RISK MANAGEMENT
PURCHASING E & O FOR YOUR AGENCY : TOP 4 TOPICS TO CONSIDER
By : Dave Hulcher
When purchasing E & O for your agency , you need to pay just as much attention to policy provisions , claims handling , and carrier longevity as the quoted premium .
All E & O policy forms are not created equal .
When reviewing your E & O options , here are four specific issues to keep top of mind :
Claims-made vs . claims made and reported : Agents E & O policies are generally written on a claims-made basis . Review claims reporting provisions to determine if it is genuinely a claims-made form or if it is “ claims made and reported .” The difference between the two can be significant , especially if you are looking to switch carriers .
A claims-made policy provides coverage for a claim that is first made during the policy period . Typically , the claim must be reported to the carrier “ promptly ” or “ as soon as practical ,” but not necessarily during the policy period . The “ claims made and reported ” policy form requires that the insured not only make claims during the policy period but also reports claims to the carrier during the same policy period in which they made a claim . That means the “ claims made and reported ” policy form is more limiting , requiring agents to make sure they pay close attention when
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If your current E & O policy form is “ claims made and reported ,” call KAIA immediately to find out more about your E & O options . changing carriers . This potential restriction of coverage scope may allow a carrier on a “ claims made and reported ” form to offer a lower price , but know that comes with more risk of a claim not being paid .
First-dollar defense : The two common deductible options when structuring your E & O policy are first-dollar defense — commonly referred to as a “ loss only deductible ”— and loss and expense . Not every carrier may offer the first-dollar deductible , and not every agency will be eligible for it . Yet , the benefits are significant : Policyholders only pay their deductible if there is an indemnity payment . Considering that about one-third of every dollar in total claims comes from legal defense expenses , E & O carriers can rack up high defense costs without you absorbing the cost of your deductible .
The agent must pay their deductible with a loss and expense deductible when they incur the first dollar of defense expense . When comparing E & O premium quotes , keep in mind that paying your deductible can easily exceed the premiums savings on a policy that offers a loss and expense deductible .
Defense outside the limits : When evaluating your limits options , make sure the quotes identify how the policy addresses defense costs . Defense inside and outside the policy limits are common terms for defining options . Defense outside the limits is preferable — about one-third of total claims costs are for defense expenses , so keep in mind that you will need $ 3 million of defense inside the
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