September 2007
Inspector’s E&O Insurance: Market Softens- Prices Drop
By David Brauner, Senior Broker OREP (www.orep.org)
Instead of the now familiar direction to “shop
‘till you drop,” new 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 is finally softening back to where
it was before 9/11 and the good news is that you have more choices
than ever– 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 free prior
acts, coverage for Referring Parties, radon, pest, commercial and
more, are back below $2,000! Multiple-inspector firms also are
benefiting from the new market-especially with programs that don’t
charge extra premium for additional inspectors. Here are a few
shopping tips to help you make an informed decision about these and
other issues, such as
Occurrence
versus
Claims Made,
preserving
prior acts and more.
Covering Multiple
Inspectors
If you pay
“per
inspector” to cover your multiple-inspector firm you are
probably paying more than you have to. This also is true if you
pay extra for “corporate coverage,” pest, radon or commercial
inspections. If you have risked not covering
every
inspector doing
work for your firm in the last few years because the cost became
prohibitive, there are programs today, such as OREP, that will
cover all inspectors for one low premium, including independent
contractors.
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.
Renewing
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 is available. We assume most
companies make a similar effort to keep your business and to
do their due diligence. It is always wise to follow up to
make sure your new or renewal application has been received
by mail, fax or email.
Switching Carriers
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.
What is the cost
of Prior Acts?
OREP does not charge for prior acts coverage. Our
understanding is that most companies who provide E&O to
inspectors do not. If you’re unsure, ask your agent.
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.
Don’t give in to the pressure to make a quick decision but
also avoid problems by shopping in advance: always renew or
switch on or before expiration. If you’re getting close, ask
your agent about your grace period.
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.
We have not seen nor examined every inspector policy on the
market, but
OREP’s inspector policy offers policy holders
the option to purchase tail coverage for a limited time
after the policy expiration/termination, provided the terms
and conditions of the policy are met and all premiums are
paid. If you plan to stop inspecting, you should have the
option to purchase this coverage. Ask your agent for more
information.
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 “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 OREP (www.orep.org)
and has been involved in providing E&O insurance for home
inspectors for 15 years. He is licensed in 49 states. Calif.
insurance #0C89873. He can be reached at:
dbrauner@orep.org or (888) 347-5273.