Five ways to reduce the cost of errors-and-omissions insurance
By Steven McCarty
The National Ethics Association
There are a few things you can do to save money. Here are five specific ideas that might help.
1.Take advantage of your clean record.
If you do business responsibly, chances are you’ve never been sued or have other black marks on your record. If so, look for low-cost errors-and-omissions insurance for financial professionals who have stayed out of hot water.
2. Leverage your relationships with third-party entities.
Some field marketing organizations and member associations may recommend errors-and-omissions insurers that can save you money. But be careful that their deals don’t rob you of your independence. For example, some FMOs make your E&O coverage contingent on staying with them or on putting a certain level of business through one of their carriers.
3. Comparison shop.
Premiums are all over the lot, depending on the insurance company. So make sure to get quotes from several carriers. Also, keep in mind that errors-and-omissions insurance companies don’t typically put advisors through an underwriting process to assess risk. They charge a one-size-fits-all premium regardless of risk status. So try to find a carrier that will reward your low-risk status with lower premiums.
4. Buy the right coverage.
The key here is to customize your errors-and-omissions insurance for your precise business activities. Don’t pay more to cover risky products or services you never provide. But don’t skimp on protection, either. If your E&O policy is too lean, you may end up unprotected against a serious errors-and-omissions insurance claim.
5. Watch out for non-regulated errors-and-omissions providers.
Some entities provide bargain-basement E&O insurance through so-called risk-sharing plans. No state insurance departments check their books or require them to hold minimum reserves. If such a plan fails, you will be left holding the bag. Instead, do business with a bona fide insurance company that rewards low-risk advisors with a lower premium.