As an insurance agent, I’m all about keeping things organized — meticulous files, logging every conversation, and always reviewing client coverages carefully. But even with all that attention to detail, mistakes can still happen. Sometimes, it takes just one small oversight, and suddenly, my agency is exposed to liability. And an insurance agent like me understands this more than anyone.
Enter Errors and Omissions (E&O) insurance, also known as professional liability insurance. E&O insurance offers protection when a business-related misstep leads to financial harm for a client. For insurance agents, this coverage isn’t just something they should consider. It’s a must-have.
Here, I’ll explain what E&O insurance is, why it’s needed, and how to select coverage.
What Is E&O Insurance?
E&O insurance is professional liability coverage that protects businesses, their owners and their employees when negligence, errors, or omissions crop up during daily business operations. Until I owned my agency, I had no knowledge of E&O. But when I looked at the value of insured buildings and liability coverages, I quickly realized the absolute necessity of professional liability on my own behalf.
What It Covers
- Financial harm to clients in the wake of alleged mistakes or oversights
- Legal fees, settlements, and court costs if legal action is taken
- Claims resulting from miscommunications, paperwork errors, or failure to make good on claims or promises
What It Excludes
- Criminal acts or instances of fraud
- Claims that involve physical harm or property damage, which may also be covered through general liability insurance
Why It’s Unique for Insurance Agents
As an insurance agent, I’m the go-between for clients and the sometimes complex policies they’re navigating. Even something that seems like a small slip-up can end up putting clients in a tough financial spot. These mistakes might include misquoting commercial premium, skipping past the insuring agreement or forgetting to make a policy change. Paying attention to the details is essential to make sure clients are properly protected.
Why Insurance Agents Need E&O Insurance
I understand the risk I face. It poses a threat to the financial viability of my agency. I know I simply can’t operate without E&O1 — and here’s why.
Financial Protection
The cost of legal action can mount quickly — and significantly. E&O insurance covers the expense of court settlements and judgments. The size of some court decisions can threaten an agent’s livelihood.
Compliance with Industry Standards
State insurance laws differ. But some jurisdictions make E&O insurance mandatory when obtaining and renewing a license. Also, insurers often require that both captive and independent agents hold this coverage when establishing and maintaining appointments.
Reputation Management
Yes, some lawsuits might be frivolous. Nonetheless, perception can tarnish your business and personal reputation. E&O insurance helps agents deal with these circumstances by covering legal costs and letting them concentrate on strengthening their professional standings.
Common Scenarios Where E&O Insurance Applies
It doesn’t take much to trigger an E&O claim. Consider these examples:
- A client alleges you failed to adequately explain coverage exclusions, which results in uncovered losses.
- A missed signature on a renewal questionnaire forces a policy to blow past the intended effective date of the policy.
- Poorly worded communication about non-covered perils leads to a denied claim.
With E&O insurance in force, agents can rest assured while selling and servicing policies. In a highly transactional business, these policies help insulate the agency from financial consequences that may result from an honest mistake.
Common Misconceptions About E&O Insurance
I used to have these thoughts until I educated myself further.
I Have General Liability Insurance — Isn’t That Enough?
General liability insurance covers things like bodily injury or property damage. It may have some basic coverage related to E&O but it does not provide the wide spectrum of coverage that a full-fledged professional liability policy will.
Small Businesses Don’t Need E&O Insurance.
A one-person agency faces the same risk as larger agencies. Even a modest judgment (without the benefit of an E&O policy) can cause severe financial damage to agencies with limited resources.
Only High-Risk Industries Need This Coverage.
Some businesses do pose higher E&O claims risk than insurance agencies. While an insurance business might have less exposure than a law firm, for example, the transactional nature of P&C lines suggest E&O coverage should be in the mix.
How to Choose the Right E&O Insurance Policy
Assess Your Needs.
You deal with small business risk each day as an insurance agent. Ask yourself how risk applies to your business, and plan accordingly. You’ll undoubtedly see the value of E&O coverage.
Understand Coverage Limits.
There’s a fair amount of flexibility with E&O policy limits. If you’re writing mostly personal lines and simple commercial business owner packages, you have less exposure than an agency that writes large commercial risks.
Evaluate Policy Features.
Be selective when shopping for E&O coverage. Certain policies cover legal costs and retroactive claims. Others might not. So, find the best fit for your particular book of business.
Compare Insurers.
E&O might not be your niche. Find a broker who can choose from highly rated insurers. Carriers specializing in E&O coverage for insurance agents will give you the widest range of options available.
Consider Costs.
Naturally, cost is a factor in most business decisions you make. It’s fine to hunt for value. Just be certain that policies meet your needs regardless of the price. When comparing premiums, look for apples-to-apples coverage.
Protect Yourself and Your Business
Your clients look to you as a subject matter expert. Yet even with your industry knowledge, mistakes do get made. Rely on E&O insurance to be there when those oversights do occur. Like your clients, you can have peace of mind knowing you’re covered in E&O situations.
Don’t hesitate to consult with a trusted broker to find the right solution for your book of business. Protection through a suitable E&O policy lets you grow your agency without the constant worry that a simple mistake could derail your progress.
- https://www.dfs.ny.gov/insurance/ogco2001/rg108031.htm ↩︎