As an insurance agent or broker, a small mistake in your work or a breach of contract may result in a client suing you in court. And I’m sure you understand how devastating a legal battle can be, being an insurance professional, for that matter. Fortunately, errors and omissions insurance can protect you and your company by covering legal costs associated with allegations of negligence.
In this article, we will explore errors and omissions insurance, what it covers for insurance agents & brokers, costs, and its importance. Let’s get to it.
Key Takeaways
- Errors and omissions (E&O) insurance is a type of professional liability insurance that protects insurance agents and brokers from client lawsuits due to mistakes or negligence.
- It covers legal fees for claims like oversight, breach of contract, and failure to meet industry standards, even if the agent is not at fault.
- E&O insurance must remain active to provide coverage, especially for past work or retroactive claims.
- Premiums range from ₦10,000 to ₦100,000+ depending on business size, risk level, and coverage needs.
What Is E&O Insurance for Insurance Agents and Brokers?
Errors and omissions insurance for insurance agents is a type of professional liability insurance. It helps protect your company from lawsuits if a customer sues you for a mistake in your professional services. E&O insurance covers the legal fees associated with defending your insurance firm in court.
E&O Insurance Covers Mistakes and Oversights
Errors and omissions insurance for insurance agents & brokers is crucial, as a mistake could lead to a client lacking important protection. In fact, state laws may mandate insurance professionals to have coverage.
This policy includes coverage for:
- Oversight and mistakes
- Breach of contract
- Failure to meet industry standards
Every company that offers a professional service or advice should consider errors and omissions insurance.
What Does E&O Insurance for Insurance Agents & Brokers Cover?
Errors and omissions insurance covers mistakes that your small business may make while running an insurance agency. Whether you gave inaccurate advice to a consumer or omitted an important insurance product, E&O coverage can help you pay for claims made against you. While there are exclusions, such as intentional harm and bodily injuries, E&O insurance covers a broad range of potential pitfalls for agents and other insurance professionals.
Even if you did nothing wrong, a customer can sue you for a perceived error, such as
#1. Negligence accusations
Let’s imagine you advise a customer to have insufficient liability coverage on their auto insurance. If an expensive accident leaves them bankrupt, they could sue you for negligence. E&O insurance for insurance agents can help cover litigation fees.
#2. Oversight and mistakes
Even professionals make mistakes. For example, you can fail to get flood coverage for a homeowner in a flood-prone area when their particular request is for complete coverage.
If a client sues you for a mistake or an oversight, you could face a costly judgment or settlement. E&O insurance for insurance agents helps pay for legal bills, which can add up even in a frivolous lawsuit.
#3. Failure to meet the industry standards
Insurance agents act as liaisons between clients and insurance providers and lenders. Expectations are high, and if your company fails to meet certain standards, you may end up facing a lawsuit.
E&O insurance for insurance agents and brokers, also known as professional liability insurance, protects against financial losses, such as court-ordered judgments or out-of-court settlements.
#4. Breach of Contract
Insurance professionals often sign contracts with clients outlining their obligations and a timeline for their work. However, anything in your personal life could derail your work plans, leaving you unable to accomplish your obligations.
For example, E&O for life insurance agents can give protection if the agent fails to respond in a timely manner to a client attempting to update their policy and the client decides to sue for breach of contract.
With E&O insurance, you can file a claim to cover the costs of the case, including any court-ordered judgments or settlements.
Why Is It Important to Keep an E&O Policy Active?
There is one important fact to know regarding errors and omissions insurance: it is a claims-made policy. You can only get benefits if your coverage was active at the time of the incident and the E&O claim was filed.
That means you’ll need to preserve this coverage if you retire or go from freelancing to a full-time job and want to be protected for your past work. Fortunately, when you purchase an E&O insurance policy, you can set a retroactive date to cover losses incurred during past incidents.
Before you apply for or renew your Errors & Omissions policy, use this readiness checklist to make sure you’ve got all your bases covered.
E&O Policy Readiness Checklist.PDF
How Much Does E&O Insurance for Insurance Agents Cost?
Insurance companies pay anywhere from a few thousand naira to hundreds of thousands each year, but you may pay more or less depending on your risk.
Insurance costs for insurance professionals are determined by a number of factors, including:
- Type of Business
- Business size and revenue
- Insurance Products Purchased
- Policy coverage limits
- Deductibles Claims history
Additional Liability Coverage for Insurance Agents
There are other types of business insurance for insurance agents that can help you fully protect your company and manage risk. You may want to consider the following insurance products:
#1. General Liability Insurance
General liability insurance can protect insurance agents from claims for bodily injury, property damage, or advertising injuries. This type of liability coverage can assist business owners in covering medical expenses as well as out-of-pocket costs for property damage.
#2. Workers Compensation Insurance
Workers’ compensation insurance, commonly known as workers’ comp insurance, provides benefits to help your employees pay for medical expenses resulting from a work-related injury or illness. Workers’ compensation insurance is essential for small businesses since it can assist you in paying for your personal medical treatment even if you do not have employees.
#3. Business Owner’s Policy (BOP)
Many insurance providers offer additional protection by bundling coverage into a Business Owners Policy (BOP). A BOP combines three insurance coverages into one convenient and cost-effective policy:
- General Liability Insurance
- Business Income Insurance
- Commercial Property Insurance
#4. Cyber Liability Insurance
Cyber liability insurance can help protect insurance agents from technology-related risks, like data breaches and stolen customer information. This form of liability coverage is advised for every business owner who handles sensitive client data.
#5. Commercial Auto Insurance
If an insurance agent is involved in a car accident while on the job, commercial auto insurance can help cover medical expenses and property damage. Commercial auto insurance typically includes higher limits and comprehensive liability coverage to protect business owners who use their vehicles for commercial purposes.
What Is an Example of Errors and Omissions Insurance?
Suppose a furniture manufacturer employs your IT consulting firm to enhance its computer-aided manufacturing software. Several months later, the client sues your company for N250,000, claiming that you did not provide adequate advice on how to use the new software. Because of your inaccurate instructions, their machinery malfunctioned, and they were unable to fill two large orders.
An E&O policy might pay for damages or settlements resulting from those claims. It may also pay attorneys’ fees, court costs, and other legal expenses incurred by your insurer in defending your business against the lawsuit, regardless of whether the claim is valid or your company is held liable.
What are Most Insurance Agent E and O Policies Written On?
Most insurance agents Errors and Omissions (E&O) policies are written on a “occurrence” basis, which means they cover claims resulting from events that occurred within the policy period, regardless of when the claim is filed. This is different from a “claims-made” insurance, which only covers claims made within the policy period, even if the underlying event occurred prior to the policy start date.
What Is Included in Errors and Omissions?
Errors and Omissions (E&O) coverage is designed to protect your company from claims that the professional advice or services you provided caused a customer financial damage as a result of actual or alleged errors or failure to deliver a service.
Errors and omissions insurance covers claims made against your company for negligence, malpractice, errors, or omissions when delivering professional services.
How Much Does E&O Insurance Cost?
The cost of errors and omissions (E&O) insurance in Nigeria varies greatly and is determined by a number of factors. Premiums often range from ₦10,000 to ₦100,000 or higher, based on specific needs and circumstances.
Conclusion
In today’s highly regulated and fast-paced insurance industry, even the most diligent agents and brokers can make mistakes. Errors and omissions insurance provides essential protection that not only covers the financial impact of legal claims but also reinforces your credibility and reliability in the eyes of clients.
By maintaining active E&O coverage and considering complementary policies like cyber liability or general liability insurance, you can safeguard your business, uphold professional standards, and focus on delivering the best possible service with confidence.
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