Do You Really Need a Full Policy of E&O Insurance for Your New Business?

 

As a financial professional, do you lead a full life—rich with family, friend, hobbies, travel, and the like?

Do you enjoy buying gifts for your small children or helping your grown ones achieve their life goals?

Do you still get a lot of enjoyment from your career, both from a financial and client-service perspective?

If you answered, “yes” to all these questions, then you have a life full of meaning and joy. But what would happen if you lost your job or if your firm went under? Or what if you lost all your savings due to a prolonged client dispute? What would your life be like then? Would it be as enjoyable and worthwhile as it is today? Probably not. Which is why you should take steps today to protect your business, career, and family against the devastating impact of a client lawsuit. How? By purchasing affordable and comprehensive E&O insurance.

This recommendation is even more important for financial professionals who are new to the industry or who have just set up their own firms. These transitions greatly increase the risks of getting sued, making the need for insurance much more acute.

What a Full Policy of Errors & Omissions Insurance Can Do for Your New Business

You’ll notice our repetition of the world “full.” That’s because when it comes to protecting your busy, enjoyable life, there’s no substitute for a high-quality, comprehensive E&O insurance policy, especially one provided by a top-rated insurer and a well regarded administration firm. What can a full policy of Errors & Omissions insurance do for your new business?

For starters, it can provide peace of mind. You can go about working in your business without constantly second-guessing yourself and worrying about whether an unhappy client will sue you.

E&O insurance also provides financial benefits in the event you do get sued. These take the form of helping you retain and pay for an attorney, covering the administrative costs that your attorney might incur while defending you, and paying for legal judgments should you lose a case in court. Plus, in the latter case, your E&O policy will pay for any court costs a judge imposes on you.

Errors & Omissions PolicyAnd there’s the value of not having to deal directly with a plaintiff and keeping tabs on your case while it wends its way through the legal system. With E&O insurance, your insurance company will assign a claims adjuster to help manage the details of resolving your claim so you can focus on continuing to work in your business.

What’s more, E&O insurance policies typically cover other expenses that many financial professionals never think about:

  • The costs of retaining an expert witness to buttress your case.
  • Money needed to hire an arbitrator or mediator should you and the plaintiff decide to pursue an alternate path to dispute resolution.
  • Finally, expenses incurred during the process of settling the claim.

Put all that together and it’s easy to see that a full policy of errors & omissions insurance will greatly preserve your ability to enjoy life, both today and decades from now.

The Best Way to Limit Your Accountability for Errors & Omissions

Buying and keeping an E&O insurance policy in force is the best way to limit your accountability for errors & omissions. However, as important as that is, it’s also important to prevent the need for ever having to use your E&O policy. Appropriate risk management is the answer. To that end, here are ten tips to help you avoid client disputes from interfering with your life:

Tip #1: Be a True Professional.
There is no short path to professionalism. Do your homework and know what your clients need and which products best meet those needs. Keep expanding your knowledge base by earning industry designations and completing continuing-education coursework. And always stay up to date with your regulatory requirements.

Tip #2: Take Responsibility for Due Diligence.
Never delegate due diligence to a third party. This means don’t take another advisor’s or another company’s word at face value. Investigate all product claims and fine print yourself so you can be sure your clients will be well served. Also, make sure all products and investment programs you offer are legitimate and fully compliant with regulatory requirements.

Tip #3: Don’t Stray from Your Specialty Area.
Only recommend products you are comfortable with and have sold in the past. If you’re uncertain, get support from your marketing organization or from another advisor in your office.

Tip #4: Follow All Solicitation Rules.
Make sure your solicitation materials are clear and don’t misrepresent your offerings. And avoid designing your own marketing materials; instead, rely on company-provided materials. But if you do create your own, be sure to secure all required approvals.

Tip #5: Engage in Full Disclosure.
Provide all required disclosures and candidly answer all client questions about your track record, business approach, and third-party relationships.

Tip #6: Complete Thorough Fact-Finding
Always schedule enough time to do comprehensive fact-finding with a prospect. Dig up and record all relevant facts, especially regarding appetite for risks. Then link all recommended solutions back to the facts you uncovered.

Tip #7: Always Make Suitable Recommendations
Make sure to present only suitable solutions, giving the prospect several from which to choose. After prospects agree to purchase your product, review their reasons for buying and get their agreement in writing.

Tip #8: Educate Clients about What They Bought.
Make sure clients understand how their products work—benefits, costs, exclusions and the like. Misunderstanding features and benefits is a major cause of E&O disputes, so be sure to fully educate your clients early in the game.

Tip #9: Leave a Paper Trail.
This may well be the most important technique of all. Always document key decisions, including those to refuse coverage, in writing. You’ll need this paper trail in order to defend your actions in court.

Tip #10: Avoid and Then Resolve Client Complaints.
The best complaint is the one you never have to deal with. Try to smoke out client dissatisfaction early in the relationship before it progresses into a legal dispute. How? By paying close attention to what they say about what they bought and about your personal service. Also, observe what they don’t say – their expressions, body language, etc. In most cases, there will be weeks, if not months, of warning before a client sues you. Take action during this period to resolve any festering discontent before it becomes a formal complaint or legal action.

The point is this: everyone wants a life full of joy and satisfaction. But it’s hard to live that life when you have financial risks hovering over you. It’s even harder to enjoy yourself when you’re looking at spending your life’s savings on a legal judgment that could have easily been funded with high-quality, affordable E&O insurance. Bottom line: the best way to limit your accountability for errors & omissions is to purchase comprehensive protection through a firm such as EOforLess.com, backed by top-rated insurers and professional administrators.

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. 

Protection from Everyday Mistakes

E&O Insurance“Protection from everyday mistakes.” It’s a prosaic phrase with profound meaning once you start thinking about it. “Everyday mistakes” refers on the surface to the small errors & omissions that nearly every business professional makes at one time or another.

  • Failing to fill out a form correctly.
  • Forgetting to return a client’s phone call.
  • Not scheduling a follow-up client meeting as promised.

None of these mistakes sounds particularly ominous. And most will have no practical consequences except, perhaps, for dinging a business owner’s reputation.

But—and this is a big “but”—a small percentage of these common errors can lead to serious consequences that harm a client financially and that may eventually lead to a big-ticket lawsuit. Think about it. Your mistake in filling out an insurance application isn’t a huge deal until it delays the issuance of a client’s insurance coverage, leaving the person uninsured for a catastrophic illness. Or your failure to return a phone call is irrelevant until a client’s business insurance fails to perform as expected because you failed to conduct a much-needed risk analysis. And not scheduling a client review session is inconsequential until a client dies shortly afterward with no life insurance in force.

In short, everyday mistakes happen all the time, but their impact can be anything but routine. Protecting against these situations is what E&O insurance is all about. It provides the cushion against everyday errors that allow financial professionals to continue in business even after getting hit with—and losing— a massive client lawsuit.

Coverage of Fees and Lawsuits

Once a financial professional’s mistake sparks a devastating lawsuit, business professionals will likely react with shock and confusion.  Shock because it inevitably surprises people that a client with whom they have served for months or years—and who seemed perfectly content—is now suing them. The reality is that not all client relationships are what they seem. They may appear to be amicable on the surface, but a series of minor errors—or one large one—can eventually undermine the relationship. Even though receiving a notice of lawsuit may come as a surprise to the defendant, the plaintiff, despite having a smiling face, might have been unhappy and planning to take legal action for months, if not years.

Confusion is another common reaction, particularly for financial professionals who’ve never been sued before:

  • What do I do?
  • What should I tell my aggrieved client?
  • Should I try to negotiate a settlement before the matter even gets to court?
  • What information do I need in order to prove my innocence?
  • How will I do all this while still handling my regular duties in the business?

All of these questions will be swirling in a financial professional’s mind in the hours and days after getting sued. Worse, making another mistake in responding to the lawsuit can compound the financial damage of getting sued in the first place.

This is why having E&O insurance is so important. Professional liability insurance policies are designed to minimize the shock, confusion, and financial impact of getting sued. Within days of you filing an E&O claim with your insurer, it will select and pay for an attorney to defend you. This person will guide you in terms of what information will be needed to marshal your defense. He or she will also handle all communications with the plaintiff’s attorney so that you don’t have to worry about what to say and do.

What’s more, your insurance coverage will also provide access to a professional E&O claims adjuster, who will manage the process of resolving your claim. This person will co-ordinate with your attorney and with the opposing parties to make sure the matter is resolved as quickly as possible.

But getting help from an attorney and E&O claims adjuster isn’t the only benefit of having E&O insurance. Your policy will also pay for a number of ancillary charges that can add up, especially with complicated lawsuits. These include:

  • Expert witness charges,
  • Copying, filing, and software-related expenses,
  • Arbitration or mediation costs,
  • Expenses related to settling the claim.

Most importantly, E&O insurance will provide a financial backstop to you should a judge find you guilty of negligence. If the judge sides with the plaintiff and orders you to pay damages, your E&O policy will cover that payment, up to the limits of your policy. Since this payment can total thousands if not hundreds of thousands of dollars, the ability to transfer this liability to an insurer is literally worth its weight in gold.

In short, operating a business can be an inherently risky proposition. In most cases, everyday mistakes will have no financial impact. But in rare cases, they can generate substantial financial demands that uninsured business professionals will be hard-pressed to meet. This is why having E&O insurance can not only preserve your personal financial security but, also ensure the very survival of your business.

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