E&O Insurance: Prices Drop Time to Shop
by David Brauner, Senior Insurance Broker at OREP.org
Instead of the now familiar direction to “shop ‘till you drop,” current insurance conditions suggest instead that inspectors should shop because they’ve dropped. We’re talking about rates for errors and omissions insurance of course. The market has softened (prices dropped) over the last few years and that means more choices than ever for you– broader coverages and lower rates.
If you are a single inspector and haven’t shopped for awhile you will be surprised at the lower premiums now available. Minimum premiums for policies with very broad coverage including general liability, prior acts, coverage for referring parties, radon, pest, commercial and more, are back down to the $1,250 range! Multiple-inspector firms also are benefiting from the new market-especially with programs that don’t charge or charge minimally for additional inspectors and independent contractors.
Years ago it was hard for home inspectors to find inexpensive insurance- the choices were few. Today, the tables are turned. Here are a few tips to help you make an informed decision about these and other issues, such as Occurrence versus Claims Made, preserving prior acts and more.
Simple Rules for Maintaining Prior Acts
If you are reluctant to switch carriers because you are worried about losing coverage for past inspections, or if you pay more year after year for an Occurrence policy, believing that this is the only way to preserve prior coverage, most programs now offer prior acts for free. You can enjoy the lower rates of a Claims Made policy and preserve your prior acts.
Claims Made provides coverage for claims that are made and reported during the policy period. What does this mean? It means that claims are covered for as long as the policy is in force- one year, ten years or longer, as long as coverage is continuous (no break in coverage). Here’s how to avoid a break in coverage and preserve prior acts:
- Don’t let your policy lapse: if you are renewing with your current carrier, renew on time (on or before expiration) to preserve your prior acts.
- If you switch carriers, the rules are the same: bind with the new carrier on or before expiration. (If switching carriers, make sure to get prior acts coverage from the new carrier- most provide it for free.)
- If you stop inspecting and no longer need or want insurance, purchase optional Extended Reporting or Tail Coverage to cover the inspections completed while insured. Contact your current agent for pricing and terms.
If you’re renewing your policy with the same company, make sure to renew on or before expiration. It’s that simple. OREP provides multiple reminders as your expiration draws near to make certain you know your policy is expiring and what is at stake, including by mail, email and phone. If money is tight, financing typically is available. It is always wise to follow up to make sure your new or renewal application has been received by mail, fax or email.
To qualify for prior acts from the new carrier, there needs to be continuous coverage. What does this mean? It means you must switch on or before your current policy expires so there is no break in coverage. Most companies have a question on the application for insurance that asks if you have current coverage. If you indicate you have insurance, you will be asked to provide proof of coverage (your Declarations Page). If you can’t find your Declarations Page, ask your current agent to resend it. That’s what you pay us for. Always check the dates on this document to make sure coverage goes back as far as it should.
Don’t be Bullied
Give yourself sufficient time to shop before expiration for the reasons explained above but if your insurance company pressures you for a renewal decision well in advance of your expiration date (or they imply you risk losing your prior acts coverage if you don’t renew in advance), they may be trying to limit your ability to shop. You can guess why. Remember this: you don’t have to stay with your current company to preserve your prior acts. You can switch and preserve your prior acts as long as you switch coverage before it expires. With OREP, if you renew on the day of your expiration or even a few days after, you are typically not in danger of losing prior acts. Most companies have a grace period of at least a few days after expiration. Each company is different, so make sure to ask your agent how long your grace period is, in case you need it.
Start the process early so you can shop and don’t give in to the pressure to make a quick decision. If you’re getting close, ask your agent about your grace period.
The same goes for inspectors who work for a franchise company where the head office requires you to purchase your policy from a particular agency or limits your choice to a select few programs. If it’s not a true group policy written for the franchise, you should ask why they insist you buy it and see if their response passes the “smell test.” Without the freedom of choice, you may be paying more than you have to for less coverage. This is not in your best interests.
Extended Reporting or Tail Coverage
If you choose to stop inspecting and to terminate or not renew your insurance, you can keep coverage for past inspections with optional Extending Reporting Period or Tail Coverage. Extended Reporting or Tail Coverage is offered by most Claims Made carriers for additional premium.
Tail coverage provides coverage for work completed during the policy period for a number of years into the future (after your policy terminates). What does this mean? If you have a Claims Made policy and decide to stop inspecting, you can purchase tail coverage for inspections completed during the policy period for as far back as you’ve been covered continuously, for a number of years forward after the policy expires.
Peace of Mind
There is peace of mind in knowing you’ve done the numbers, understand the issues and are making an informed decision. Due to changes in the insurance market, if you haven’t done the numbers lately, you owe it to yourself and your business to compare coverages and prices. This is especially true if you pay “per inspector” for your multiple inspector firm or if you pay extra for premises coverage/general liability, “corporate coverage,” pest, radon or commercial inspections. The insurance market has changed in the years since 9/11. You have more choices, make your decision an informed one.
Disclaimer: This article is written from an insurance perspective and is meant to be used for informational purposes only. It is not the intent of this article to provide legal advice, or advice for any specific fact, situation or circumstance. Contact legal counsel for specific advice.
About the Author
David Brauner is Senior Broker at David Brauner Insurance Services/OREP (www.orep.org) and has been providing E&O insurance for home inspectors for 20 years. He is licensed in 49 states. Calif. insurance #0C89873. He can be reached at: firstname.lastname@example.org or (888) 347-5273.