How Does Your Agent E & O Coverage Stack Up?

what is e o insurance

By Michael Meulemans. Insurance Expert

Agency owners have a lot to protect. As an agent does your E&O coverage provide all the protection needed for your agency?

While an agent's first order of business is protecting their clients interests, agents must also protect their book of business and they're relationships. They must protect their reputation in the community they serve.

One way agency owners protect themselves and their business is by purchasing agency errors and omissions coverage.

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Most independent insurance agencies and brokerages purchase E&O coverage today, but why do they buy it? What are they actually protecting with E&O coverage? This is key to ensuring that your coverage is adequate and meets your individual needs.

Background

The vast majority of agency owners (86.5 percent) say they buy agency E&O coverage to protect the assets of their agency, according to Insurance Journal’s 2011 Agency E&O Survey.

Errors and Omissions Insurance protects your company from liabilities and claims if your client holds you responsible for errors, or the failure of your work to perform as promised in your contract.

Coverage includes legal defense costs - no matter how baseless the allegations. Errors and Omissions Insurance will pay for any resulting judgments against you, including court costs, up to the coverage limits on your policy.

Many professional services companies choose to purchase E&O insurance policies, which are typically issued in increments of $1 million and have per-claim deductibles ranging from $1,000 to $25,000.

Errors & Omissions Insurance coverage extends to both W2 employees and 1099 subcontractors, and can be worldwide in scope.

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Errors and Omissions Insurance protects your company from claims if your client holds you responsible for errors, or the failure of your work to perform as promised in your contract.

Coverage includes legal defense costs - no matter how baseless the allegations. Errors and Omissions Insurance will pay for any resulting judgments against you, including court costs, up to the coverage limits on your policy.

P>Most E&O policies cover judgments, settlements and defense costs. Even if the allegations are found to be groundless, thousands of dollars may be needed to defend the lawsuit. They can bankrupt a smaller company or individual and have a lasting effect on the bottom line of larger companies.

In short, E&O coverage provides protection for you in the event that an error or omission on your part has caused a financial loss for your client. Most E&O policies cover judgments, settlements and defense costs. Even if the allegations are found to be groundless, thousands of dollars may be needed to defend the lawsuit. They can bankrupt a smaller company or individual and have a lasting effect on the bottom line of larger companies.

In short, E&O coverage provides protection for you in the event that an error or omission on your part has caused a financial loss for your client.

Errors & Omissions Insurance coverage extends to both W2 employees and 1099 subcontractors, and can be worldwide in scope.

The Protection Provided

Protecting an agency’s assets — financial and possibly even reputational assets — is why most agency owners choose to buy E&O, the experts agree. But

these same experts warn that their E&O policy may not cover everything agents think it covers.

"If an agent makes a mistake in anything that they do on behalf of a client, and the insurance company ends up not covering it, they’re responsible for it," says Al Diamond, president of Agency Consulting Group in Cherry Hill, N.J. "They’re basically acting as the primary insurer for their clients if the insurance companies don’t cover the losses that occur within their agency."

Diamond says even frivolous lawsuits can be costly for agency owners. "And there are an awful lot of them these days that need to be defended and E&O will cover that."

Most agencies buy E&O coverage to avoid paying out those large losses from their own pocket, says Chris Burand, founder and owner of Burand & Associates LLC, based in Pueblo, Colo. "In most cases, agencies don’t have enough cash on hand to pay those losses," he said.

"They would have to sell their book of business, or some portion of their book of business, or even their entire agency, in order to pay the claim if they didn’t have E&O insurance," Burand said.

Diamond says the asset agency owners want to protect the most is the agency’s book of business. "The revenue stream created by the book of business is their greatest asset," he says. Diamond agrees that most agencies are cash poor businesses, with little in the way of funds to pay out claims on hand. "The bulk of the value of an agency is in this book of the business. … 90 percent to 95 percent of the value of an agency is in its book of business."

"E&O insurance does not protect their reputation and that’s a big deal," Burand said.

Newer Exposures in Fast Moving Industry

New and arising E&O exposures are occuring faster than ever and should provide ample motivation for agents and brokers to invest in appropriate coverage and limits, experts say. One area for new E&O exposures is social media, according to Pearsall.

"As agencies get involved with social media, they should make sure that they have a plan in place for how they’re going to use it, and what do they hope to accomplish," Pearsall says. The total package is important as agencies must ensure they are professional and act with decorum through all social media outlets, including their own personal, non-business oriented Facebook pages.

"Agents don’t realize what exposure they have right through their Web site and through the social media they use," Diamond says. “They have to be extremely careful and hesitate and think through your activities beforer you hit send on that tweet or Facebook update. Once its out there, its there for a long, long time. If it offends anyone, you can get sued for it.

"The world of insurance is creating new products, improved products, at a much more rapid rate than it did decades ago and agents have to stay up on all these things to know what their clients need, what’s available for them. And that I believe has increased the exposure to E&O, quite significantly," Messec says. It’s not only the newer coverages but changes are also occurring rapidly.

Source: insurance.about.com

Category: Insurance

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