7
Dec
2009
Real Estate Agents E&O 101
There are a lot of misnomers out there about Real Estate E&O insurance. A lot of our blog entries will surround answering questions and providing information to help clarify E&O policy myths. Here are a couple of frequently asked questions……that may receive frequently incorrect answers:
Per transaction insurance. This does NOT exist. What does exist (with a few insurers) is a payment plan on a per transaction basis. Because the policy is a claims made policy, you must keep paying for the insurance for coverage to apply. In addition, with the companies that offer per transaction policies, you typically need to report and pay monthly. You forget for a month and bam, you’ve lost coverage for all past transactions.
What is a “claim”? When does it need to be reported? The definition of a claim is determined by the E&O policy. Some policies define a claim as a demand for money or services. Others constrain the definition to written demands. Like the claim definition, claim reporting is also defined by the policy. Some policies require the “immediate” reporting of a claim while others require the reporting “as soon as practicable”.
How do claims impact premiums in future years? Your claim history will follow you for a 5 year period. The E&O insurers require 5 years of loss history to provide pricing. How these claims will impact future pricing will depend on the frequency and severity of claims. The more frequent or severe, the more likely it will negatively impact future premiums. In today’s environment, insurers are trying to push up deductibles, so rather than see a significant premium increase, a broker might see a substantial increase in the deductible.
What are some of the key issues to understand before purchasing an E&O Policy?
- What services are covered: residential, leasing, commercial, escrow, mortgage, property management, business opportunities, expert witness services, appraisal, etc.?
- What types of claims are covered: discrimination, environmental, lockbox, etc.?
- Is “agent owned property” covered and if so what are the requirements?
- What is the deductible, and does the policy have a deductible reduction component such as use of a home warranty policy?
- What is the “retroactive date” since any transactions before that date are not covered?
- Do I get to choose my attorney; is the attorney I get qualified and on my side?
- How strong is the insurer: financial strength, rating, California admitted, experience?
- What services are offered through the policy such as risk management?
- What risk management, file management and other tools can I use to reduce risk?