What’s the best way to keep your life & health insurance business protected against client lawsuits? The most important, obviously, is to have E&O insurance. But close behind is making sure your business practices don’t make you vulnerable to common E&O insurance claims. According to a major E&O insurer, they are most likely to arise from the following causes:

  • In the top position is misrepresentation, accounting for 25 percent of all claims filed by members of a major life insurance trade group. Misrepresentation occurs when you make a statement about a product you sell that is false or misleading. For example, you might claim an annuity has no surrender penalties when, in fact, it does. When your client discovers that he can’t get all his money back within the first seven years, he may file a regulator complaint against you or bring suit in court.
  • In position #2 is failure to provide, which accounts for 13 percent of claims. This refers to an agent not providing necessary insurance coverage even though it was (or should have been) clear that the client needed it. A common situation is when an agent conducts an initial fact-finding interview that uncovers a host of insurance risks that need to be addressed. However, because of the press of other business, the agent fails to address one of the risks on a timely basis, and the insured suffers a loss before she can purchase the needed insurance. Bringing an E&O insurance claim in this situation is a common client scenario.
  • The third most common claim is known as “failure to explain,” representing 11 percent of reported losses. This occurs when an agent sells an insurance or financial-services product or rider, but fails to fully explain how it works. Here’s one possible example: a husband purchases a hybrid life insurance/long-term care policy, which is designed to not only provide a death benefit, but also a nursing-home care benefit in the event the husband needs custodial care. On the surface, such policies are attractive because they cover two risks simultaneously. However, sometimes agents fail to explain that receiving long-term care benefits will reduce the amount of life insurance benefits that can be paid later. That’s because the LTC benefit is essentially an accelerated death benefit. If an agent doesn’t explain the nuances of how such a life/LTC combo plan works, the surviving spouse may be surprised to learn she will receive a much lower death benefit than anticipated because of LTC benefits already paid out. Surprises such as this often lead to disappointment, anger, and, ultimately, lawsuits against agents.
  • In fourth position are so-called office errors, a catch-all term referring to various clerical errors that can result in lower than expected insurance payments or no benefits at all. Examples of office errors, which account for 11 percent of claims, include botching client policy-change requests, not apprising clients that they unintentionally let their policies lapse through non-payment of premiums, or sloppy handling of life insurance applications, which result in claims being denied because clients failed to disclose a material fact to the insurer.
  • Finally, the fifth most common claim, representing 6 percent of lawsuits, are premium errors. These happen when agents and clients cross wires and premiums aren’t remitted to insurers on time, resulting in coverage not being available after an insured suffers a loss. If this ever happens to you, you can be certain you will have an angry, frustrated, and litigious clients on your hands.

Given the wide range claims life & health insurance agents are susceptible to, what are the best ways to protect yourself? The first step is to adopt a risk-management approach to running your business. Take a look at all of your customer-facing processes and make sure they are in good shape. If they are running inefficiently or generating too many errors, then re-engineer them as soon as possible.

The second step is to purchase a comprehensive E&O insurance policy from an online provider such as EOforLess.com. Having your own E&O insurance means you’ll have a financial backstop in the event a judge orders you to pay a large settlement or judgment to a client who beats you in court. It will also provide funds to pay for an attorney to represent you, for expert witnesses, and for court expenses. Without E&O insurance behind you, you will always be one lawsuit away from potential bankruptcy and always beset with stress and worry about your future.

Wouldn’t you rather do business without always having to second-guess your decisions from a legal perspective? Of course, you would. Which is why you should consider purchasing E&O insurance from EOforLess, the online pioneer of click-and-bind insurance for financial professionals. Contact us today to learn more about our coverage options.

When it comes to E&O insurance, surprises are the last thing you need. For example, if a client begins to threaten you with a lawsuit, you want to know your E&O insurer will stand behind you, not that there isn’t enough coverage left in the policy to protect you. Similarly, there are many nuances in these policies that may catch you by surprise if you haven’t uncovered them ahead of time. Here are seven common situations that prove this point.

  1. Did you know that all “claims made” policies aren’t made equal? Some policy forms are a purely claims made design, while others are “claims made and reported.” The difference? The latter provide coverage only if you file a claim within the policy term or within a short period thereafter. If you try to file the claim after either of those two-time frames, you may find yourself without coverage. Solution: read your policy to confirm which type you have.
  2. Does your policy cover your specific duties? To find out, read your policy’s insuring agreement to see how it defines professional services. It will typically be quite explicit about who and what it covers. For example, one life insurance agent E&O policy has this definition: “Coverage is limited to general agents or agents with valid licenses in a client’s state or jurisdiction, as well as the general agent’s or agent’s state or jurisdiction, and who are involved in the sale or servicing of life, accident, and health insurance, disability insurance, and indexed or fixed annuities. Covered duties also include financial planning and supervision and training of agents.” The key point? Your actual duties must align precisely with the policy language in order for you to have coverage under the policy. For example, if you have a sideline real estate business, you will not be covered under this policy because those activities aren’t listed in the insuring clause.
  3. Are you familiar with your policy’s exclusions? One of the most common ways E&O policies surprise agents is when they file a claim and the insurer notifies them an exclusion applies. If this has ever happened to you, you know how infuriating it can be. Solution? Whenever you purchase a new E&O insurance policy, sit down immediately and read over the exclusions. Doing this, for example, will show that you’ll have no coverage for claims arising out of litigation that occurred before the policy’s effective date or were in process on that date. Or that E&O claim payments that benefit a family member won’t be covered. Or that financial advisors will not be covered for E&O losses if they use or disclose confidential client information or non-public information. There will be a dozen or more scenarios in which you might assume coverage, but which your policy, in fact, excludes. Study your contract so you know exactly what the deal is.
  4. Are you aware of the nuances of coverage limits? The first is the difference between per-claim and aggregate limits. As its name suggests, the former establishes a maximum dollar amount that can be paid on a given claim from an insured. The aggregate limit refers to how much coverage is available for multiple claims from one insured in a given year. However, shared limits introduce a further complexity. Here multiple people within a firm may be covered under one master policy with a limit that applies to every agent and/or advisor insured under the policy. So if the firm suffers a large number of E&O insurance claims in a year, which consumes the entire shared limit, you will be out of luck when you file a claim at some future point.
  5. Did you know that some E&O insurance policies apply the stated deductible for all claims filed in a policy period? So if you have five claims and your deductible is $1,000, you will be on the hook for $5,000. Other policies provide for an aggregate deductible for multiple claims. In the example given, this might limit your deductible to only $2,000 in E&O claim outlays in a given year.
  6. Have you heard of E&O policies that apply your deductible to legal fees as well as to claim payouts? Policies with so-called defense-and-loss deductibles make you pay for legal fees up to the deductible amount even if the claim is ultimately proved groundless. Compare that to E&O insurance policies with first-dollar deductibles, which only require you to pay if you’re found liable and a claim payout is required. Obviously, the latter type is more appealing.
  7. Finally, does your E&O policy have an extended reporting period or “tail” provision? This will allow you to file a claim even after your policy expires, as long as the wrongful act happened prior to the end of the policy period. Although most E&O policies have this feature, the length of the period can vary. EOforLess’ life/health agent E&O policy has an unlimited extended reporting period. This can be important if you are planning to sell your business.

E&O insurance policies for life and health insurance agents, P&C agents, registered investment advisors, and real estate agents and broker/owners have many other nuances. To make sure your business is fully protected, carefully read your policy’s fine print. This way, in the unfortunate event you need to file a claim, you will avoid nasty surprises that put your firm at a disadvantage.

But here’s the good news. Many of these surprises can be avoided entirely by purchasing the right policy in the first place. By reading specimen policies before you buy, you can select one from a company that doesn’t impose restrictive provisions. Shopping carefully can literally save you tens of thousands of dollars or more at claim time. Worth the extra work? You bet!

Warn Your Clients Now: FINRA Does NOT Guarantee Investment Opportunities

The ingenuity of investment scammers has no limits. Now they are invoking the names and logos of regulatory agencies in order to entice their victims—your clients—to part with their hard-earned cash.  To help them stay safe, caution them to watch for solicitations that use a regulatory tie-in to promote an investment’s safety.

In a recent case, fraudsters used FINRA’s name and logo in correspondence, including a phony signature from FINRA’s top executive—to create the false impression it guaranteed the performance of what was actually an advance-fee scam.

“Financial fraudsters go to great lengths to appear legitimate, making it difficult for investors to recognize their ruses,” says Gerri Walsh, FINRA’s Senior Vice President for Investor Education. “That’s why we are telling investors flat out that FINRA does not guarantee investments, and our officers play no role in facilitating investment opportunities. We want people to know that and to understand how they can verify who the real FINRA is.”

According to FINRA, advance-fee scams typically involve criminals enticing consumers into sending in funds to pay for administrative or regulatory charges relating to a stock share buyback, which is either worthless or underperforming. Once investors send their money in, they never see it again or receive any returns from the stock buyback.

One way for your clients to stay safe from such schemes is to carefully examine solicitations for telltale signs of fraud. These include the use of quasi-legal language, repeated use of the word “guarantee,” and failing to correctly identify the regulator or its executives.

In a FINRA Investor Alert on regulator scams, the agency pointed to a recent attempt to defraud an investor. The scammer emailed the person a document supposedly from the FINRA CEO in an effort to build trust. Close inspection of the letter revealed improper use of the FINRA logo, incorrect executive titles, repeated use of the word “guarantee” (something FINRA would never do), and reference to the Financial Securities Rule-Making Board (FSRB), a fake agency.

In another fraud, scammers sent email pitches that purported to come from the office of FINRA President and CEO Robert Cook. They portrayed FINRA as a “recognized financial manager of the IMF” (false) and informed recipients that it has granted the release and payment of outstanding inheritance funds. The catch? The investors needed to fly to another country. But before they could, they needed to send in more personal information and a copy of their passports. Those who did would be at high risk of having their identity stolen, FINRA said.

How to help your clients avoid advance-fee, phishing, or other types of investment frauds? Encourage them to view every solicitation skeptically, watching for typos and other scam tipoffs. And they should be wary of any offer that touts guarantees or otherwise sounds too good to be true. If they’re not sure the offer is legitimate, encourage them to run it by you. Or they can use FINRA’s Scam Meter here.

To help your clients learn more about investment scams, send them to FINRA’s “Avoiding Investment Scams” page here.


For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

FINRA Shows Regulatory Hand: Brokers, Pay Heed or Watch Out!

One of the benefits of working in financial services is that regulatory agencies are usually transparent about their concerns. They communicate well in advance when they’re about to crack down on something, giving agents, advisors, and brokers more than enough time to respond. FINRA is an excellent case in point.

In early January 2018, the securities self-regulatory organization released its annual Regulatory and Examination Priorities Letter, which tells member firms and registered representatives what it intends to focus on during the year. The letter, in effect, is a great resource for resolving compliance issues before FINRA gets involved.  It also helps firm executives prepare for their FINRA examinations.

The regulator’s 2018 letter was wide-ranging. FINRA announced it will focus its efforts on fraud, high-risk firms and brokers, and operational and financial risks, including technology governance, cybersecurity, and market regulations. Other priorities will include:

  • Sales practice risks, especially recommendations of complex products to unsophisticated, vulnerable investors;
  • Protection of customer assets and the accuracy of firm’s financial data; and
  • Market integrity, including best execution, manipulation across markets and products, and fixed-income data integrity.

In the body of the letter, FINRA provided further details on each regulatory concern. Several that bear a strong relationship to broker sales activities follow.

Fraud: FINRA announced that once again, fraud will be a high enforcement priority. These include activities such as insider trading, microcap pump-and-dump schemes, issuer fraud, and Ponzi-type schemes. Also, a focus will be continuing to identify cases of potential insider trading, which FINRA refers to the U.S. Securities and Exchange Commissions (SEC). Reining in scams targeting senior investors will receive a strong emphasis in 2018.

High-Risk Firms and Brokers: FINRA will focus on protecting investors from firms and brokers that take advantage of their customers. Specifically, it will look at practices such as hiring, supervision of high-risk brokers, supervision of point-of-sale activities, and branch inspection programs. Also a focus will be sales of advanced securities products to unsophisticated investors.

Sales Practice Risks: This is an especially wide-ranging area. In 2018, FINRA says it will pay serious attention to suitability violations, especially to the business practices and processes that produce suitable sales. Suitability in the context of employer-sponsored retirement plans and IRA rollovers will be hot-button issues too, as will be sales of initial coin offerings, cryptocurrencies, the use of margin loans in the sales process, and proper use of securities-backed lines of credit.

Cybersecurity: 2018 will continue to see high FINRA involvement in protecting customer assets and information against hacking and other cyber-crimes. As in prior years, FINRA will continue to evaluate the effectiveness of firms’ cybersecurity protocols—specifically their preparedness, technical defenses, and resiliency measures.

To further help member firms and their brokers, FINRA released a Report on FINRA Examination Findings. Based on what it finds when it visits firms at least once every four years, this document can also be a helpful resource in assuring firm compliance with FINRA rules in 2018 and beyond.

For further information about FINRA’s 2018 priorities, please visit its website here.

Continue to keep up to date with ethical practices by reading the latest news on  National Ethics AssociationFor information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com.