DETERMINING AGENCY E & O LIMITS by Dave Hulcher, KAIA
When it comes to protecting the agency, one of the most important business decisions is the purchase of E & O insurance. While carrier contracts require a minimum amount of coverage limits, agencies are often uncertain of what limits they should purchase as they grow and what factors should drive their buying decision.
To aid members, we’ ve reviewed data on over 200 members agencies in Kansas insured through our E & O program to provide benchmarking stats on occurrence and aggregate limits segmented by agency size. Further, we’ ve outlined some key considerations in determining limits that are appropriate for the agency.
Understanding Exposure- Common Types of Errors: On average, 1 in 6 agencies will report an E & O claim per year. Fortunately, half those reported claims will be closed with no loss or defense costs incurred. In general terms, E & O claims result from a customer’ s lack of appropriate or inadequacy of coverage and can be broadly categorized into procedural and / or knowledge-based errors. Common types of allegations / errors involve failing to procure coverage, inadequate values / limits, misrepresentation of coverage, improper exposure assessment, and lack of timely execution.
DETERMINING E & O LIMITS
What are some of the things agents should consider when determining what E & O limits are right for them? Below are some key considerations.
Carrier Contracts: Carrier agreements prescribe required minimum E & O limits. This should be considered the minimum requirement and just because a carrier requires it doesn’ t mean it is the appropriate limit for the agency’ s needs. It is also worth noting that a portion of E & O claims are made by carriers against agencies. This is one of the many reasons why placing your E & O carrier with an appointed carrier is not the best idea.
Agency Size: The larger the agency, the greater the asset you ' re protecting. This is coupled with a higher probability of errors. The number of transactions, volume of services rendered, and overall scale of operations influences the potential for an E & O claim.
18 KANSAS INSURANCE AGENT & BROKER