What insurance do I need as an insurance agent?

Question mark sculpture with added dots As an insurance agent, you’re constantly advising people to protect their futures with sufficient coverage.

Don’t make the mistake of failing to heed your own advice.

If you’re an insurance agent, you need errors and omissions insurance just as surely as your clients need the insurance you sell.

Why insurance agents need errors and omissions insurance

Even with diligent standards, controls, and processes in place, any professional is still human, and that means mistakes can be made.

You don’t want to think you can miss a renewal or arrange the wrong policy, but it can happen. And if you, or anyone working for your organization, makes an error which negatively affects the client, they could sue you for damages.

Even if a client believes you just didn’t do what you were supposed to do, they can file a claim against you.

Lawsuits against an insurance agent, even lawsuits without much credence, can have a devastating effect, particularly on relatively small, independent agencies.

Errors and omissions insurance minimizes this risk by covering claims arising from actual or alleged errors, omissions, and/or negligence.

Understand how you’re vulnerable

If a client says he has been wronged (whether it’s true or not), the effect on your firm can be substantial:

  • Any compensation due to the injured claimant
  • Legal fees
  • Loss of productive labor time that’s instead used on meetings with defense lawyers, file reviews, and depositions
  • Damage to your company’s reputation that devalues your brand
  • Possible loss of accounts due to clients’ negative reactions to the claims against you
  • Loss of key personnel who move to other companies, fearing instability at your firm.

If you suffer any of these consequences, errors and omissions insurance can protect your business financially, paying damages, covering legal fees, and compensating for loss.

You might be tempted to think you’ll never need errors and omissions insurance, or that you don’t need much of it, because you run a tight ship. But mistakes, after all, aren’t planned. They can happen, even in the best organizations and by the best people. And, unfortunately, not all lawsuits are because of a genuine mistake. Sometimes they’re brought unjustly, but they nonetheless can cause you significant harm.

Get the coverage you need

Keep in mind how exorbitant attorneys’ fees are, as well as how excessive damage compensation awards can be. Your policy should cover the worst-case scenario. Consult with your attorneys to determine how much coverage you need, but in most cases, the best decision is to buy as much coverage as you can afford.

And as you grow, periodically review your coverage to ensure it still meets your protection needs.

Pay attention to details

When shopping for errors and omissions insurance, it’s important to consider:

  • the amount of the deductible
  • whether it’s “claims made” coverage (covering claims made during the coverage period) or “occurrence” coverage (covering events that happen during the coverage period)
  • exemptions (e.g., punitive damages owed to professional licensing or governmental agencies)
  • the reliability and reputation of the carrier, as well as the carrier’s familiarity with covering insurance agencies.

Discourage claims with good management

Of course, the goal is never to have a claim brought against you. You need errors and omissions insurance, just in case. But you can take steps to prevent ever having to use it.

Identify areas of exposure and implement processes and training designed to prevent errors in those areas. Have a company culture in which client happiness is stressed. Install systems like client complaint lines. So customer problems are tackled before they become big ones.

But in the end, you shouldn’t avoid errors and omissions insurance any more than your clients should avoid their vital insurance needs.

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