You’re a professional real estate agent or broker. The last thing you want is to spend hours choosing the best E&O insurance. Instead, you want to quickly determine your coverage needs, identify potential providers, evaluate their offerings and price, and then make a decision.
Just be sure to perform proper due diligence to ensure you buy the right coverage, from the right firm, and at the right price. This will prevent you from purchasing a policy that leaves you unprotected due to something buried in the fine print. Plus, you don’t want to pay more than necessary because you failed to notice excessive fees (more on this later).
To prevent either outcome, we recommend you take the same care buying E&O insurance as you would buying any other major product or service for your business. This will require some time and diligence on your part.
So what is involved in being a careful E&O insurance buyer?
The first thing to do is to review the specimen policy. Read it carefully, especially the insuring clause which defines who is protected under the policy and when it will pay benefits. The exclusions list specifies the conditions under which the policy’s benefits will not be available. As you review the insuring clause, be sure to confirm which professional services the policy covers. If it doesn’t list all of your key activities, move on to your next option.
Also important are a policy’s coverage limits, typically expressed with two numbers (example: $500,000/$1,000,000). This means the policy will pay up to $500K per claim, but no more than $1 million for all claims during the policy period (also known as the “annual aggregate limit”). When choosing your coverage limit option, be sure it is not too low to adequately cover your business risks. Likewise, selecting too high of a limit can cause you to pay more premium than needed to adequately provide protection.
Then, check to see whether the policy is claims-made. With a claims-made policy, as long as you maintain continuous E&O insurance coverage, your current policy will protect you even for losses that happened years ago, regardless of who you were insured with at the time.
Once you are comfortable with the policy’s core features, it’s time to consider several other important aspects of an E&O insurance program.
- The most important… is it really insurance?
Not all liability programs for real estate professionals are created equally. Sometimes, if the pricing seems too good to be true, you will want to make certain that you are considering an actual insurance policy and not a risk-pooling arrangement. The difference - with risk-pooling plans, the provider isn’t an insurer, and the coverage isn’t insurance. This means the firm is not statutorily required to pay claims, which could leave you unprotected if you get sued after the pool exhausts its funding. - Another key feature is insurer ratings.
These indicate whether an insurer has set aside adequate financial reserves to cover its future claim contingencies. If it hasn’t, it may be at risk of insolvency. Which insurer ratings should you look for? There are four major ratings firms that evaluate insurers: A.M. Best, Moody’s, Fitch, and Standard & Poor’s. Each one uses its own proprietary rating scale, so an A from one firm is not equivalent to an A from the others. Advice: select an insurer with top grades from the four major rating bureaus (i.e., in the top two or three grades). - Click and bind.
Because of advances in technology, many companies now provide online options to bind your insurance in just minutes, unlike the traditional broker-driven sale that takes days or weeks and involves phone calls and paper applications. You still need to be careful. Some firms present their offerings online but use their website simply to capture your basic information. They then force you to call one of their agents to complete a full application. You are better off buying from a company that can completely fulfill your purchase online, as this will save you a lot of time and effort. - Hidden fees.
When buying E&O insurance, beware marketing “come-ons.” A firm might highlight low premiums in its web banner ads or landing pages in order to capture your interest, but in its price quote, it includes additional fees not mentioned up front. Case in point: one real estate E&O provider adds a $150 membership fee and a $275 risk management fee to its base E&O insurance premium of $600. If you were to buy this policy, your ancillary fees would represent an increase of about 70 percent over the base insurance cost. Not good.
In conclusion, being careful about your E&O due diligence may take some extra time but it will yield huge dividends - an E&O insurance policy that meets your needs at a price you can afford. As you do your homework, don’t hesitate to contact 360 Coverage Pros for further information about your E&O insurance situation. As a highly experienced provider of insurance solutions for various types of business professionals, dentists and dental students, and affinity groups and associations, we stand ready to assist you at any point in your buying journey.
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