Fortside Insurance

03/02/2021

Advancements in technology have made it easier for businesses to get quotes for professional liability (often called errors and omissions [E&O]) insurance. Insurance companies can now offer clients “direct” quotes through their websites. There are some advantages to going directly to an insurance carrier for a quote.

However, there are also some pitfalls to this sales channel. Insurance brokers are another route consumers can take to obtain E&O insurance. Brokers offer some benefits that insurance carriers can’t replicate. This article will serve as a quick guide to help you decide whether you should contact an insurance broker to secure E&O insurance or obtain a direct quote from an insurance carrier.

Advantage of a Broker- Expertise

An experienced broker will take the time to ask questions at the outset of the process and anticipate issues, saving you time and money. Brokers typically have multiple insurance companies they can approach to obtain quotes for clients. This gives clients an assortment of options to match their business needs. Brokers are also usually experienced with companies in your industry, allowing them to advise you about which risks to cover and about how to manage risk to lower the chance of adverse events impacting your business..

Advantage of a Broker- Advocacy

If you need to report a claim, you may want to ask questions of someone other than the insurance company. A broker will be able to review the policy with you, advocate on your behalf, and guide you through the claims process. Claims advocacy can be a major benefit for policyholders, helping steer them through the often complex and difficult-to-understand claims process.

Disadvantage of a Broker- Time

Working with a broker can take extra time (3-5 business days) to set up the first policy while the broker asks questions about your business. However, if you need the insurance in place a few days prior, the broker may be able to backdate the coverage so that you can comply with a contract or the start of your first job. This is a perk that may not be possible when going directly through a carrier.

Advantage of Direct Carriers- Price

Buying E&O insurance directly from an insurance carrier can be the quickest way to obtain coverage if you need it in a pinch. By cutting out the broker, the insurance company saves on acquisition costs (i.e., the broker’s commission). The carriers can share these savings with clients while also making a little more profit themselves. If you’re looking for the cheapest coverage, direct to the carrier might be your best option.

Advantage of Direct Carriers- Convenience

Advancements in underwriting technology allow you to answer a few questions and receive a quote from a carrier anytime, anywhere. Some insurance carriers have made it easier than ever to obtain E&O insurance after obtaining only simple information about the business. In today’s fast-paced world, where business leaders are already busy with seemingly a million tasks, direct access to instant quotes can be an attractive way to purchase E&O insurance.

Disadvantages of Direct Carriers- Energy

Direct quoting systems are only able to offer a single quote from one insurance company. If looking for multiple options, you’ll need to complete multiple applications, comparing the options on your own. This can be a cumbersome process that can take up precious time business leaders would rather be spending on something else.

Disadvantages of Direct Carriers- Limited Underwriting Appetite

Direct-to-carrier policies often require the insured to fit perfectly in the underwriting “box” to be properly insured. If your business has any unique operations or needs, you may encounter problems. For example, if you’re strictly an accounting firm, you may be an attractive risk for carriers; but if you’re an accounting firm that also provides financial advising to some clients, you could fall outside the appetite of the carrier.

In Summary

E&O insurance is vital to any business that performs services for monetary compensation. Brokers and direct carriers each have specific strengths and weaknesses. In the end, it is up to you to choose a means of obtaining E&O insurance that best suits your business in order to cover you against adverse events that can disrupt your operations.

If you have questions about E&O insurance or would like more insight on what E&O coverage would be best for your specific needs, get in touch.

03/02/2021

Professional liability insurance, commonly known as errors and omissions (E&O) insurance, is important coverage for businesses offering services to clients. To obtain E&O coverage, you’ll need to complete an E&O application and provide additional information that underwriters use to evaluate your business from a risk perspective. To make the insurance buying process quick and easy, try to have all the documentation described below on hand when applying.

Information to Have Handy When Filling Out an E&O Application

Revenue

When you apply for E&O, carriers will want to know some financial background about your business. When approaching an insurance broker, make sure to have at least the past two years revenues and the projected revenues for the coming year. If you’re a new business, an estimate of revenue over the next 12 months will suffice.

Resumes of Principals or Key Employees of the Firm

Underwriters want to know that your key personnel have experience in the field in which they’re actively working as well as whether they have management experience. Usually, having at least five years in the industry and experience running a team at a prior company will suffice. An organizational chart can also be good documentation to share with insurance carriers

Sample Client Contract

Underwriters like to review the contract template you use with your clients. They like to see “indemnification” and “hold harmless” wording in your favor. They don’t like to see performance guarantees that can be used against you, such as, “If you use our services, we guarantee your revenue will increase 15% in the first year or your money back.” Insurance carriers don’t like to gamble when it comes to professional liability coverages.

Contract
If you’re purchasing the insurance to comply with a client’s contract, you should have that contract (or at least the “insurance” section) available to forward to your insurance broker. This document provides important details on how your E&O insurance should be structured. This will also give the insurance company the opportunity to view the “hold harmless” and “indemnification” language within the contract.

In Summary

When looking to purchase E&O insurance, it’s a good strategy to have your ducks in a row when it comes to collecting and storing the data that insurance carriers will need to evaluate your business. Feel free to use this article as a checklist when looking to obtain E&O insurance for your business. Proactive preparation will help you save time and energy when shopping for E&O insurance to cover your business’s activities.

03/02/2021

Consulting firms offer business solutions across an array of industries, from technology to energy. No matter the niche, these businesses are exposed to professional liability suits. To ensure protection from legal action, consulting firms should make professional liability (E&O) coverage a core part of their insurance program. This article will offer answers to common questions about E&O insurance.

Key Things to Consider Before Buying E&O Insurance

Limits of Insurance and Deductibles

When it comes to limits, I typically ask my clients whether they’re purchasing E&O insurance to comply with a contract or not. If they are, the natural place to start is with the limits required in the contract. If not, the client should consider worst-case scenarios involved in the work they do—in other words, what type of adverse financial consequences would your clients suffer if you made a mistake? Remember, this limit not only has to cover financial damages but also the legal defenses associated with the claim. Insurance companies typically start off at $1,000,000 of coverage and move up in million-dollar increments.

Many insurance companies can offer as much as $5,000,000. If more coverage is needed, your broker can introduce a second carrier to provide additional limits. Some insurance carriers offer limits lower than $1,000,000, such as $500,000 or $250,000, though the savings is often disproportional to the reduction in coverage. Deductibles typically start at $2,500 and can often be adjusted to $5,000, $10,000, $15,000, or $25,000. Usually, the deductible applies only once to both the damages and defense costs, but you may want to ask your broker at the outset to make sure the deductible isn’t applied separately.

Claims Made Forms and Retroactive Dates

E&O policies are almost always written on a “Claims Made” policy form. As the name implies, the date the claim is made to the insurance carrier dictates which policy term will respond to the claim. The key concept to grasp is that, for consultants, it can often take time to discover a mistake. For example, if you provided advice to a client on June 1, 2019, the client may not discover an error until December 1, 2019, they may not notify you until February 1, 2020 and you may not notify your insurance company until February 15, 2020. In this case, the policy in place on Feb 15, 2020 will respond, since that’s the policy in place at the time the claim is made.

A “retro” (retroactive) date is only found on a claims made form (not an occurrence form). It is typically located on the declarations page of the policy. The insurance carrier will not cover any claims in which the wrongful act occurred prior to the retro date. So, for a claim to be covered, the wrongful act must occur after the retro date and the claim must be made during the policy period. For maximum coverage, you’ll want your retro date to be the date you started your business. This may increase the premium, but it will ensure that all your past work is covered. If you change insurance companies, it’s crucial that you maintain the retro date on the prior policy. Otherwise, none of your past work will be covered by the new policy.

Defense Costs and Legal Representation

Defense costs are the legal costs associated with defending your company in a lawsuit. The expenses associated with defense costs “erode” the limit available to pay damages. So, if you have a $1,000,000 limit and the defense costs total $200,000, there is only $800,000 available to pay the damages. The insurance company almost always requires that they select the attorney to defend the claim. The rationale here is that once you pay the premium, you transfer the risk to the insurance company, so it’s now their money at risk. As such, they want to use their pre-approved law firms not only because they trust those firms, but also because they have pre-negotiated rates as a result of sending large amounts of work to those firms.

Giving up control of the defense is one of the areas that causes the most stress and distrust between clients and insurance carriers. It’s common for insurance carriers to evaluate the facts of a case and settle the claim even though the insured feels they have done nothing wrong. Remember, the insur ance company’s primary concern is the total cost of the claim. They avoid entering long, drawn-out legal battles pursued to defend your pride and reputation. Some carriers make exceptions and allow clients to assign counsel, but you will need to work with your insurance broker to find a carrier that will agree to this.

In Summary

Professional liability insurance is a must for any consulting firm operating in today’s litigious business environment. This crucial coverage offers legal protection, lowers cash flow volatility, and helps achieve compliance with business contracts. With the information we’ve covered, you’ll be able to make educated decisions when it comes to selecting the proper E&O coverage to suit your organization.

If you have questions about E&O insurance or would like more insight on what E&O coverage would be best for your specific needs, get in touch.

03/02/2021

Professional liability insurance, or E&O (errors and omissions) insurance as it’s more commonly known, is an important coverage for businesses that provide services to clients in exchange for financial compensation. E&O coverage protects businesses from errors made while performing work for clients. Common issues this coverage responds to include contract disputes and complaints about the quality of work provided.

This article will review four key factors used in determining the cost of E&O insurance for your business. This information can help you attain a better grasp of how this coverage is priced when negotiating coverage and premiums that best suit your business.

Key Factors That Determine The Cost of E&O Insurance

01. Business Class

The type of consulting firm you operate will dictate the rates the insurance company will apply. A tech consulting firm will have a different rate than a management consulting firm. Rates are determined based on national loss data as well as the insurance company’s specific loss experience with each class of business. It’s best practice to obtain quotes from an insurance broker that is experienced in E&O coverage to ensure your business is classified correctly.

02. Limits

The more coverage needed, the more the insurance will cost. Typically, purchasing $2,000,000 of E&O coverage will not cost double what a $1,000,000 plan costs, but it depends on the type of insurance and the carrier’s underwriting methods.

03. Revenue

Underwriters usually use gross revenue as the indicator of the size of a business. To an insurance carrier, more revenue equals more services provided to clients and thus more chances for errors to occur leading to E&O claims. Revenues are then applied to a standard rate (specific to your business) to generate a premium amount. Simply put, the more revenue your company makes, the more you’ll likely be paying in premiums to cover your professional liability risks.

04. Deductible

The higher the deductible, the lower the premium. Underwriters will typically have flexibility in this area. You may want to ask for a few different options so that you can assess the cost-benefit of the various levels. Remember to ask whether the deductible applies to “indemnity” and “defense” separately or only once. For more information on this, please see our other article, “6 Things You Need to Know Before Buying E&O Insurance for your Consulting Firm.”

Wrapping Up

E&O insurance is a necessary coverage for any service-oriented business. In today’s litigious society, this coverage gives your business the protection it needs to defend itself from lawsuits that can be a financial nightmare if retained solely by the business. These key factors will help you understand how your premium is derived. Now it’s up to you to obtain the coverage that best fits your organization.

If you have questions about E&O insurance or would like more insight on what E&O coverage would be best for your specific needs, get in touch.

03/02/2021

Professional liability (E&O) insurance is necessary coverage for any business providing a service to a client in exchange for a monetary fee. An E&O lawsuit can be a massive challenge for a consulting firm to overcome. E&O insurance provides needed protection to shield the organization from financial harm when confronted with an E&O lawsuit. Let’s explore three pitfalls to avoid when purchasing E&O insurance.

Pitfalls to Avoid When Purchasing E&O Insurance

01. Not Having all Your Services Covered

Every E&O policy has a section that defines the services provided. Be sure that all your firm’s services are included. If 90% of your revenue is generated from management consulting but 10% comes from accounting services, make sure the insurance company is aware of both. Otherwise, the accounting services will likely be excluded. Be sure to discuss your business in detail with your broker to ensure all your services are known and covered appropriately.

02. Not Purchasing “Prior Acts” Coverage

If your consulting company is buying E&O insurance for the first time but has been providing services for a few years, it’s important for you to purchase “prior acts” coverage to make sure all their previous work is covered by the new policy. If prior acts are not purchased, only work conducted from the effective date of the policy forward will be covered, leaving the company exposed to legal actions from past work. Prior acts coverage can be purchased with a retroactive date or full coverage.

03. Not Reading the Policy Exclusions

Like any insurance policy, all professional liability policies come with exclusions. It’s important to review them when you first purchase the policy. E&O policies exclude coverages that are intended to be insured through separate policies including employee injuries, auto accidents, property damage, and employee lawsuits. E&O policies also exclude illegal acts and intentional acts. A best practice for any business is to ensure an understanding of all insurance policies in force and what exclusions can limit coverage.

In Summary

For businesses offering any type of service, professional liability coverage is a necessary means of protecting the business from past, present, and future errors and omissions arising from performance on client engagements. With just a few simple tips, your business can avoid E&O pitfalls that can leave organizations high and dry when they need coverage the most.

If you have questions about E&O insurance or would like more insight on what E&O coverage would be best for your specific needs, get in touch.

03/02/2021

Professional liability insurance—commonly called errors and omissions (E&O) insurance—is a necessity for any business offering consulting services to clients. However, many business owners looking to obtain E&O coverage are not well educated on what an insurance underwriter will ask for when determining acceptability and premium for their E&O coverage.

This article will help you understand ten things E&O insurance underwriters will want to know about your business before they issue a quote for professional liability coverage.

01. Experience of Owners & Key Personnel

Underwriters will want to know if your organization’s key personnel have experience in their industry. An organizational chart and management bios are typically requested by underwriters to help them get comfortable with the management’s experience within your organization. If complete resumes or formal bios are not available, you should prepare a short synopsis of each owner’s experience and qualifications.

02. Revenue

Revenue is one of the most important items underwriters look for when pricing E&O policies. To put it simply, when revenues increase, so do insurance premiums. Underwriters commonly price these policies by applying a rate per $1,000 of revenue. For example, if a consulting firm’s annual revenue is $1,000,000 and it is charged a $5 rate per $1,000 in revenue by the underwriter, the resulting coverage premium would be $5,000 ($5*($1M/1,000)). If the consulting firm’s revenues increase the following year, the firm can expect a proportional increase in E&O premium.

03. Consulting Services Provided

Typically, your business will fall into a category that the underwriter can use as a starting point. If your firm provides unique services, be sure to clearly explain them to your broker. Management consultants will be rated differently than technology consultants and so on. Each type of consulting service comes with its own set of risks that can result in E&O claims for services performed. To ensure they are being compensated fairly for taking on a firm’s risk, insurance carriers charge different rates depending on the consulting services offered.

04. Online Information

Underwriters will likely take the time to review your website to get a better understanding of the services provided. Also, the underwriter may look at social media pages and recent news involving your business to get a good understanding of what services your company performs. If you do not have a website, it is important to clearly document and explain your business’s services to your broker.

05. Past Claims

Past claims will not automatically preclude you from being able to purchase insurance, but it is necessary to disclose and provide details of past claims (if any). Insurance carriers usually require loss runs showing past claims from the prior three to five years. This provides the underwriter with transparency on the types of claims your business has faced and could face moving forward. Past claims activity can have an impact on E&O premiums, as a business with more active claims history will be seen as riskier to cover versus a business with no loss history to date.

06. Performance Guarantees

Underwriters are cautious when they see consulting firms make guarantees in their contracts. For example, a contract may state, “If you use our services, your revenue will increase 15% and your expense will decrease 20% or your money back.” If these guarantees are not achieved, the customer can allege breach of contract and potentially sue for damages. Although performance guarantees can be a competitive advantage for consulting businesses, insurance companies do not view them in the same positive light.

07. Standard Client Contract

Underwriters understand that contracts are negotiated, but they like to see that your firm has a standard contract in place that includes “hold harmless” and “indemnification” language in your favor. Hold harmless and indemnification clauses limit one party’s ability to hold another party liable. Underwriters like to see a contract that protects their insured (your consulting firm) to the extent permissible by law.

08. Legal Review Process

Underwriters like to know that contracts are being reviewed by a legal professional to ensure contractual mistakes are not made because these mistakes can result in E&O claims. By having a legal representative review client contracts, your company is actively managing risk. The better the contracts, the better underwriters feel about providing insurance for your business.

09. Revenue Allocation Based on Client Size

Underwriters want to get a sense of whether your revenue is generated from one or two large clients or several smaller clients. A consulting business with only a few large clients making up the bulk of revenues will be exposed to more severe claims if an error or performance issue results in adverse loss to the client. However, this also can be a sign of a business which should have lower claim frequency, as they do not have a large book of clients. A company with many smaller clients can be exposed to increased risks of E&O claims, as it has a larger number of projects going on at any one time, which can increase the probability of E&O claims occurring. This is information an underwriter would like to know when evaluating your business for E&O insurance coverage.

10. Professional Designations

Underwriters like to see professional designations if your industry has them. Designations are not imperative, but it gives the underwriter a sense of the insured’s expertise and commitment to the industry. For example, an accounting firm where all client facing employees are required to be a CPA will look more qualified (and less risky) than the same organization having only one CPA on staff.

In Summary
E&O insurance is a necessary coverage for any service-oriented business. In today’s litigious society, this coverage gives your business the protection it needs to defend itself from lawsuits that can be a financial nightmare if retained solely by the business. These key factors will help you understand how your premium is derived. Now it’s up to you to obtain the coverage that best fits your organization.

If you have questions about E&O insurance or would like more insight on what E&O coverage would be best for your specific needs, get in touch.

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