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As a financial professional, you know you need errors and omissions insurance. The challenge is finding high-quality coverage that doesn’t break the bank. Here are five techniques that will help protect your business, while saving you money.

1. Take advantage of your clean record.

If you do business responsibly, chances are you’ve never been sued or have other black marks on your record. If so, check with EOforLess. It provides low-cost E&O insurance for advisors who can prove they do business responsibly.

2. Leverage your relationships with third-party entities.

Many field marketing organizations (FMOs) and member associations have deals with E&O insurers that can save you money. But be careful that their deals don’t rob you of your independence. For example, some FMOs make your E&O coverage contingent on staying with them or on putting a certain level of business through them.

3. Comparison shop.

Premiums are all over the lot, depending on the insurance company. So make sure to get quotes from several carriers. Also, keep in mind that E&O insurance companies don’t typically put advisors through an underwriting process to assess risk. They charge a “one-size-fits all” premium regardless of risk status. So try to find a carrier that will reward your low-risk status with lower premiums.

4. Buy the right coverage.

The key here is to customize your E&O insurance for your precise business activities. Don’t pay more to cover products or services you never provide. But don’t skimp on protection, either. If your policy is too “lean,” you may end up unprotected against a serious errors and omissions insurance claim.

5. Watch out for non-regulated E&O providers.

Some entities provide bargain-basement E&O insurance through so-called “risk-sharing plans.” No state insurance departments check their books or require them to hold minimum reserves. If such a plan fails, you will be left holding the bag. Instead, try to do business with a true insurance company that rewards low-risk advisors with a lower premium.

So don’t delay. Follow these tips now to find affordable, high-quality errors and omissions insurance. Your business—and budget—will thank you for it.

Visit our E&O Headquarters for more informational resources.

 

#1: You need it.

In today’s economy, it’s just too risky to do business without errors and omissions (E&O) insurance. If you’re ill equipped to absorb $20,000 or more to settle a customer claim or spend $20,000 to $100,000+ to fight it, you definitely need E&O insurance.

#2: You’re probably paying too much for it.

Problem is, most carriers charge a “one-size-fits-all” premium. That means low-risk insurance agents or financial advisors pay the same premium as higher-risk advisors.

#3: You can pay less for it.

At least one insurance company rewards low-risk advisors by charging lower premiums. In return for proving they adhere to responsible business practices, such advisors can save 20% to 50% on their E&O insurance premiums. (See eo.ethicsdev.com for details.)

#4: Your policy must have these two features.

Your errors and omissions policy should provide retroactive coverage, as well as an extended reporting period. The former means you’ll be protected going back to your first continuous period of E&O. The latter means you (or your heirs) will be covered for errors and omissions while you were working, even after you retire, change careers, become disabled, or die.

#5: You should customize your policy.

Make sure your E&O policy covers your specific job activities. For example, if you are an investment advisor representative, then a standard life & health agent policy won’t do. In addition, know the specific limits of liability for each claim, as well as your annual aggregate, and total aggregate for all advisors in the program.

#6: You should always buy E&O insurance from a top rated insurance carrier.

Avoid insurers with low marks from the various rating agencies. Also watch out for so-called “risk-sharing plans.” No state insurance departments check their books or require them to hold minimum reserves. If such a plan fails, you will be left holding the bag.

#7: Your policy should be free of handcuffs.

Be careful when considering FMO-sponsored E&O insurance. It may lock you into the FMO by making your coverage contingent on staying with them or on writing a certain level of business with one of their carriers. Also, watch for coverage exclusions when you sell products outside the FMO.

#8: You should ask about post-sale service.

Having a properly designed policy is the starting point. Also ask about who will provide post-sale service. Make sure the administrator is equipped to handle various payment options, has a responsive call center, and is committed to prompt claims processing.

#9: You should revisit your needs periodically.

E&O insurance isn’t something to buy and put in the drawer until you need it. Every year or two, revisit your needs to make sure the policy is still appropriate.

#10: You should work hard to prevent E&O claims.

Once you purchase an errors and omissions policy, get serious about preventing future claims. Three main strategies: recommit to high standards of ethics, make sure your office is well managed, and resolve complaints promptly. For more information, visit www.ethics.net.

Visit our E&O Headquarters for more informational resources.

 

Have you ever forgotten to renew your errors and omissions (E&O) insurance? Guess what . . . you created a ticking time bomb: an E&O coverage lapse.

If you have an E&O insurance policy, you already know what it does. It will protect you financially in the event an error or omission on your part triggers what could become costly accusations from clients (or their attorneys). It also helps with settlements and court costs, saving you time and money. But here’s what you might not know: Even lapsing your policy for as little as one day can leave you open to a financially devastating lawsuit, even though you currently have E&O insurance.

Here’s the problem. Most E&O insurance policies are written on a “claims made and reported” basis. This means they cover claims that are “reported” during the current policy period even if acts or omissions giving rise to the claim happened in the past.

In other words, as long as you maintain continuous coverage (i.e., with no lapses), insurers cover claims that are made against you during the policy period, even if the original event happened when you were insured elsewhere. But watch out. If you lapse your coverage, and have not previously reported the circumstances, then no insurer is responsible for claims that arose before and during the lapse . Result: you will be completely uninsured for past acts, which can destroy your business should you get sued down the road.

A hypothetical case in point: Bob Jameson is a highly experienced retirement planner. He’s proud of doing everything “by the book,” including keeping his E&O policy in force for 10 years. But in his 11th year, he moved offices and forgot to renew his policy. By the time he resurfaced, six months went by. “No problem,” he says to himself. He asks the insurer to reinstate him, which the company does. Problem solved, right? Wrong!

A year later, Bob receives a letter from an attorney representing a former client. Apparently, the client is very unhappy with a product Bob sold her eight years ago, which recently declined sharply in value. She is now alleging Bob misled her and is suing him for $250,000, her full capital loss.

“Good thing I got her to sign my proposal and suitability form,” Bob tells himself. “I’ll just report this to my E&O carrier and let them handle it.”

In a few days, Bob gets a call from his E&O claims representative. Bad news: There is no coverage for this incident. Bob is shocked. “You’ve got to be kidding me,” he tells the rep. “I just paid a lot of money for this supposedly comprehensive policy. I thought I was protected, and now you’re telling me I have no coverage? How did this happen?”

What happened is that when Bob lapsed his policy, he  inadvertently created an E&O coverage gap and then fell headfirst into it. With no E&O safety net, he is now potentially liable for a $250,000 judgment plus legal fees. Ouch!

Failing to prevent a lapse in coverage is a major mistake. It could happen to you and unfortunately you could pay the ultimate price—huge judgments, the loss of your business, and even personal bankruptcy. But there’s a silver lining. You can protect yourself by keeping your E&O policy in continuous force at all costs.

In today’s environment, however, advisors may be time constrained or change addresses like Bob and forget to pay their premium. In addition, some may be cash strapped and are looking for the most affordable E&O coverage available. But now there’s help. The National Ethics Association is sponsoring a free automated E&O Renewal Reminder that will prompt you to pay your premium on time. Go here now to sign up for this no-obligation service.

Visit our E&O Headquarters for more informational resources.