The Essentials of E&O Insurance for Insurance Agents 

All professionals in the financial services industry, and especially insurance agents, need errors & omissions insurance, or E&O, insurance.

In the same way that doctors need malpractice insurance, independent agents need an appropriate insurance policy to protect themselves and their clients from potential negligence claims. 

You must ensure you have coverage to protect yourself and your agency staff in case you make an error or face accusations 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 E&O policies are the same or as comprehensive, especially in what they cover if a claim lands you in the courtroom. Omissions coverage is a critical component of E&O insurance, protecting professionals from allegations of inadequate work or negligence. For example: 

• Policies may pay for the settlement amount, but if they do not specify it, they 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 the types of business you conduct. 

If you partner with an agency network like Smart Choice, you may access 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. Ensuring continuous policy coverage is essential to protect your agency from potential claims.  

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. You can make mistakes 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. In addition to E&O coverage, having comprehensive business insurance is crucial for protecting your agency from various risks.

Even the smallest oversights can result in an error and omissions claim.  

It’s important to standardize office procedures for everyone on staff to ensure they’re doing their tasks efficiently, correctly, and consistently. In fact, in most cases, businesses now need to have emergency and preparedness plans in place for situations 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 E&O policy will firmly rely on in-force policy date timelines, so keep strict documentation. Understand exactly what your policy covers to avoid finding yourself without adequate general liability insurance or coverage, since E&O represents a highly specific type of policy.  

E&O Coverage will protect you from errors you may make with clients, but it won’t protect you from lawsuits when it comes to issues brought up within your own workplace 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. 

Types of Claims Covered by E&O Insurance 

E&O insurance covers a wide range of claims that can arise from the professional services provided by insurance agents. Some common types of claims covered by E&O insurance include: 

• Negligence claims: These claims allege that the insurance agent failed to exercise reasonable care in providing professional services, resulting in financial loss or damage to the client. For example, if an agent overlooks a critical detail in a policy, leading to inadequate coverage, they could face a negligence claim. 
• Errors and omissions claims: These claims allege that the insurance agent made a mistake or omission in providing professional services, resulting in financial loss or damage to the client. This could include anything from incorrect policy information to failing to submit paperwork on time. 
• Breach of contract claims: These claims allege that the insurance agent failed to fulfill their contractual obligations to the client, resulting in financial loss or damage. For instance, if an agent promises a specific coverage and fails to deliver, the client may file a breach of contract claim. 
• Misrepresentation claims: These claims allege that the insurance agent made false or misleading statements to the client, resulting in financial loss or damage. An example would be an agent providing inaccurate information about a policy’s benefits or exclusions. 
• Failure to procure coverage claims: These claims allege that the insurance agent failed to procure the correct coverage for the client, resulting in financial loss or damage. If an agent neglects to secure a necessary policy, leaving the client exposed to risks, they could face this type of claim. 

Factors Affecting E&O Insurance Costs 

The cost of E&O insurance for insurance agents can vary depending on several factors, including: 

• The size and type of the insurance agency: Larger agencies with more employees and a wider range of services may pay more for E&O insurance due to the increased risk of errors and omissions. 
• The level of coverage: Higher levels of coverage will typically result in higher premiums. It’s essential to balance adequate protection with cost considerations. 
• The deductible: A higher deductible will typically result in lower premiums, but it also means the agency will need to cover more out-of-pocket expenses in the event of a claim. 
• The claims history: Agencies with a history of claims may pay more for E&O insurance. A clean claims record can help keep premiums lower. 
• The location: Agencies located in areas with a high cost of living, or a high risk of natural disasters may pay more for E&O insurance due to the increased likelihood of claims. 
• The type of services offered: Agencies that offer high-risk services, such as cyber liability insurance, may pay more for E&O insurance. Specialized services often come with higher risks and, consequently, higher premiums. 

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 policy coverage and possible enhancements available. 

Getting E&O Insurance Coverage 

If you partner with Smart Choice, you can choose from several discounted E&O carriers 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.  

Michael Miller, Smart Choice® State Director, originally wrote this blog post on March 1, 2016.