Hidden Costs of an Agency Errors and Omission Claim

“I have E&O coverage,” you may think, or, “It’s just a small claim!” Any E&O claim is a distraction to agency personnel and the agency may take a reputational hit within their community.

However, there are many hidden costs of an agency E&O claim that go beyond your deductible. Direct claims cost are just the tip of the iceberg.

Let’s cover some of the hidden costs of an agency E&O claim.

Direct Costs of an E&O Claim

• Here are some direct costs of an agency E&O claim.
• Any deductible or self-insured retention under your E&O policy
• Claim payout for defense and settlement if in excess of limits
• Premium loss from probable loss of account
• Premium increase that may occur at renewal, or even non-renewal by your current insurer.

However, the indirect costs may be much higher than your out-of-pocket direct costs, which are readily apparent when you must write a check.

Hidden Costs of an E&O Claim

Here are some of the indirect costs of an E&O claim that your agency staff may not have considered.

• Administrative costs to investigate and attend depositions and settlement conferences, including
• management administrative costs to manage the claims process
• Negative public relations including lost business due to negative publicity, and costs to hire an outsourced public relations firm when needed
• Employee flight post incident, which can occur when an employee makes a serious error
• Temporary employee costs, costs to rehire and train
• Costs to retrain and improve current agency procedures
• Lost productivity due to lower employee morale
• Production delays both internally and with external sales staff
• Costs to locate and sell a new account
• Non-covered legal fees to manage internal issues, such as human resources issues
• Potential costs of uncovered claims

In short, an agency E&O claim can be very costly to your agency. Many of those costs, like an iceberg, lie below the surface of the claim.

EO Guardian and the Big I’s Virtual University Offer Many Tools to Help Reduce E&O Claims

EO Guardian offers many features designed to help you prevent or reduce E&O losses. These include but are not limited to the following.

• Thousands of articles, some on E&O Guardian and others on Virtual University, were designed to help you improve your agency operations and coverage knowledge
• Quarterly webinars that cover the latest E&O trends, from crop insurance to emerging E&O trends
• The Virtual University’s Ask an Expert service, where you can gain valuable insight from our bank of experts on agency management or insurance coverage issues
• Documents to help you manage your agency risk, including the following:

o   Dos and don’ts of website wording
o   A commercial producer onboarding guide
o   A sample procedures manual
o   Duty to Advise, a state-by-state guide to agents’ legal duties
o   Insurance agency risk management tools, including coverage declination forms, checklists, auditing tools, and a variety of useful letters for your agency communications
o   Big I Agents’ Council for Technology, which offers technical tools for your agency

Keeping your staff updated and compliant with your agency procedures can help you avoid an E&O claim.
We are always available to help. If you have a risk management question, you can reach out to Nancy.Germond@iiaba.net.

Independent Insurance Agents of Virginia