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The Top Three Risks of Not Having Errors and Omissions Insurance

Do you own or operate an insurance or real estate agency? Are you a solo insurance agent or real estate agent or broker? Then you’re likely familiar with the potential risks you face from customers who claim you’ve done them financial harm. However being aware of these risks and actually protecting yourself against them are two different matters. Awareness doesn’t cost you anything; protecting yourself involves purchasing errors and omissions insurance, otherwise known as E&O insurance or professional liability insurance.

When faced with the costs of buying E&O insurance, some insurance and real estate professionals opt to remain uninsured. Perhaps they think they’ll never make a mistake or if they do,  they can make amends outside of court.  Or they may decide to self-insure their errors and omissions exposures, figuring that any claim that arises will likely be small enough to finance out of operating revenue. Wrong on both counts!

First, no human is perfect. Most real estate agents or insurance producers will make a serious mistake at some point in their careers. In fact, many E&O insurance brokers quote the statistic that one in seven agents will be sued at some point in their careers. Whether that statistic is still accurate is hard to say. However, we can say that betting your financial future on the belief that you’re perfect is not a sensible risk-management strategy.

Second, it’s true that many errors and omissions claims never amount to more than a few thousand dollars. But many add up to much, much more. According to research from an errors and omissions insurer serving life and health insurance agents, the average claim costs for various lines of business can be significant. Here’s how they stack up:

  • Group life: $10,808
  • Individual life: $40,479
  • Annuities: $20,386
  • Disability insurance: $149,116
  • Pension products: $71,068
  • Financial products: $12,270

But here’s the rub. The figures above are averages, so outlier claims can involve much higher costs. Would you like to be the life insurance agent facing a $250,000 disability insurance court judgment . . . without errors and omissions coverage?

For this reason, we encourage you to seriously think about the risks you face when doing business without adequate E&O insurance. Here are three of the major ones:

#1: The risk of bankruptcy. The most important benefit of E&O insurance is that it provides a financial cushion in case a court renders a big judgment against you. Depending on the size of this order, you might be forced to liquidate all of your business and personal assets. If these aren’t enough to make good, you might even have to declare bankruptcy. Given the disruption a bankruptcy can bring, doesn’t it make more sense to carry sufficient errors and omissions insurance instead?

#2: The risk of selecting the wrong attorney. Without having E&O coverage, you might end up having to hire your own attorney. Since this is something you don’t do every day, you might retain someone who will make your case disappear via sheer legal brilliance. Then again, you might end up with a loser who bungles your case due to incompetence, inattention, or lack of experience. Not only will you have to pay for the latter person’s legal fees, you will also be out of pocket in terms of any judgments or court expenses the court levies. Now, had you purchased E&O insurance, your insurer would be required to provide you with an attorney.

#3: The risk of having to represent yourself. If you opt to self-insure your errors and omissions risks, you might not have the money to retain a smart attorney. In that case, you might be forced to defend yourself. This is a spectacularly bad scenario. Why? Because you are an insurance or real estate professional, not an attorney! Representing yourself will likely result in you making mistakes that can sabotage your case. As the truism goes, someone who represents himself in a court of law has a fool for a lawyer. So given the alternatives of being your own attorney or having your E&O insurer provide you with one, which is the more sensible option?

Given the risks you’d face as an uninsured insurance or real estate agent, wouldn’t it make more sense to assign your operating risks to an insurance company in exchange for paying an E&O insurance premium? Doing so will provide you with four key benefits that are well worth the cost:

  • The reduction of financial uncertainty.
  • Assistance with handling a financial dispute (via access to a company-appointed attorney and E&O claims adjuster).
  • Stress reduction, since being insured will help you to worry less about losing your case.
  • Bankruptcy protection, so that a large court judgment won’t necessarily spell the loss of all your financial assets.

Assuming these benefits make sense, consider the added benefit of purchasing your errors and omissions policy online from a provider such as EOforLess.com. We are the pioneer in online click-and-bind E&O insurance, with substantial experience working with the top insurers and program administrators. Plus, our long track record of providing insurance and real estate professionals like you with affordable and high-quality E&O coverage is second to none. To check out your errors and omissions insurance policy options, please visit our website today.

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Top Life Insurance Claims of 2017 . . . Keep Your Business Protected

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.
  • 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 client on your hands.

Given the wide range of 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 retain a defense attorney, 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 an E&O 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.

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The E&O Dangers of Selling Health Insurance

Health Insurance Agents: The Claims You Should Protect Against

Although the advent of the Affordable Care Act (ACA) gave millions more Americans access to health insurance, it resulted in dramatic shrinkage in the commissions insurance companies pay to agents. This has resulted in large numbers of agents fleeing the business to sell other forms of health insurance or allied products such as Medicare-related plans or final expense. However, whether you have left the individual health insurance market or have re-focused your efforts on Medicare insurance or some other product, you still need to protect yourself against E&O lawsuits.

It’s no wonder the risk of selling health insurance is still high. According to various experts, the per-capita cost of providing healthcare to America’s citizens is roughly $10,000 per year. Consumers either pay for all of that if they’re uninsured or a portion of it if they’re insured. In either case, purchasing medical services is a common event for them. For those without insurance, it can also be a challenging, even frightening, event. For this reason, buying healthcare—and health insurance—is a high-involvement purchase. People care a lot about the care they receive and pay great attention to its results and costs. As you can imagine, when something goes wrong, either with their healthcare or their bill, they can get extremely upset. If they don’t receive a fair outcome, they may take legal action against their medical providers and their health insurance agents—against you!

For this reason, it makes sense for life and health insurance agents to carry comprehensive E&O insurance to pay for legal fees and for legal judgments or settlements in the event they get sued. What are the claims they should protect themselves against?

• One of the most common E&O insurance claims is for misrepresentation. This might occur when you claim a health insurance product has a feature it doesn’t actually have. You don’t have to do this with fraudulent intent. If you mislead a customer through ignorance, you are still on the hook for misrepresentation. Case in point: say you mistakenly tell a prospect she is covered for a year’s worth of skilled nursing care via her Medigap insurance policy. The women ends up getting sick, hospitalized, and then needs six months (or 180 days) of skilled nursing. Unfortunately, 80 days of that care will go unreimbursed since Medigap policies limit coverage to only 100 days of skilled nursing. Given the daily cost of this care—about $250 a day for a private room—the client would need to come up with $20,000 out of pocket to cover her bill. Do you think she will be a satisfied customer or one itching to sue?

• Another common cause of health insurance E&O claims is what’s known as “failure to explain.” Unlike misrepresentation, in which you either accidentally or deliberately misstate a policy’s provisions, failing to explain means you overlook a policy detail or explain it poorly. In either event, your client will buy something he or she doesn’t understand. For example, most health insurance policies have complex dynamics of premiums vs. cost sharing. Prospects can either elect to have the lowest initial premium (assuming they never get sick), but with high-cost sharing via deductibles, co-pays, and co-insurance. However, a policy with low premiums may actually generate substantial out-of-pocket costs for a consumer who does get sick. If you stress the attractiveness of the low premiums without discussing the risks of high out-of-pocket costs in case of illness, then you’re creating a potential E&O liability for failure to explain.

• A third frequent cause of claims relates to inadequate fact-finding. If you don’t take the time to fully understand a prospect’s needs, the chances of recommending an inappropriate solution increases markedly. For example, imagine trying to help someone fill the gaps in traditional Medicare coverage. As you may know, Medicare does not cover services such as routine eye exams and glasses, dental care and dentures, outpatient prescription drugs, custodial care, and most chiropractic services, among other things. However, there are five potential insurance strategies to fill these gaps, each with underlying options. If you don’t fully understand the prospect’s situation, the odds of recommending the wrong Medicare option are high. Hello, lawsuit!

• Finally, the fourth frequent cause of E&O claims are, well, claims. In fact, this is where the rubber meets the road.Whenever a client develops a serious illness likely to generate hundreds of thousands of dollars in medical expenses or more, you are automatically looking at a potential E&O problem. Why? Because if the insurer mishandles the transaction (i.e., delays payment or pays the wrong amount) or denies the claim entirely, your customer may end up suing the insurance company and you for having sold the policy. Whether the insurance company was justified in denying the payment is a moot point. You will still need an attorney to get the case thrown out. Without E&O insurance, that expense will be on you.

In short, selling health insurance (especially Medicare products) can be emotionally and finally rewarding in the ACA era. But it can also be risky if you make a mistake or forget to do something important. If your error or omission results in a substantial financial loss to the client, watch out! You may be on the receiving end of a life and health insurance agent E&O lawsuit. But the good news is, having comprehensive E&O protection in place before you get sued will mitigate most or all of the lawsuit’s financial impact. Protecting yourself in this manner will not only give you  peace of mind, it will also protect your assets against litigious clients. Make sense?

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Give Your Clients Peace of Mind with E&O Insurance

Six Trust Building Strategies for Life Insurance Agents

Trust doesn’t just happen. You can’t create it with a snappy call to action or a clever objection response. It’s something you have to earn daily through your words and actions. For this reason, building trust requires a deliberate, multi-faceted strategy, nurtured steadily over months and years. What goes into this effort? Five powerful trust-building tactics, ending with an E&O insurance kicker.

Adhere to Five Ethical Practices to Instill Trust

It’s hard to deny that contemporary selling depends less these days on product appeals and hard persuasion techniques and more on information sharing and low-pressure counseling. This is especially true with Millennial clients, the industry’s prime target market now that Baby Boomers are retiring in great numbers. The last thing such prospects want is a life insurance agent launching aggressive sales salvos at them. Instead, they want to collaborate with their agents to solve problems. For this reason, ethical sales practices are an absolute requirement for creating trust with such buyers. Here are five essential ways to accelerate this process, especially with younger prospects.

1. Commit yourself to total credibility throughout the sales process. In today’s environment, it’s important to avoid misleading statements or exaggerations. This means you should avoid dubious claims and support your statements with third-party, objective evidence. In short, your words and actions must always be 100 percent beyond reproach.

2. Be completely reliable in terms of the promises you make. Put yourself in your clients’ shoes. How will they feel when their life insurance agent fails to return calls, to complete the research he committed to, or forgets to execute a requested service transaction? Disappointed is probably an understatement. Frankly, it won’t take many dashed promises for them to lose all faith. Lacking faith, they will be more likely to defect to a competitor. Solution? Sweat the small stuff, so clients can count on you every time.

3. Become client focused, not self-focused. We all know how much fun it is to speak and how boring it can be to listen to others. But listening to your clients is crucial if you want to establish long-term trust. It’s the only way you’ll really understand their fears, problems, objectives, and constraints. But listening is just the starting point. You have to commit to becoming a “high-touch” agent, staying in close contact, especially when markets are volatile. Finally, being client-focused hinges on you safeguarding their personal information, documents, and confidences. Never sharing client details with a colleague, family member, or friend will accelerate the trust-building process.

4. Commit to total transparency both during and after the sales process. The more information you convey about yourself and your firm, above and beyond the required disclosures, the quicker you’ll attain trusted-advisor status. To this end, encourage prospects to check you out using third-party sources such as FINRA’s BrokerCheck, the Better Business Bureau, and the National Ethics Association (sponsor of EOforLess).

5. Adopt a fiduciary mindset. Even if you are not legally required to act as a fiduciary, consider acting as one anyway. When prospects and clients see you are putting their needs ahead of your own, that you place ethics above self-dealing, they will come to trust you implicitly.

Position Yourself as a Responsible Life Insurance Agent

In addition to the above steps, strive to demonstrate you are a responsible financial professional. In others words, show prospects that your business practices are reasonable and that if you make a mistake or fail to do something important, you will make things right.

Start by discussing how you do business—that your recommendations derive from rigorous fact-finding and that all the financial products (and companies) you recommend have been rigorously vetted. What’s more, convey that everything you do on their behalf is mainstream and that your operations and procedures are bulletproof, especially when it comes to data security.

Then make a point of saying that you practice what you preach as a life insurance agent. Not only do you help your clients mitigate their financial risks through sound planning, you also do the same for your own business. This means you have financial backstops in place in case a financial-product company fails, a client gets hurt while visiting your office, or you make an error that financially harms a client. These protections take the form of SIPC insurance on securities purchases, state insurance guarantee funds for life policies and annuities, commercial general liability insurance (CGL) for office visitors, and E&O insurance for your professional mistakes and omissions.

Now here comes the kicker. Having E&O insurance from EOforLess may well be the most important element of all. Not only does it give clients peace of mind, it frees you to do your best work. In other words, E&O insurance coverage helps you  focus exclusively on your work rather than always second-guessing whether a recommendation exposes you to professional liability.

At the end of the day, building trusting client relationships will accelerate your success in the life insurance industry and help you to achieve your long-term financial objectives. If this doesn’t create peace of mind for you and your family, what will?

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