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Top 10 Considerations Related to E&O Insurance

1.    Recognize that All Insurance Policies are Not the Same
It is a good idea to look at buying your errors and omission insurance policy in the same manner you would look at buying a car. You may be able to get a very inexpensive car, but will it make it from the car lot to your home? Will it be safe in the event you and your family are in a collision? While it is not necessary to get the fanciest car, or insurance policy, it is generally a poor choice to buy the cheapest.

2.    Work with a Broker who has Your Interests in Mind
Some insurance brokers make decisions based upon their relationship with a carrier. In this case, you may get steered to a carrier without regard to whether it is the best choice for you. Sometimes they simply try to get the lowest priced policy because they don’t know enough or care enough to offer the best coverage. You won’t know how important this is until you have a claim.

3.    As a General Rule, it is Best to Work with One Broker
A good broker will place your interests above his and the carriers. He will show you prices and policies so that you are able to choose what is best for your company. In addition, once a carrier has a quote request for you from a broker, it will not release a quote to another broker. If you feel the broker with whom you are working cannot access a particular carrier, it may make sense to work with a second broker. Otherwise it is best to work with a single broker.

4.    Select a Carrier that has a Lenient Coverage Approach
Not all insurance carries approach coverage issues the same way. Some carriers are very aggressive in denying claims, while others are far more open to providing coverage even in situations in which coverage is unclear. If coverage is unfairly denied, you have paid good money for nothing.

5.    Select a Carrier that Offers “Choice of Counsel”
Some carriers require you to use their exclusive counsel. One concern is that the law firm may be more loyal to the carrier than to you. For example, they can be far less conservative when their bills are being charged against your deductible. Then as the deductible limit approaches, they may get much more aggressive in settling the case. Not only have they spent your money, your loss runs are higher. This may force your premiums up at renewal. Another concern is that the exclusive law firm has an incentive to hire inexperienced or less expensive attorneys. This allows the owners of the firm to pocket the difference between the hourly rate they are paid by the carrier and what they pay the junior attorneys. You can avoid these risks with carriers that do not work with a firm whose loyalty is skewed towards the insurance company.

6.    Make sure You are Comparing Apples to Apples
There are a variety of policy terms beyond the question of pricing (premium, deductible and policy limits). Make sure you work with a broker who lays out the different policy features so you know exactly what you are getting, and more importantly what you are not getting. A side-by-side graph is very helpful in this regard.

7.    Understand the Items Included and Excluded from Coverage
This is an important example of the “Apple to Apple” concept. There are a variety of areas which may or may not be covered in a given policy. These include among others: agent-owned property; lock-box issues; discrimination/Fair Housing matters; pollution; and ancillary businesses (such as escrow, property management, business opportunities, etc.). It is important to have a policy which covers those areas which are likely to impact your company. Working with a broker and attorney who understand your business model and needs will help assure you get coverage which is most appropriately molded for you.

8.    Understand the Strength and Track-Record of the Carrier
The value of your insurance is only as strong as the strength or your insurance carrier. It is important to work with a carrier that has history doing business in the industry and has a solid rating. Working with a carrier or broker that comes into the industry for a short period puts you at risk for having to shop for a new broker and/or carrier later. This, in turn, leaves you vulnerable to difficult market cycles and may give you a tainted image.

9.    Take Advantage of Leveraged Opportunities
There is power in numbers. As a result, when you take advantage of an insurance opportunity which has been negotiated on behalf of a large pool of clients, such as the case with policies endorsed by the California Association of REALTORS®, you can assume the product has the right combination of quality and affordability.

10.      Have a Long-Term Perspective
Sometimes making a choice for a given year may have an adverse long-term effect. If you have a broker, carrier or an attorney who is not considering your interests, a claim could be mishandled and lead to a loss-run problem which makes coverage for future years more expensive or unavailable. Working with an attorney and a carrier who respects your long-term interests will often lead to the ability to try to resolve claims without putting them on your loss-run.

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