s fees for your defense.
- Conversely, some may pay defense costs but not cover settlements or actual losses.
It is also in insurance agencies and your best interest to choose an E&O carrier who specializes in covering a particular industry, so make sure the company you choose is knowledgeable about your agency and all types of business you conduct. If you’re partnered with an agency network like Smart Choice, you may have access to discounted E&O rates through certain special partnerships. Check with your agency network or alliance to find out!
2. Protecting Your Agency: The Importance of Early and Continuous E&O Coverage
In the same way you would advise your clients to buy a completely comprehensive coverage package as early as possible, you should be covering your agency the same way. Don’t sell a single policy or go a single day without coverage in place as most E&O carriers and policies use a retroactive date to determine whether or not they’ll cover any claim made against you or your agency staff. Mistakes can be made at any day or time, especially when you’re first starting out!
3. Beyond E&O Coverage: Developing a Robust Risk Mitigation Strategy for Insurance Agents
Even with E&O coverage, you need a plan for how your agency will prevent errors and omissions and mitigate claims if and when they occur. Even the smallest oversights can result in an error and omissions claim. It's important to standardize office procedures for everyone on staff and to ensure they're doing their tasks efficiently, correctly, and consistently. In fact, in most cases, businesses are now required to have emergency and preparedness plans in place for things like cyber-attacks as well.
Any time you’re handling sensitive client information in the financial services industry, it’s your responsibility to take security seriously.
4. Navigating E&O Insurance Timelines and Coverage Limitations for Insurance Agents
Just as with the policies you sell to your insureds, your will firmly rely on in-force policy date timelines, so keep strict documentation. It’s important to know exactly what your policy will cover so you aren’t caught without adequate general liability insurance or coverage, as E&O is a highly specific type of policy.
E&O Coverage will protect you from errors you may make with clients, but it won’t protect your from lawsuits when it comes to issues brought up within your own work place such as staff complaints, sexual harassment allegations, property damage or theft, etc. There are other types of insurance to specifically cover these types of things.
Insurance Agency Best Practices to Prevent E&O Claims
- Keep written documentation of conversations involving policy decisions with clients.
- Keep paper trails and documentation of advice offered to clients — even when they opt out of coverage.
- Always use written contracts with your clients and don’t forget to obtain signed waivers when clients refuse coverages you’ve recommended for them.
- Communicate frequently with customers about changes to their policies and possible enhancements available.
Getting E&O Insurance Coverage
If you’re partnered with Smart Choice, you have several to choose from like CalSurance and Hiscox. Both specialize in selling coverage to independent insurance agents and offer full coverage solutions specially to Smart Choice agency partners. Smart Choice will also work with your agency to help you remember to renew your coverage each year.
FAQ - Errors and Omissions Insurance (E&O Insurance)
What Is E&O Insurance for Insurance Agents?
is a form of professional liability insurance. Providing this protection protects your small business, against wrongful actions by clients whose business has failed. E&O insurance covers the legal defense costs for a lawyer representing a company against an insurance agency. Insurance firms recommend many types of insurance policies to clients to protect your business.
Are Insurance Agents Required to Carry E&O Insurance?
A professional license typically outlines specific E&O insurance requisites tailored to the nature of one's practice. In cases where the coverage surpasses predefined thresholds, policyholders may be called upon to furnish evidence of compliance during the renewal process. Notably, many entrepreneurs also recognize the value of procuring such coverage, and for insurance agents, embracing errors and omissions insurance is particularly advantageous.
This investment serves as a safeguard, not only preserving the equilibrium of your profession but also fortifying your reputation.
When contemplating risk management, the question naturally arises: How do I safeguard not only the interests of my clients but also my own?
What Does E&O Insurance Cover?
E&O insurance generally covers the cost of mistakes your business might have made during its operation as an insurance agent. E&O insurance helps you cover the costs, including legal fees, of any claims that are brought against you if you don't comply with the law.
This blog post was originally written by Michael Miller, Smart Choice® State Director, on March 1, 2016.
