Just because carriers require your agency to have only a million dollars in E&O insurance, does that amount of coverage properly protect you? Many agents pose this very question to their clients, who may want only the state minimum for auto insurance or who may question why they need an umbrella policy. Not properly addressing your E&O coverage is putting your agency at risk, and, if you are a sole proprietorship, you are putting your own assets at risk as well. Quality agencies should also want to maintain a good reputation, and your clients may wonder why you are advising them to buy several or more million dollars in liability insurance while you are carrying only a minimal amount of E&O insurance.
The best way to determine how much coverage you need is to look at the risks that you insure. Nowadays, it is not unusual for a small to mid-size agency to insure a commercial building or a high value home for several million dollars or more. What is your highest exposure, and are you covered for it? You should also keep in mind the possibility that a catastrophic event and an insurance gap will affect more than one policyholder. This is why it is best to err on the high side of coverage, so that you will emerge from an E&O incident unscathed.
There is no place to hide if an incident occurs. Bankruptcy is easier said than done, and it presents a number of adverse consequences. You may not even qualify for it. If an incident occurs, and you are properly insured, you will have fewer distractions from your day-to-day agency operations, including your ability to grow your agency. Without adequate coverage, your attention will be dominated by your efforts to resolve the problem with limited resources and to figure out how to protect your assets. Protecting your assets may be next to impossible, if you are liable for an amount that exceeds your policy limits. Do you really want to put yourself in that position?
Most agencies should carry more than 2 million dollars of coverage and much more if they insure higher value homes or handle commercial policies. Established agencies should have at least 5 million dollars of coverage per year, especially if they want to protect the existence of their agency. The more coverage their agency has, the more bullet proof their agency will be if a significant E&O incident occurs, and they will continue to operate their agency without distractions. In addition, it is most ideal to get legal coverage outside of the policy limits.
To keep your rates low, it is best to keep your deductible as high as you can afford to cover an incident, and getting an aggregate deductible limit can help if multiple E&O claims arise from a single event. Agency owners should discuss with their E&O specialty broker other options for additional coverages that make sense for their agency.
Focusing on getting the lowest rate on your E&O policy and not addressing coverage can adversely affect your agency, if you are unfortunate to have a claim brought against you. Agents sell insurance to protect others, but shortchanging your own agency can be a very costly mistake, it can damage your agency, and it can even cost you a very prosperous career.
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