OREP: Low Cost E&O Insurance
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.
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.
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: email@example.com or (888) 347-5273.
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