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Top Questions Business Owners Have about E&O Insurance

Top Questions Business Owners Have about E&O Insurance and Where to Buy It

As an insurance or financial-services business owner, it’s fair to assume you’re pretty sophisticated in your understanding of insurance. You’ve likely sold life insurance, health insurance, annuities, or property-casualty insurance in the past. You definitely know your way around a specimen insurance policy. However, we’ve found that agents and advisors often know more about the insurance they sell than the coverage they buy. This knowledge gap can really hurt if they fail to buy the wrong kind or amount of insurance.

To avoid such problems, here are answers to four questions that trip up insurance agents looking for E&O insurance.

  1. Do I really need E&O insurance?

It’s hard to believe, but many insurance entrepreneurs have trouble with this question. Why? Because they don’t feel at risk. They believe their knowledge and skills are sound and that their business practices are both ethical and compliant. They think this immunizes them against lawsuits. What’s more, they have great confidence in their ability to read human nature and avoid troublesome clients. Given these beliefs,  agents often conclude they have no need for E&O insurance and that buying it is a waste of money. But just as smokers often think cancer always happens to someone else, until it happens to them, insurance professionals assume they’re immune to getting sued . . . until they get sued. At that point, it will be too late to transfer their legal exposure to an insurer via E&O insurance. You can read the benefits of being covered by E&O insurance here.

  1. How much E&O insurance should I purchase?

Insurance agents who typically advise their clients to load up on as much life insurance or personal liability coverage as possible are often the first to skimp on their E&O insurance. Perhaps it’s because they feel immune to lawsuits. Or maybe they get more satisfaction from spending money on more appealing things like new cars, vacations, or hobbies. Compared with these choices, buying E&O insurance can seem mundane.

Whatever the reason, insurance agents often skimp on their own E&O insurance instead of buying more than they need, even though the cost difference between the latter and the former may be minimal. Our recommendation: be realistic and purchase the most E&O insurance you can reasonably afford.

  1. What type of E&O insurance should I buy?

At first blush, deciding on the type of E&O insurance to buy is much easier than deciding on the best form of life insurance. That’s because there are only two issues to consider. First, make sure the policy is written for your specific professional duties and regulatory license. If you’re a life/health insurance agent, then you want to buy a policy designed with your life insurance sales and service duties in mind. How to determine? Request (or download) a specimen policy and then read the insuring clause to see if all your duties are listed. If one or more are not, look for a policy with more comprehensive coverage.

Second, determine whether the policy is a claims-made policy form or an occurrence form. With a claims-made policy, the coverage in force at the time you file a claim will be the one that shields you, not the one in effect when the precipitating incident occurred. With an occurrence policy, the coverage is determined by the date of the incident, not the date of the claim.

Two lenses through which to view the claims-made vs. occurrence issue are breadth of coverage and cost. Claims-made policies will pay benefits only when claims are reported while the policy is in force. If you drop your policy and a claim arises later, you will be left unprotected, unless you purchase so-called extended reporting period. Also, if you had a coverage gap at any point in the past, a claims-made policy will only protect you back to the point at which you dropped your coverage, but not before the gap. To cover that prior period, you will need to buy prior-acts coverage.

Occurrence policies, on the other hand, have the benefit of simplicity. They protect your actions during a given policy year in perpetuity, even if you drop the policy. You don’t have to worry about buying ancillary protection for gaps either before your coverage kicked in (“nose” coverage) or after you dropped it (extended reporting period or “tail”). However, since occurrence policies don’t have gaps and provide separate coverage limits for each year the policy is in force, the protection is much broader and therefore more expensive than claims-made policies are. Which is right for you? If you prefer simplicity and more comprehensive protection, despite higher costs, then consider buying an occurrence E&O insurance policy. If you would rather save money and are confident you won’t have a coverage gap, then opt for a claims-made policy form.

  1. From where should I buy my E&O insurance?

The answer depends on whether you want to buy E&O insurance through a broker or whether you’re comfortable buying it online. The former approach might be warranted if you have a large agency and/or you’re involved with many types of financial services or risky ones such as alternative investments. To scope out your exposures, consult with an experienced E&O insurance broker. Working with such a person also gives you access to more insurers. If your situation is unique or highly risky, having a broker shop it around can help you find the right insurer and coverage at an affordable price.

However, if you have a simpler business and only sell low-risk products, consider buying from an online provider such as EOforLess. EOforLess offers E&O options for various types of financial professionals. As long as you verify that the policy covers your specific job activities, buying online can save you a lot of time and money. In fact, EOforLess allows you to establish an account, submit an application, pay for your policy, and click and bind your coverage within just a few minutes of arriving on our site. For busy agents with simple needs, online buying is usually the way to go.

In conclusion, if you’re shopping for E&O insurance, stay focused on the big-picture issues we’ve discussed in this article. But here’s the most important point of all.  When considering what to do about your professional liability risks, just follow the advice you give your clients. Understand your risk exposure, match it to appropriate and cost-effective insurance, and keep your policy in force at all costs. Follow this advice and you will be in great shape with your E&O insurance today and for decades to come. Good luck!

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Advisor Alert: CFP Board Embraces Fiduciary Principle in New Code

A federal court has vacated the Department of Labor’s fiduciary rule for retirement accounts. But the fiduciary principle is far from dead. Not only are state jurisdictions adopting their own fiduciary standards, but the Certified Financial Planner Board of Standards has just approved a new Code of Ethics and Standards of Conduct. The code requires CFP® certificants to uphold a fiduciary standard when providing financial advice to clients. The Board’s prior code only required advisors to act as fiduciaries when performing comprehensive financial planning.

After a two-year process, the CFP-granting organization decided to move to a more comprehensive fiduciary standard that will assure that its 80,000 planners serve the public interest.

“(The) CFP Board took a bold step more than a decade ago in requiring a fiduciary duty when CFP® professionals provide financial planning services. We are raising the bar even higher now with a fiduciary standard that will apply anytime a CFP® professional gives financial advice,” said Richard Salmen, CFP®, Chair of the CFP Board of Directors. “This is a monumental step forward in the evolution of not just the CFP® certification, but also of the profession of financial planning. Consumers, advisors, and firms alike will all benefit from these new standards.”

According to Salmen, the CFP Board spent more than two years working on the revised Code. Starting with the December 2015 formation of the Commission on Standards, the Board held more than 17 public forums and multiple comment periods and received more than 1,500 written comments and hundreds of oral comments. It also conducted a survey and provided multiple opportunities for the public to provide input.

The new CFP Code of Ethics and Standards of Conduct, which will take effect on October 1, 2018, requires CFP® holders to;

  • Place the interests of their clients above their own interests or those of their firms.
  • Strive to avoid conflicts of interest (or if they can’t be avoided, to fully disclose them), to obtain the informed consent of clients regarding the conflicts, and to properly manage the conflicts.
  • Act without regard to the financial or other interests of the CFP® holder, of that person’s firm, or of any individual or entity other than their clients.
  • Perform their duties with integrity, which must transcend personal gain or advantage.
  • Provide professional services with competence, which means with relevant knowledge and skill.
  • Do their jobs with diligence, which entails responding to reasonable client inquiries in a timely and thorough manner.
  • Exercise sound and objective professional judgment, refusing any gift, gratuity, entertainment, non-cash compensation, or other consideration that might compromise a financial planner’s objectivity.
  • Treat all clients, colleagues, and others with dignity, courtesy, and respect.
  • Comply with the laws, rules, and regulations governing the financial-services industry.
  • Keep confidential any non-public personal information about a prospective, current, or former client.
  • Provide sufficient information to all clients confirming the scope of all financial-advice and financial-planning engagements.
  • Provide accurate information to clients in a manner and format that fosters understanding.
  • Refrain from making false or misleading statements regarding methods of compensation, especially regarding claims of operating on a fee-only or fee-based basis.
  • Exercise reasonable care and judgment when selecting, using, or recommending any software, digital advice tools, or other technology to clients.
  • Refrain from borrowing or lending money to a client.

The Code also defines the financial-planning process, applying standards to its seven underlying steps, which include:

  • Understanding the client’s personal and financial circumstances.
  • Identifying and selecting goals.
  • Analyzing the client’s current course of action and potential alternative courses of action.
  • Developing the financial planning recommendation(s).
  • Presenting the financial planning recommendations(s).
  • Implementing the financial planning recommendation(s).
  • Monitoring progress and updating the client.

Finally, the new code reviews a CFP® planner’s duties owed to firms and subordinates, as well as to the CFP Board.

To learn more about the CFP Board’s new Code of Ethics and Standards of Conduct, read the complete document here. You can also review a commentary version, a redline version, and a side-by-side document comparing the new and prior documents.

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

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Time to Warn Your Clients about FinTech Dangers?

Financial technology (FinTech)—which delivers innovations in banking, investing, and insurance—has had a large impact on America’s financial-services consumers. But it is also posing risks to the public, especially to millennial consumers, according to a new survey of securities regulators from the North American Securities Administrators Association (NASAA).

NASAA’s recent Pulse Survey of state and provincial regulators in the United States, Canada, and Mexico revealed that one-third (34 percent) believed the rapid development of financial technology is a positive development for investors. However, 20 percent expressed concern over the potential negative impact on investors.

Roughly one-half (46 percent) of regulators said it was too early to know for sure, but cited benefits such as lower costs and greater accessibility to investments among clients not previously accessed via traditional methods. Still, they believed it was crucial to have strong investor protections in place so that greater access does generate greater fraud risks.

According to Investopedia, the FinTech landscape is especially wide-ranging. It includes:

  • Cryptocurrencies and digital cash.
  • Distributed ledger technologies (blockchain).
  • Smart contracts (using computers to automate contracts between buyers and sellers).
  • Open banking (joining banks to third-party providers such as Mint).
  • InsurTech (streamlining the insurance industry).
  • RegTech (applying technology to regulatory compliance).
  • Robo-advising (using algorithms to deliver investment advice without face-to-face human involvement.
  • Unbanked/underbanked (providing financial access to populations that traditional banks and insurers ignore).
  • Cybersecurity (assuring that fintech applications and data are protected against cyber-criminals.

Other findings from the NASAA survey are as follows:

  • Millenials have the greatest risk of fraud. The regulators viewed Millennials (consumers reaching young adulthood in the early 21st century) as the most likely consumer group to use FinTech products (84 percent). But they also believed they are the most likely to become  fraud victims (41 percent). Meanwhile, Baby Boomers were seen as the least likely to use FinTech, but the second most likely to become victims (37 percent).
  • Some FinTech is riskier than others. Regulators viewed financial technology as having a high (28 percent) or moderate (72 percent) chance of fraud. But risks were perceived to be high for specific applications, including initial coin offerings (ICOs) and cryptocurrencies (94 percent) and low for others (3 percent for robo-advising).
  • Fraudsters have the edge. Not surprisingly, more than half of regulators (56 percent) said fraudsters were the most knowledgeable about FinTech and that consumers were the least knowledgeable (94 percent).
  • Regulators and law enforcement have their work cut out for them. Three-fours of survey respondents (75 percent) said they believe preventing FinTech fraud is getting more difficult.

“The survey results show that our members are focused on the potential for fraud when it comes to new technologies and products,” said Joseph P. Borg, NASAA President and Alabama Securities Commission Director. “But the results also reflect recognition that these innovations may benefit investors, which makes appropriate regulation and investor education critical.”

Are your customers heavy or light users of FinTech? In either case, now may be a good time to warn them about the dangers of using such tools without sufficient understanding of the risks involved.

For complete survey results, go here.

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

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Click and Bind: The Quickest Way for Life Insurance Agents to Obtain E&O Insurance

Finding new clients and servicing your existing client base is more than a full-time job. Which means the last thing you want to do is spend time you don’t have on tasks you no longer need to do. Case in point: buying E&O insurance offline.

If you’ve bought errors and omissions insurance the old-fashioned way—that is, by speaking with brokers, getting multiple paper quotes, and applying and paying for it off the Internet—then you know how frustrating the process can be. It’s doubly annoying to spend time on antiquated insurance buying when you’re already pressed for time. It’s much better to click and bind your E&O insurance online, investing the time you save into more productive areas such as marketing, sales, or customer service.

Think about it: buying E&O insurance offline is so passé. Here are all the tasks that outmoded task involves:

  • Looking around for an E&O insurance broker, either by checking insurance-industry or yellow-page directories, Googling, or asking friends and colleagues for a referral.
  • Contacting each broker and setting up “get-to-know-you” meetings.
  • Speaking with each broker in person or over the phone to discuss your business and E&O insurance needs.
  • Waiting days or weeks for the brokers to shop their markets for an insurer with an appetite for your risk and the expertise to insure it.
  • Waiting even longer for the broker to package up several quotes from insurers in a hard-copy proposal.
  • Waiting for the proposal to arrive in the mail or via e-mail.
  • Reviewing the proposal and deciding which broker/insurer is most appropriate and cost effective.
  • Contacting the winning broker and making arrangements to pay for the policy.
  • Waiting for the insurer to process your payment and remit a coverage confirmation.
  • Receiving your new policy and reviewing it to make sure it’s correct.

Is it any wonder the insurance entrepreneurs at the National Ethics Association and its E&O insurance unit, EOforLess.com, envisioned a better approach? With their errors and omissions online portal, EOforLess.com, you can now buy professional liability insurance with zero aggravation in 10 minutes or less. Here’s what our simple online process entails:

  • Visit EOforLess.com.
  • Click on the specific type of E&O insurance you need based on your license type—i.e., life insurance agent, property-casualty insurance agent, registered investment advisor, or real estate agent/broker-owner. Then click on “see plans” to review the policies available for purchase.
  • Click on “view details” to drill down on your policy specifics. This will include a full list of features and benefits and other contractual items. If you are serious about due diligence, you can also download a complete specimen policy for careful reading.
  • After you review the details and decide the policy meets your needs, click on “buy now” to begin the purchasing process. This involves establishing an EOforLess account and selecting your payment and billing-frequency preferences.
  • Next, click on “Pay & Proceed to Bind Your E&O,” which will bring you to the underwriting screen.
  • If you can answer “no” to all of the underwriting questions, click “pay” to purchase and bind your errors and omissions insurance coverage.
  • Finally, click “print” to receive your errors and omissions insurance proof of coverage. This is the document you’ll provide to your FMO and the insurers with whom you have appointments.

Could buying E&O insurance be any easier? And could the advantages of online buying be any more compelling? For example, when you buy E&O insurance from EOforLess.com, you will be able to get an insurance certificate in just a couple of minutes. This is important when a client has a unique need for insurance for which you need to secure a new insurer appointment. Immediate click and bind allows you to get appointed and close the sale without delay.

Or what if you’re new to the industry and need to find E&O insurance right away? Since you don’t know many people in the business yet, it will be hard to get referrals to a good E&O insurance broker. Rather than spin your wheels, you can just buy your coverage in minutes from EOforLess.com.

Finally, if you lapse your current E&O policy by mistake and don’t want to reinstate it with your prior insurer, you can secure a new one in minutes from us, minimizing a potentially dangerous E&O coverage gap.

Any way you look at it, click and bind is the way to go when buying E&O. And EOforLess.com is your place for quality coverage at a price you can afford. Is your policy up for renewal soon? Then visit the pioneers of click and bind today for an E&O solution you’ll appreciate tomorrow.

 

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