3 Things Insurance Agents Need to Know About E&O Insurance

Katie Wilmoth | April 15, 2022

Why E&O Coverage for Independent Insurance Agents is Needed

All professionals in the financial services industry, and especially insurance agents, need errors & omissions, or E&O, insurance. 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 three things you need to know about E&O insurance for your insurance agency.

1. You Need to Do Your Research.

There are many E&O carriers in the marketplace that offer this type of coverage, but not all E&O policies 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 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.

2. You Need to Buy Early.

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 go a day without coverage in place as most E&O policies use a retroactive date to determine whether or not they’ll cover any claim made against you or your agency staff.

How Long to Keep Your E&O Insurance

You should keep E&O coverage in place for a period of time even if you quit, retire, or sell — in case a client files a claim retroactively against you. 

Your E&O coverage should be in place for at least one year after you issued the last policy or until the anniversary or renewal date of the last policy you issued, at which time the insured is expected to contact you with corrections as to how the policy was applied for when it was first written.

Almost all carrier policies state the insured is responsible for reviewing their declarations page at every renewal so they are aware of their exact coverage, effective dates, and limits. You may want to consider carrying a full and active E&O policy for one year after you write your last policy to protect yourself from any issues that could arise for a period of one year after the renewal date of the last policy you issue.

3. You Need to Have a Plan.

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.

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 for Insurance Agents

If you’re partnered with Smart Choice, you have several discounted E&O carriers to choose from like CalSurance and Hiscox. Both specialize is 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. 

Get Started with Smart Choice

This blog post was originally written by Michael Miller, Smart Choice® State Director, on March 1, 2016.

Katie Wilmoth