The Top Three Risks of Not Having Errors and Omissions Insurance
By Harry Lew
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.