Recently, I saw the results of an E&O survey conducted by Insurance Journal with one of the questions focusing on the E&O limit that agencies bought. Roughly half (49.4% to be exact) had E&O limits of $2million or less.
If I had to guess, there is a strong likelihood that many of the agencies that fall within this $2mil or less category are the smaller size agencies. They are probably of the belief that due to their size, there is no real need for higher E&O limits. This, my friends, is one of the biggest misconceptions on E&O limits. Bottom line, the size of your agency is not an indicator of the probable or potential size of E&O claims that your agency could face.
Virtually every E&O carrier could bring to your attention some significant multi-million dollar claims that customers had where the amount of insurance was not enough. Actually, when you look at E&O claims, the # 1 cause of claims involves “Failure to obtain the proper coverage”. So essentially, the key issue for E&O is not what you sold and not what the client bought but instead what coverage / limits the client did not buy.
It is what is not covered that generates probably well over 90% of all E&O claims.
Another question on the survey asked if the agency had purchased higher limits at renewal time. Approximately 85% of the agencies indicated that they had not done so.
It is critical for agencies to realize that renewal time is probably the only time that agencies will be able to secure higher limits on their E&O coverage. This is an area where agencies need to be proactive. You cannot wait until you need the higher limits to buy the extra coverage.
With January being one of the heavier months when E&O policies come up for renewal, agencies would be wise to look at some limit options. What is the cost for that extra million of coverage? It could very well be a lot less than you think. If the cost is more than you can absorb, consider increasing your deductible to the next level and using the savings to buy the next highest limit.
When was the last time you really did some research on your E&O protection? It probably is one of the most important buying decisions your agency will make.