Business Safety Net: How E&O Insurance Protects You When You Fall

Just as circus aerialists have safety nets to catch them when they fall, financial professionals in insurance, investments, and real estate buy E&O insurance to protect themselves against client lawsuits. They, like highly skilled trapeze artists, have worked hard for years to hone their skills. Yet they realize even they can make a mistake—can fall off the high wire, if you will—and hurt themselves and their companies financially. What about you? Do you have a business safety net in place to protect you if a client comes after your assets?

If not, it’s important to consider why not. Are you assuming you’re perfect and will never make a mistake? Then think again because the ranks of bankrupt financial professionals are filled with those who thought they were perfect. And perhaps they were . . . until their negligence harmed a client who then sought to recover their losses in court.

Perhaps you believe you can self-insure the costs of future E&O insurance claims. And maybe you’ll easily make good on a typical annuity-related claim of about $20,000 or one relating to group life insurance coverage of roughly $10,000 (according to a major E&O insurer’s claim study). But what if you lose a case relating to pension coverage (average claim cost: $71,000) or to disability insurance ($149,000)? Will you be able to pay for those judgments out of your personal assets? And what about outlying claims worth $500,000 or more. Would you have enough liquid assets to cover such a large payment?

Or perhaps you discount getting sued because your clients like you and have never sued you in the past. That may well be true . . . until the day one begins to harbor a grudge against you through no fault of yours. If that person files a nuisance lawsuit against you, will you have the time, energy, and expertise to dispense with it?

In all these scenarios, the typical excuses for not having E&O insurance don’t hold water. In short, if you’re doing business in the fields of insurance, investments, or real estate, your risk of getting sued is considerable. And the odds you’ll lose such a lawsuit and suffer a large judgment are also considerable. So perhaps it’s time to ask yourself a hard question: Are you equipped to weather the financial impact of losing a large E&O case? If not, what should you do?

The answer is clear: transfer your liability exposure to an insurance company by purchasing comprehensive and affordable E&O insurance. By moving your risk to an insurer in return for paying periodic E&O insurance premiums, you substitute unknown risks for predictable outcomes. Most financial professionals find this to be a trade well worth making. Here’s why.

  • First, as we just mentioned, buying E&O insurance reduces your financial uncertainty. This means you’ll be able to focus on moving your business forward without having to always worry that your next client will be the one to sue you.
  • Second, when you have E&O insurance, you’ll have quick and ready access to a vetted defense attorney. Instead of having to rush around to identify candidate attorneys and then select a capable one—which is not an easy task even in the best of times—you’ll have one assigned to your claim within a few days. This means you can focus on your defense immediately instead of spinning your wheels.
  • Third, having E&O insurance is a huge stress reliever. When you don’t have to worry about a large lawsuit putting you out of business in the future, you can focus on doing good work in the present. Who knew sleeping well at night could be so enjoyable?
  • Fourth, being insured means you never have to worry about being saddled with a legal judgment that could potentially force you into bankruptcy. Every year, thousands of financial professionals wind up broke and bankrupt because they lost a big lawsuit and lacked the means to pay a judgment. Had they purchased E&O insurance, their insurer not only would have paid the claims on their behalf, they would have also covered their attorney fees, court costs, expert witness fees, arbitration/mediation costs, and all costs related to the settlement process. If through a miracle these defendants were granted a do-over, do you doubt for a minute they’d buy E&O insurance as quickly as possible?
  • Fifth and finally, when you buy E&O insurance you essentially are telling your clients you have their best interests at heart. That’s because having E&O insurance conveys to them that you are a true financial professional who is committed to making amends should you ever make a mistake that harms them. There is no one action that builds client trust as quickly this.

In conclusion, if you are currently running your business without a safety net, consider the benefits of protecting yourself with affordable, high-quality E&O insurance from EOforLess.com. This can be the difference between you surviving a lawsuit and moving ahead with your business or you losing your assets and livelihood in one fell swoop. We hope we’ve convinced you that the former is a much better alternative. Good luck!

Insurance policies are the hallmark of a professional startup

When people launch a financial or real-estate startup, the temptation is to start doing business with as few fixed costs as possible. This might involve leasing lower-grade office space, hiring 1099 virtual assistants rather than a full-time salaried staff, or skimping on insurance and employee benefits. This makes sense for companies that have yet to generate significant revenue. But it can also generate its own problems. Here’s why.

One of the challenges of starting a new firm is making the right impression with prospects, clients, other businesses in the community, and potential employees. Acting with professionalism is the way to do that. How so? By conveying a strong brand, having well designed procedures, and implementing a safety net for your business in case something goes wrong.

Part of having a safety net is establishing a cash reserve. The other part is having a full menu of business insurance to protect you against just about any risk. This includes having . . .

  • general liability insurance,
  • property insurance,
  • workers’ compensation coverage, and
  • E&O insurance.

The latter form of insurance may be the most important of all for financial and real-estate professionals who provide professional services. Making the wrong client recommendations or failing to do something important can result in clients suffering large financial losses. E&O insurance provides funds for a legal defense, as well as cash to pay for legal judgments should the professional lose in court. Having E&O insurance is the hallmark of a well managed startup. It shows . . .

  • that you take your business seriously,
  • that you understand the risks of doing business, and
  • that you are committed to make good on legitimate claims against you.

In short, it conveys that you are a real pro committed to running your business the right way,

Avoid Mistakes in the Beginning

Just as startups want to minimize overhead at the outset, they also want to avoid making mistakes in the beginning that can cripple their firms. One way to do this is to make a serious commitment to assuring compliant business practices and ethical values. Learn all  relevant regulations that affect their business and strive to adhere to them. This is the minimum commitment a startup should make in order to do business responsibly. But it doesn’t stop there. They must also go beyond compliance requirements and commit to ethical values in every domain of their business. Values are the “rules of the road” that startups follow when there aren’t black-and-white compliance guidelines to follow.

Another way to view the distinction between compliance  and ethical values is to consider the difference between  a commodity product or service and one that’s differentiated by higher-level benefits or services. In most financial and real-estate startups, the owners will just try to meet the minimum compliance requirements, which unfortunately positions them as a commodity provider. The more sophisticated and creative entrepreneurs will try to exceed the minimum and imbue every facet of their firms with client-centered ethical values. This results in a stronger brand positioning as well as a lower risk potential from an E&O insurance perspective.

Avoiding mistakes in the beginning also involves putting the time in to learn all aspects of your business model: the features and benefits of our products, the steps in the sales process, the details of customer service, and the workings of your office technology and procedures. The time to master all of these details is before you launch the business, not after. Doing the latter is an invitation to making a mistake and getting sued.

E&O Insurance Covers the Cost Associated with Lawsuits

Of course, getting sued is exactly what an entrepreneur doesn’t want to happen in the startup phase. Having a client sue you is not only traumatic, it can distract you from doing the essential tasks your new business needs to grow. And if you lose in court, a legal judgment can amount to tens of thousands, if not hundreds of thousands of dollars. There aren’t many start-up businesses than can incur a six-digit financial hit and not go under. Fortunately, E&O insurance can come to the rescue in times like this because it covers the cost associated with lawsuits.

What does it actually provide?

  • First, your E&O insurance will recommend an attorney to defend you and pay for that person’s fees and expenses.
  • Second, your insurer will appoint a claims adjuster to handle your case so you can focus on working in your startup.
  • Third, your insurer will provide cash for legal judgments should you lose in court. As we just mentioned, having to pay for six-figure legal judgments, as well as court costs, may well put your promising startup six feet under.

In short, if you are contemplating starting up a new financial or real-estate business, strive to act professionally in every aspect. This involves:

  • Projecting a strong image.
  • Having a cash reserve.
  • Implementing well-designed procedures and policies.
  • Instituteing a financial backstop in the form of E&O insurance so that one client lawsuit doesn’t put you out of business.

Another reason to protect yourself? Launching a startup is a lot of fun. It’s wonderful creating something that never existed before. Every day will literally be a new adventure. But if you’re uninsured against the errors and omissions you might make,  you won’t be able to fully enjoy the ride, since you’ll always be second-guessing your decisions and worrying about which client relationship will go bad. Don’t let this happen to you. Insure your startup today with affordable, high-quality E&O insurance. And since time is literally money for busy entrepreneurs, consider buying your coverage  from a convenient online provider such as EOforLess.com. In most cases, you’ll be able to shop, apply for, and print your insurance binder within just a few minutes.

Ultimate Policy of Liability Protection

Every financial professional doing business today—life/health insurance agents, property-casualty insurance agents, securities brokers, registered investment advisors, real estate agents and broker-owners—operate in an online environment. They might not actually close insurance or financial transactions online. But they use the Internet to support nearly every facet of their sales and service operation. Thus, even financial professionals who sell their wares face-to-face with prospects still are highly exposed to Internet risks. Which is why every online business needs E&O insurance in order to minimize financial losses related to electronic data breaches and cyber crimes.

Financial professionals should realize they are exposed to online risks just as classic e-commerce firms are. Even though they are not selling tangible goods from an online storefront like Amazon, they use the Internet to speed the processing and issuance of intangible financial services. Plus, they collect a great deal of information about prospects during the sales process, which resides on their agency computers and is subject to data breaches. Here are just a few of the risks to which online insurance or financial businesses are exposed:

  • The threat of individual hackers. Hackers no longer target only large corporations, they frequently attack small and medium-sized firms as well. Breaking into company data systems with weak, improperly configured data security, hackers can identify, steal, and sell your prospects’ and clients’ personal information before you even have realize a data breach has occurred. Worse, hackers can be lone wolves, both domestic and foreign, as well as members of large international crime syndicates. With the talent and resources of criminal organizations behind them, hackers often have a field day preying upon financial-services professionals, many of whom are older and less knowledgeable about computers.
  • The threat of internal employees. Although external hacking might originate from countries thousands of miles away, it also can result from the actions of malicious employees. For example, a survey by the Ponemon Institute found that nearly 60 percent of employees who had been laid off or fired or who had quit their firms admitted to stealing company financial data or confidential customer information. Many such events are the result of companies hiring candidates without effective pre-employment screening.
  • The threat of mobile devices.  Financial professionals often work at home or at client locations, using their mobile devices to communicate with their agency databases. However, if they lose their phone, tablet, or laptop or their device gets stolen, criminals can both access data residing on that device or use it to break into the main-office computer. As a result, mobile computing has become one of the leading sources of cyber breaches and related criminal activities.
  • The threat of third-party service providers. Financial professionals often work with service providers who facilitate insurance/investment/real estate transactions. These might include motor vehicle operator data firms, home inspection companies, or medical exam providers. Whatever the type of firm, hackers can intercept customer data flowing from the service provider to the agent, causing loss to the customer as well as to the financial professional.

In short, any financial professional in business today is exposed to extensive cyber risks. For example, according to the Ponemon Institute, the average cost of a 2014 data breach was $214 per record, which can really add up when thousands of records are involved.  And that number is even higher today. One reason these costs are so high is that data breeches trigger mandated customer disclosures and remedies (required in 46 states).

Bottom line: data breaches can cause huge financial exposures to financial professionals resulting from claims from victimized customers as well as from mandated regulatory expenses. Even practitioners in small agencies—with one or several employees—must prepare themselves to withstand the full financial impact of online cyber attacks.

The good news? Contemporary E&O insurance policies are designed to protect financial professionals against traditional losses as well as against modern cyber risks. This adds up to the ultimate policy of liability protection.

Designed to Protect Your Finances Should You Get Sued

All E&O insurance policies are designed to protect your finances should you get sued. But modern policies define “claim” broadly so that you’ll be protected against traditional as well as selected cyber-related risks. The goal: to make sure financial losses that result from errors and/or omissions in how you conduct your professional duties will not wipe you out financially.

Traditional losses include things such as failing to properly assess a client’s insurance risks or tolerance for investment risk or not responding to a service request on a timely basis, resulting in financial loss to a customer. But the range of contemporary cyber risks ups the ante greatly. This is why the latest policies often include network risk and privacy claim endorsements. This gives traditional E&O insurance policies the ability to protect financial professionals against the financial implications of not properly doing business online.

Case in point. EOforLess.com, a leading online provider of E&O insurance for financial professionals, now includes client network damage and privacy claim endorsements in its life agent professional liability policy form. The former means insureds are covered against written demands for monetary damages due to an alleged security breach or electronic infection that caused network damage to a customer’s network. This damage must have occurred during the insured’s rendering of professional services.

Similarly, under the latter endorsement, privacy claims are defined as demands for monetary damages resulting from the insured’s act or omission resulting in the customer’s privacy injury and/or identity theft. Again, the alleged damage must have occurred while the insured was engaging in his or her professional duties.

What this means is that financial professionals who purchase E&O insurance through EOforLess.com also have some protection against cyber risks, subject to the full definitions contained in the network risk and privacy claim endorsement (see policy). This is in addition to the protection they already have against traditional errors and omissions committed offline.

You Can Protect Yourself Against It

So whatever the risk financial professional face—online or offline—you can protect yourself against it with a high quality, affordable E&O insurance policy from EOforLess.com. This coverage will pay for your attorney fees, court expenses, and the costs of losing a legal battle, subject to your policy limits. In today’s rapidly changing environment, a mix of traditional and high-tech protection is exactly what financial professionals need. Are you fully protected today or are you subjecting your business to unnecessary risks?

For more information about securing E&O insurance for your business, visit EOforLess.com today for more information.

Reflection

As a financial-services professional, you’ve worked hard to get where you are today. But your success is no accident. It’s attributable to four key factors:

  • First, you set your sights high. Early on, you decided you wished to pursue not just a job, but also a professional career. That means you were willing to acquire a rigorous body of knowledge, to hold yourself to high standards of ethics, and to work hard to make a difference in your clients’ lives.
  • Second, you have always believed that your actions convey not only your professionalism, but also the standing of your industry. Which means you recognized that doing something that hurts your clients affects two parties: your customers and your industry. For this reason, because of your professionalism, you’ve attempted to speak and act in appropriate ways at all times.
  • Third, you’ve tried to always take the long view of success. This means evaluating potential decisions not only as ways to make money in the short term, but also as a pathway to achieving a sustainable success. Because of this, you may have walked away from short-run opportunities to enrich yourself that might ultimately put you on a weaker financial and/or ethical footing later on.
  • Fourth and finally, you’ve viewed your professionalism as something that’s precious, priceless, and difficult to repair once tarnished.  As with the third reason, this attitude has helped you to avoid actions or words that could undermine the years of work you’ve put into becoming a successful professional in financial services.

Despite these factors, people are human. Which means they are susceptible to doing the wrong thing or forgetting to do something, either of which can financially harm their customers. These so-called errors & omissions can unravel years of hard work, leading to devastating legal judgments, tarnished professional reputations, and failed businesses. The key word here is “can.” That’s because by taking proper steps, you can prevent these negative consequences from ever happening. But first, you must realize that errors & omissions insurance can safeguard your professional life.

 Avoiding

The key is avoidance. Take steps ahead of time to protect your business with E&O insurance. Don’t assume you’ll never make a mistake. Don’t expect your clients to always love you. Don’t think your professionalism and charm will immunize you against lawsuits. These are all comforting notions, but in the cold light of day, they are illusions.

Despite your best intentions and hard work, you can get sued and the impact of losing in court can change your life forever. And don’t forget. If you have a family, short-circuiting your ability to earn a living in your chosen career can affect not only you but also your spouse and/or children. Given how much is at stake, avoiding the financial devastation of E&O disputes is an essential step in protecting your financial future.

Covering

“Covering for you” is an apt way to think about your E&O insurance. We don’t mean this in the sense of lying for you or helping you pull a fast one on your clients. What we mean is covering your business with a blanket of security that repels external attacks and keeps you and the people you care about safe. This is what E&O insurance—professional liability insurance—is designed to deliver.

E&O insurance starts by providing the cash needed to retain an attorney on your behalf. Many financial professionals think they can settle client claims on their own. But as the old saying goes, “Anyone who tries to defend him or herself in court has a fool for an attorney.” With so much at stake, it’s important for financial professionals to have an astute legal advisor by their side to defend their rights in court. If they were wise enough to purchase E&O insurance, their E&O insurer would quickly refer them to a skilled attorney and then pay that individual’s fees, from the beginning of the case all the way through to its final resolution.

What’s more, E&O insurers will also assign a claims adjuster to your case in order to manage all the details involved in investigating the plaintiff’s allegations and in shepherding the case through the legal process. E&O insurance also provides coverage for ancillary charges such as expert-witness fees, office expenses, and arbitration or mediation costs.

But the most important benefit of having E&O insurance is this: If you lose in court and the judge orders you to pay damages to the plaintiff, then your insurer—not you—is responsible for making that payment. As we’ve said many times in the past, depending on the nature of your business, E&O judgments can range from tens of thousands of dollars to hundreds of thousands. Unless you are independently wealthy, you will not want to self-insure an expense that large. It can literally destroy your business and wipe out your life’s savings.

At the end of the day, being a professional involves all the things we mentioned earlier, but also one final thing. It demands an ability to envision not only the fruits of a successful business but also potential negative outcomes in the future. The ability to think one step ahead—and to make sensible preparations for harmful contingencies—may well be the most professional trait of all.

For more information about securing E&O insurance for your business, visit EOforLess.com today for more information.