Professional liability insurance covers you for errors and omissions you make while doing your job and giving advice to your client. It is often called errors and omissions (E&O) insurance.
Not all E&O coverage is the same, though, and price does not necessarily reflect the true value of the coverage your purchase. It is important to understand the details of the coverage you have purchased — just as you would want a client to understand the details of an insurance policy you’re selling them, you should fully understand the details of your own coverage.
The first step to understanding your coverage is to analyze your coverage needs. You should analyze your needs the same way you analyze a client’s needs in a “Know Your Client” analysis.
Risk management approach vs. basic regulatory compliance
You need to look beyond basic, bare-bones coverage that simply satisfies regulatory compliance. Would you advise your clients in this manner? Think honestly about the risks you face daily in your practice and perform a serious and honest risk and needs analysis for yourself.
Size and scope of your practice
Think about the type and scope of your practice and your clients. Basic E&O coverage will certainly satisfy the regulators, but is the minimum coverage really enough to protect everything you've built through the years?
Your clients: affluence & sophistication
The affluence and sophistication of your clients is directly related to the potential risks you face of a claim. Clients with larger portfolios and casual access to legal advice are often more inclined to sue for losses.
Types of products you sell
Think critically about the types of products you sell. How complex are they? Can you explain them at both a technical and non-technical level? Complex products and services come with a higher level of risk, both in terms of the product or service itself and also in the possibility of something going wrong and resulting in a claim.
Benchmark coverage against your peers
Networking is an important aspect of our industry and you need to discuss the topic of E&O coverage with your peers. Sharing research and information about different products and coverages and what others feel is appropriate coverage is a good way to assess your needs.
Where you are in your career cycle?
Quite simply — the need for coverage differs based on where you are in your career cycle. Again, think of how you would assess the needs of a client. Are they young and newly married and just starting out in life? Are they established, with a home and kids that will soon be going to university? Are they approaching retirement? These are the kinds of questions you need to ask yourself. The answers reveal exactly what you are trying to protect with your E&O insurance.
Accounting for market volatility
No one knows where the markets will go in six days let alone six months or six years. Advice today may seem sound and prudent but market changes can quickly turn that upside down. In examining your portfolio of business think critically about how changing market conditions can affect your clients. Always remember; Volatile markets often mean volatile clients.
Have you actually read your errors and omissions insurance policy? Or did you browse through some advertising material and think that the price was okay? Product knowledge is important in our industry, and understanding what exactly is "in" and what is "out" of your E&O policy is crucial. Could there be an activity that you are engaged in which isn't listed or is specifically excluded? The difference could mean having coverage or no coverage when a claim occurs.
"Professional services" is the high-level catch-all phrase for all of the activities that are covered under the policy. Understanding the details of what activities and services are contained with the professional services section or definition of your policy tells you exactly what you will be covered for.
Key terms and conditions: Understanding the key terms and conditions of the policy is the next step after understanding the covered services. How terms are defined in the policy can affect how the particular professional service will be interpreted by the insurer when coverage becomes a question.
It's not just what's "in", but what's "out" as well. Every policy comes with exclusions, and understanding the exclusions of your E&O policy is very important. You should never assume that a particular product or service is covered, either fully, in part, or with no restrictions. Exclusions are natural parts of a policy and are intended to narrow definitions and activities; this results in a narrowing of coverage.
"Claims made" vs. "occurrence" policies
E&O insurance policies in our industry are generally "claims made" policies. This means the E&O coverage policy you have in place when a claim is put forward responds to the claim regardless of when the actual error occurred. You can not make the assumption that if you're going to take a year off from the business, you don't need to continue to maintain E&O insurance.