In the best-case scenario, your insurance team never makes a mistake. Your clients are always happy, word of mouth keeps on growing, and your insurance agency thrives. Unfortunately, mistakes do happen, and sometimes those mistakes impact your clients both financially and emotionally.
If your employee makes an error or an omission that has a negative impact on an insurance client, what are some of the costs that could impact your insurance agency?
What Are Errors and Omissions?
Errors and omissions occur sometimes in a business, no matter how hard you try. Your employees forget to check off a box on a form. They forget to articulate something important to a client or provide the full spectrum of options for that client. They give out-of-date information to a client, which leads to that person making a decision that is not right.
While you can work on reducing errors and omissions with training and strong workplace processes, the fact is that they will always remain a challenge to your business and your clients. Your employees are human, and humans make mistakes.
The Costs of Court and Arbitration
Unfortunately, due to the fact that your employees make mistakes, there’s the possibility that a real or perceived error or omission could negatively impact a client. If so, that client may choose to take your insurance agency to court or arbitration to cover some of the costs they have incurred due to this error.
What Are the Costs of Court and Arbitration?
No matter whether the case is founded or not, you will need to hire a defense team to defend your interests. Unfortunately, this comes at a high cost: up to $1000 an hour, according to Liability Cover. If you have E&O insurance, it will cover these costs and save your business from financial ruin during your case.
The other cost of court or arbitration is the outcome. If the case is settled in favor of the client, you will likely need to pay a settlement to the other individual. These costs depend on the amount of damage your error or omission has caused.
When Will an E&O Case Cost Your Business Money?
Will an E&O case always cost your insurance agency money? What if you actually win the case?
Sometimes, E&O cases are not well-founded. An unhappy client may have a point, but what occurred was not actually an error or omission. In these cases, it’s possible that a court or arbitration panel could rule in your favor. Are these still costs associated with this process?
According to Investopedia, “errors and omissions insurance often covers both court costs and any settlements up to the amount specified by the insurance contract.” If your business is found to be in the right after a court case, you won’t need to pay a settlement, but you will still need to pay for the process of hiring a defense team during the process.
What is Covered by E&O Insurance?
When you are purchasing insurance, know what is covered and what is not covered. According to Investopedia, “E&O insurance may or may not cover temporary employees, claims stemming from work done before the policy was in force, or claims in various jurisdictions.” It will not cover criminal prosecution.
Are you ready to secure E&O insurance for your insurance agency? If so, talk with us at the American Agents Alliance. As independent P&C agents ourselves, we understand your risks and offer top-rated E&O insurance that’s here to help you keep your business financially secure. Contact us today to learn more.