The Errors & Omissions (E&O) insurance market has changed substantially over the past 15 years. Rates and other issues have escalated, including raised limits and over-extended reporting periods that have impacted the industry. Add to that, few companies are helping broker/owners and agents understand the complex nature of E&O trade.
One of the industry leaders on this front has been Ft. Lauderdale-based HMS National through its Risk Management Solutions division, whose leaders are laser-focused on partnering with their clients to provide comprehensive risk management solutions that include education, training, E&O and home warranties. “It’s important for broker/owners and agents to be aware of the almost daily changes in the E&O market,” says Doug Stein, director of marketing and development for HMS.“ Today the industry is characterized by fewer E&O insurers and more exclusions, like mold. Yet, we find many of our new broker/owners and agent clients have never fully understood their policies and haven’t taken all steps to improve their coverage while reducing cost.”
Stein says real estate professionals need to follow the following five points to help keep their E&O costs down:
1. Get a deductible waiver by being systematic in the processes you use. Good habits can reduce coverage costs. You may be able to take advantage of a deductible waiver program. How do you qualify for this program? It’s easy. Protect yourselves and your clients by utilizing the following four items in all your transactions: 1) a home warranty, 2) only state-approved forms, 3) recommending at least three qualified home inspectors, and 4) a signed, comprehensive seller disclosure. Bob Juliano, ChFC, HMS director of Risk Management Solutions, said that from an insurance underwriter’s point of view, incorporating those practices into each and every transaction builds good habits among real estate agents and reinforces important practices that frequently minimize exposure. This becomes another avenue for savings to the agency or broker.
2. Use home warranties systematically for all transactions through a check-off box or waiver form. According to Juliano, an invaluable part of an E&O policy is directly related to the company’s home warranty product. He said offering a home warranty to every buyer and seller could be another ripe area for savings. E&O rate reductions are usually available in relation to the usage rate of the home warranty product. For example, if 25% of transactions include a home warranty, a potential 5-10% or more reduction in their premium could be available.
“The home warranty application form has an area dedicated for the homeowner to decline the coverage. By putting this form in front of all buyers or sellers and keeping the form in the file, it builds the paper trail for the agent that a warranty was either accepted or declined on every transaction,” Juliano explains.
3. Raise your deductible to reduce costs. Broker/owners need to be cognizant of the risks and keep themselves and their agents educated and protected, according to Stein. But if an agency’s established record of claims is minimal, it could pay off in the long run to raise the E&O deductible.