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How E&O Insurance Protects You When You Fall

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!

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How Agents Can Minimize Risk with E&O Insurance Coverage

Life insurance agents and real estate agents have very different jobs. But one thing they share is the ability to shape their clients’ expectations in order to produce good outcomes. When customers hold beliefs that aren’t consistent with reality, they often are disappointed with the results their agents deliver. For some, disappointment may turn to fury, which can spark a dispute that ends up in court. E&O insurance coverage is tailor-made for this situation. But it’s better to avoid the dispute in the first place by setting the right client expectations during your initial meetings. Here are some tips for doing just that.

  • For starters, both life insurance agents and real estate agents can make their respective sales processes completely truth-driven. Agents who are selling life insurance or annuities should never promise a benefit that isn’t spelled out in the insurance contract. Meanwhile, real estate agents should never lead sellers to believe they can sell their property for more than local market conditions suggest or buyers to be able to purchase their dream home at substantially lower-than-market prices. Regardless of whether you’re a life or real estate agent, stretching the truth will always establish incorrect expectations that can spark problems later.
  • In addition, agents must use advertising and sales literature responsibly to set appropriate expectations in the minds of their prospects. Life agents should never use illustrations that violate the NAIC Life Insurance Illustration Model Regulation. Meanwhile, real estate agents should always obey their state’s real estate advertising and solicitation rules.
  • Also important is your full commitment to educating your prospects and clients about the details of your services. Life agents should work hard to educate prospects about any contractual element that might generate a financial penalty or extra cost in the future. Real estate agents must be explicit about what they will and won’t do for buyers and/or sellers during a transaction.  Then they must document those activities in a written agreement. Promising to do something you have no intention of doing will be a recipe for disaster in most real estate engagements.
  • Because life insurance agents sell highly complicated products, it’s crucial to define appropriate expectations about things like exclusions (what a policy won’t cover), the possibility of future premium increases, and the conditions under which a policy might lapse. Also crucial is explaining the importance of truthfully and completely answering all questions on the insurance application. Failing to do so can lead to insurers challenging or refusing to make good on future policyowner claims.
  • For their part, real estate agents owe their selling clients a full discussion of the status of the local real estate market and how that will likely affect how long their homes will take to close and at what price. Agents should then help their clients settle on a rational sales price that flows from hard data, not emotions. From the buyer perspective, agents should also help their customers establish appropriate expectations about how much home their budget will allow them to buy and how competitive the buying process will be. For example, a tight market means buyers may wish to avoid low-ball first bids, which may do more to annoy sellers than produce a successful transaction.

In short, by educating your prospects and clients, you will likely head off dashed expectations before they become a complaint or a lawsuit. Still, despite your best efforts, it’s likely that a few of your customers may become disgruntled and take you to court. If you have maintained your E&O insurance in force, you will have a framework in place for responding to the client and protecting your interests.

The first thing to do is to promptly file a claim with your E&O insurance company. It’s important to do this as soon as you suspect a client will file a complaint or lawsuit. This will cause the insurer to open a claim file on your behalf, to appoint an attorney to defend you, and to assign an internal claims adjuster to manage the process of resolving the dispute. During this process, it’s important to let your attorney and claims adjuster do their jobs without interference. Let them handle all conversations and correspondence with the plaintiff and follow their advice in terms of what to say and not say during legal proceedings. Also, be sure to share your entire customer/case file with them. This will help them fully understand what led to the dispute and decide how to best defend you.

With a competent attorney and claims professional in your corner, it’s likely any lawsuit against you will either be dismissed, settled out of court, or adjudicated in a legal proceeding in a reasonable time frame. If your documentation was good and you cooperated fully with your defense team, chances are the legal outcome will be satisfactory. And most importantly, if the court deemed you responsible for paying a judgment, your E&O insurance coverage will provide you with a financial backstop. Without insurance, the cost of losing can be significant, perhaps even forcing you to declare personal bankruptcy.

However, the good news is you can almost always prevent disputes by carefully setting expectations early in your customer relationships. Even a modest amount of discussion will go a long way toward defusing future problems. And any time you spend on client education will be preferable to time spent sitting in court. Right?

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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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Three Tips for New Insurance Agents

Keeping Your Business Safe with E&O Insurance

As a new insurance agent, you’ve decided to enter a highly rewarding industry, both financially and psychologically. However, to attain these rewards requires a huge investment of time, energy, and fortitude. Because these sacrifices can be intense, you might have difficulty managing the three key challenges facing new insurance professionals:

  • Managing the risks of entering the business,
  • Making the most of your limited time, and
  • Building the goodwill of your prospects and clients.

Fortunately, buying (and keeping) E&O insurance will help you surmount each challenge. Here’s how.

First, new agents will typically have fewer assets and less disposable income than more experienced agents. As you’re working hard to adjust to a new industry—learning about its products and under intense pressure to close sales—the chances of making a mistake can be huge. This poses a large financial risk.

Since you have fewer financial resources and less knowledge, it’s crucial you protect yourself with E&O insurance. Going without coverage is an unwise choice for most agents. And those who have made and lost that bet rue the day they stayed uninsured. However, E&O insurance for new agents must also be affordable, since they don’t have a lot of money. “I need cheap E&O insurance” is a phrase heard often around new-agent offices. Online E&O providers address that need because they have less overhead than traditional E&O insurance marketers, which translates into lower prices.

Second, having limited time is a common problem for new agents. Why? Because becoming a successful producer forces you to quickly learn a great deal of information: product specifications, marketing and sales systems, new-business procedures, regulatory compliance, market and buyer needs, and much more. And while you’re learning all that, you must also identify prospects, set up meetings, do needs analyses, determine and present solutions, and close cases, not to mention handling service requests from existing clients.

For these reasons, new agents tend to be quite busy, which makes it hard to shop conventionally for E&O insurance through an insurance broker, a tedious and time-consuming experience at best. Given these problems, many new agents choose to buy E&O insurance from an online provider such as EOforLess. This lets them select, pay for, and then bind their E&O insurance in just a few minutes . . . literally saving days or weeks compared with a broker-mediated sale.

Third, because new agents are in an inherently risky position and are short of time, the last thing they need is a client dispute. Responding to client complaints and defending themselves in court is a huge time drain, something they can ill afford at this point in their careers.

Fortunately, having E&O insurance is a powerful way to prevent client problems. As soon as you suspect a customer is unhappy with something you did or failed to do, call your E&O insurer. The company will then evaluate the problem; appoint a defense attorney, if needed; and contact the unhappy customer to see if it can defuse the dispute before it becomes a formal lawsuit. If you don’t have E&O insurance, you’d have to handle these steps yourself, which might not happen. By not having E&O insurance, you actually increase your chances of getting sued.

In summary, as a new agent, job one is to get up to speed quickly with your job and your industry: learning the business, mastering your product portfolio, learning how to sell, and knowing how to get policies on the books and customer service requests fulfilled. It’s hard to do all that without the peace of mind that E&O insurance brings.

So, if you’re a new agent who still hasn’t purchased E&O insurance, consider buying from EOforLess, the online click-and-bind pioneer. And if you already have coverage, take advantage of our Renewal Reminder, which will prompt you to visit our online store before your existing policy renews. Either way, you’ll be doing your career a big favor by reducing the risks, costs, and problems all new agents face. Good luck!

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