Tag Archive for: e&o insurance

Why Some Properties are Getting Too Expensive to Insure

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Many Americans are experiencing rising insurance premiums and in extreme cases, some properties are becoming too expensive to insure. How can this be the case? Properties in disaster-prone states have experienced a surge in premiums due to factors including climate change.

Why Are Insurance Premiums Rising in Disaster Prone Areas?

Insurance premiums are already higher in areas prone to natural disasters such as volcanic eruptions, floods, hurricanes, and tornadoes. 

In 2020 and 2021, U.S. insurers paid $176 billion for natural catastrophe insurance claims alone, the highest total in a two-year period for commercial insurance claims relating to natural disasters. In 2021, 20 separate billion-dollar weather-related events occurred in the United States.

Climate change threatens to increase the number of natural disasters that hit the United States. This increase, coupled with the increase in rebuilding costs, may cause some properties to be too expensive to insure. 

For example, coastal properties will be exposed to damaging erosion and rising sea levels as a result of the climate crisis. These exposures can increase the risk of issues such as flooding in buildings. Additionally, many buildings in California are at risk of being exposed to wildfire, which may also drive up premiums. 

What Do These Changes Mean for Property Owners?

As a result of these spikes, some building owners may simply choose to purchase another commercial property in an area with less risk. However, the situation isn’t that simple for everyone. 

For instance, some building owners may have inherited the commercial property or  be hesitant to purchase property in a lower-risk area for other reasons. This may lead some owners to choose not to adequately protect their property. 

How Can Building Owners Navigate These Increases?

Commercial property owners may consider inquiring about discounts for taking steps to reduce potential damage from natural disasters and/or climate-related events. These steps may include storm-proofing a building, for example. 

Additionally, commercial property owners can speak with an experienced insurance agent before purchasing a property and review the factors that may increase premiums. If the property has already been purchased, an insurance agent can make sure they find the right insurance for their situation. 

We use The Apex Proven Process to learn about your business, strategize to assemble the right program for you, and use our deep industry and market knowledge to leverage the best pricing and coverage. 
Interested in learning more? Read on for the full article from CNBC.

As climate change threatens more homes, some properties are getting too costly to insure

As climate change threatens the U.S. with more natural disasters, it’s becoming increasingly costly for Americans to insure their homes ⁠— and it’s only expected to get worse, according to experts.

“These things are occurring more often, and they’re causing more damage,” said Jeremy Porter, chief research officer at First Street Foundation, a non-profit focused on defining U.S. climate risk.

Indeed, there were 20 separate billion-dollar U.S. natural disasters in 2021 — including a deep freeze, wildfires, flooding, tornado outbreaks and other severe weather — costing a total of $145 billion, according to the National Oceanic and Atmospheric Administration. 

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The uptick in costly climate events, combined with rising costs to rebuild, labor shortages and “demand surges” after natural disasters have triggered higher homeowners insurance premiums, experts say.

“We’re seeing drastic increases,” said Pat Howard, managing editor and licensed home insurance expert at Policygenius.

Some 90% of U.S. homeowners saw premiums jump from May 2021 to May 2022, costing an average of $134 more per year, according to a Policygenius report.

The average increase is 12.1% nationwide, compared to one year ago, but surges have been higher in disaster-prone states like Arkansas, Washington and Colorado, the report found.

Some homeowners have hidden flood risks

Water-damaged items sit outside a house in Squabble Creek, Kentucky, on July 31, 2022, after historic flooding in Eastern Kentucky.

Water-damaged items sit outside a house in Squabble Creek, Kentucky, on July 31, 2022, after historic flooding in Eastern Kentucky.

Seth Herald | Afp | Getty Images

Brad Wright, a certified financial planner and managing partner of Launch Financial Planning in Andover, Massachusetts, said erosion and rising sea levels are growing concerns for clients interested in coastal properties.

When someone considers buying a home along the beaches of southern Maine, for example, there are always questions about flood risks and the cost of insuring the property. Depending on the answers, they may choose another home.

Still, owners may unknowingly purchase or own in flood-prone areas. While the Federal Emergency Management Agency identified 8 million properties at risk for 1-in-100-year flooding, First Street Foundation found nearly double the amount in a 2020 report. 

These family houses have been around forever, and they may not have a mortgage, so flood insurance may not be required.

Brad Wright

MANAGING PARTNER OF LAUNCH FINANCIAL PLANNING

Standard homeowners insurance policies don’t cover flooding, but protection is available through FEMA or private coverage, which may be required by mortgage lenders. While the average yearly premium is $985, according to ValuePenguin, experts say the cost may be significantly greater in high-risk areas.

Last October, FEMA revamped its program to more accurately assess flood risk, causing insurance premiums for some coastal properties to rise to $4,000 or $5,000 annually, up from just $700 or $800, Porter from First Street Foundation said.  

These hikes may be prohibitively expensive for lower-income families or retirees, especially those who may be living in a property inherited from family, Wright said. 

“These family houses have been around forever, and they may not have a mortgage, so flood insurance may not be required,” he said. “But they should have it anyway.”

Wildfire risk may be costly to insure

TOPSHOT – Flames burn to the Klamath River during the McKinney Fire in the Klamath National Forest northwest of Yreka, California, on July 31, 2022. – The largest fire in California this year is forcing thousands of people to evacuate as it destroys homes and rips through the state’s dry terrain, whipped up by strong winds and lightning storms.

The McKinney Fire was zero percent contained, CalFire said, spreading more than 51,000 acres near the city of Yreka. (Photo by DAVID MCNEW / AFP) (Photo by DAVID MCN

Flames burn during the McKinney Fire in the Klamath National Forest on July 31, 2022.

David Mcnew | AFP | Getty Images

Although wildfires are covered as part of the standard homeowners insurance coverage, policy premiums in fire-prone areas have also become more costly, according to Michael Barry, chief communications officer at the Insurance Information Institute.

“The home insurer is looking to price the policy to reflect the risk,” he said.

For example, premiums rose by nearly 10% in California from May 2021 to May 2022, according to Policygenius, with the increase in costly wildfires partially to blame.

If you move into an area that’s prone to wildfires or flooding, that cost goes up dramatically because the carrier is passing that on to the consumer.

Bill Parrott

PRESIDENT AND CEO OF PARROTT WEALTH MANAGEMENT

Bill Parrott, an Austin, Texas-based CFP, president and CEO of Parrott Wealth Management, has also seen rising premiums in high-risk regions.

“If you move into an area that’s prone to wildfires or flooding, that cost goes up dramatically because the carrier is passing that on to the consumer,” he said. “That’s a big expense for a lot of people.”

Nationwide, at least 10 million properties may have “major” and “extreme” wildfire risk, according to First Street Foundation.

How to reduce premiums in high-risk areas

Regardless of where you live, it’s critical to do your homework before purchasing a property, suggests Barry of the Insurance Information Institute.

Before making an offer, you can use free tools like ClimateCheck or Risk Factor to measure long-term climate risk for a specific property. 

‘Climate migration’ could become a problem as climate change accelerates

Current homeowners may ask their insurance provider about discounts for taking steps to mitigate possible damage from climate events, such as storm-proofing your home, said Howard from Policygenius.

You may also save money by shopping around and bundling home and auto policies. Homeowners insurance is no longer a “set-it-and-forget-it” type of thing, he said. 

And if you have sufficient emergency savings, you may consider lowering your premiums by increasing your deductible, Howard said.

What You Need to Know About Changes to Cyber Insurance

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The world of cyber insurance has gone through a slew of changes in the past five years. Why? There has been an exponential growth in the number, scale, and technique of cyber attacks. Each of these increases has led to an increase in demand for cybersecurity insurance, a consequential increase in premiums as well as some other adjustments.

Let’s go over the basics of cyber insurance so we can understand the impact of these changes. 

What is Cybersecurity Insurance?

Cyber insurance, also called cyber security or cyber liability insurance, covers businesses against losses resulting from data breaches. This form of insurance primarily applies to businesses that run secure networks as part of their daily operations.

A cyber attack on a business without cyber insurance may result in legal fees, compromised data, and the loss of computer systems. 42% of small businesses have experienced a cyberattack within the past year and 53% have experienced multiple data breaches. 

What Does Cyber Insurance Cover?

Coverage varies depending on the policy. However, cyber insurance generally covers: 

  • Fines, legal fees, and penalties
  • Credit and fraud monitoring services
  • Finding and addressing the security defect
  • Notifying customers of a data breach
  • Restoring the personal identities of affected customers
  • Recovering compromised data
  • Repairing damaged computer systems

How Has Cyber Security  Insurance Changed?

Cyber Attacks Have Evolved

Since 2020, cyber-attacks have changed significantly and become even more common with the increase of remote and hybrid work models. These attacks can be much more nuanced than in the past.  For example:

  • Phishing emails have fewer red flags and instead include a subtle change. For example, an email from one of your vendors may have a different bank account to pay your bill. 
  • Ransomware attacks are on the rise due to innovations in technology
  • Ransomware attacks have also moved onto a larger scale, such as the attack against Microsoft Windows Remote Desktop Protocol (RDP) credentials to gain access to victim networks

Increase in Demand: More Businesses Are Investing in Cyber Insurance

The U.S. Government Accountability Office found that in 2021, more insurance clients are choosing to purchase cyber coverage. In fact, this number increased from 26% in 2016 to 47% in 2020. As a response to this rise in demand, many insurance providers are changing their coverage. 

Insurance Providers Are Adjusting Cyber Insurance

With the rise in cyber-attacks and the demand for cyber insurance increasing, insurance providers may choose to make adjustments to the coverage they offer. Let’s take a look at how.

Increased Rates for Cyber Insurance

Many insurance providers may increase their rates. In its 2021 report, the U.S. Government Accountability Office found that a number of insurers reduced coverage limits or increased premiums for higher-risk industries. These industries may include:

  • Academic institutions 
  • Health care 
  • Public sectors

Tightened Policy Terms

In order to reduce losses from cyberattacks, insurers have tightened policy terms and conditions. For example, in the past, cyber coverage was often included with commercial property and casualty policies. Now, many insurance providers offer cyber coverage separately instead. 

Lower Coverage Limits

Due to the rise of cyber events and the resulting spike in payouts, insurers are reexamining the coverage limits they offer. 

Documentation May Be Required 

Many insurance providers aren’t quick to fill in the gap in demand for cybersecurity insurance. In fact, some insurers and reinsurers are stepping back to evaluate their risk appetite due to the increase in the severity of cybersecurity attacks. 

To mitigate risk, some providers have begun to transition towards requiring documentation to evaluate a client’s cyber programs. Eventually, if the insured party fails to provide sufficient documentation, they may not receive coverage. 

What Do These Changes Mean for Policyholders?

For policyholders, these changes can lead to fewer coverage options, stricter standards as well as more exclusions. Businesses may be required to pay more or risk having lower coverage limits.

How Can Policyholders Minimize Cyber Insurance Increases?

Insurers are looking for policyholders to reduce their risk of a cyberattack by taking steps such as:

  • Limiting network access to authorized personnel 
  • Implementing multi-factor authentication on all access points to the network, such as phones, computers, email, etc. 
  • Maintaining updated operating systems, software, and applications 
  • Utilizing anti-virus software and anti-malware solutions that will automatically update and run regular scans of your system
  • Regularly backing-up data
  • Creating a plan in case the business experiences a cyber attack
  • Training employees on cyber security, including information about phishing emails and not opening malicious attachments
  • Quarantining suspicious emails

Have More Questions About Cyber Insurance?

Apex Risk & Insurance Services was specifically founded to fill the service and consultative gap left by agency consolidations in the insurance marketplace. These consolidations have left customers who are used to a boutique service approach with no personal connection to their team.

Apex brings the high-touch service proposition back to the San Diego business community, and beyond

Read on to learn more about how to protect your business from ransomware.

Small Businesses: Your Guide to Workers’ Compensation

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Adopted in most U.S. states nearly a century ago, workers’ compensation insurance is the oldest American social insurance program. Since then, workers’ comp has become required in nearly all states as soon as a company hires its first employee.

In this guide for small businesses, we’ll review all the information that small business owners need to know to get started with workers’ compensation insurance.

Let’s dive in.

What is Workers’ Compensation Insurance?

Workers’ compensation is built on an exchange between employers and employees. In the case of a work-related injury or illness, employees are entitled to effective medical treatment coverage while in return, employers are protected from legal action resulting from those injuries.

Through this arrangement, both parties are protected and reduce conflicts when accidents occur in the workplace.

What Coverage Does Workers’ Compensation Provide?

A workers’ compensation insurance policy provides:

  • Coverage for the costs of medical treatment, and
  • Lost time or indemnity benefits

Let’s take a look at each of these in detail.

Coverage for the Costs of Medical Treatment

In the event of an accident at the workplace, workers’ comp insurance covers the cost of immediate medical care. These costs may include:

  • An ambulance ride
  • Emergency room visit
  • An appointment with a physician
  • Prescription medications
  • Surgeries
  • Hospital stays, and
  • Other medical costs

For example: A retail employee is stocking shelves at their workplace using a ladder. They slip, fall, and break their arm. Workers’ comp will pay for the ambulance ride to the hospital as well as any necessary surgery, medications, and physical therapy.

Lost Time or Indemnity Benefits

After experiencing an incident in their workplace, an employee may be unable to return to work for some time. Lost time and indemnity benefits pay part of these lost wages while the employee recovers from the injury or illness.

How are these benefits calculated? According to the Workers’ Compensation Insurance Rating Bureau of California® (WCIRB), “indemnity benefits are calculated on the basis of an injured worker’s weekly wage and determined pursuant to applicable California laws.”

For instance: An employee working in a manufacturing plant drops a piece of equipment onto their foot and breaks several bones. This employee must stay off their feet for six weeks to recover before returning to work. Workers’ comp will provide lost wages for this employee during recovery.

What You Need to Know About No-Fault Laws

In California, workers’ compensation laws are no-fault laws. No-fault compensation is based on the concept that injured employees are entitled to compensation without having to prove fault against the other party. 

What does this mean for business owners? It doesn’t matter who is at fault for the incident. You do not have to admit guilt in the incident and the employee doesn’t need to start a lawsuit against you. Instead, employees need only prove that the injury arose from the “course and scope” of their employment.

These laws were designed to reduce the number of lawsuits against employers as well as make the process of an employee receiving compensation more efficient. 

Exceptions to the No-Fault System

There are a few exceptions to the no-fault system that small business owners should be familiar with. These include:

  • Intoxication: If injuries were primarily caused by the use of drugs or alcohol
  • Intentional Infliction: If an employee purposefully caused their injuries
  • Fighting: If a fight between staff members or with a customer causes injuries, except for self-defense
  • Horseplay: If employees are messing around at work and cause an injury unrelated to their responsibilities

What Businesses Need Workers Compensation Insurance?

Under California Labor Code Section 3700, if a business employs one or more employees, the business must provide workers’ compensation coverage for each of those employees. However, if you are the sole proprietor of your company, you do not need to purchase workers’ comp insurance.

In California, it is a criminal offense for business owners to fail to have workers’ compensation insurance if they employ one employee or more.

Do Businesses With Temporary or Part-Time Employees Need Workers’ Compensation Insurance?

The short answer, yes. In California, if a business employs one or more employees on a temporary or permanent basis, they are required to purchase workers’ comp insurance. The rule is the same for part-time and full-time employees. 

For example: An accountant who owns their own firm decides to hire an employee during tax season to work 20 hours a week to help with additional administrative work. Even though this position is temporary and part-time, the business owner must provide workers’ compensation benefits.

Can Small Business Owners Be Fined For Not Providing Workers’ Compensation?

Business owners can face an array of consequences for not complying with the law. 

According to the Department of Industrial Relations (DIR), “if the Division of Labor Standards Enforcement… determines an employer is operating without workers’ compensation coverage, a stop order will be issued…. and failure to observe it is a misdemeanor punishable by imprisonment in the county jail for up to 60 days, or by a fine of up to $10,000, or both.”

What Factors Affect How Much Workers’ Comp Will Cost for Small Businesses?

California does not regulate premiums for workers’ comp insurance. This means that rates will vary amongst insurance carriers. Typically, premiums are determined by a set of factors, such as:

  • Industry classification
  • Special underwriting adjustments
  • Group or dividend programs, and
  • Employer history/experience modification

Read on to learn why workers’ compensation insurance rates are rising.

Looking to Purchase Workers’ Comp Insurance?

Small business owners already have a lot on their plates. They shouldn’t also have to worry about purchasing the correct workers’ compensation insurance too.

At Apex Risk & Insurance Services, we use The Apex Proven Process to learn about your business, strategize to assemble the right program for you, and use our deep industry and market knowledge to leverage the best pricing and coverage. 

This leaves small business owners with more time to do what they do best: Run their business knowing that their company and employees are protected.
Check out our commercial insurance policies, then, read on to learn how to protect your business from cyberattacks.

Why Are Directors & Officers (D&O) Insurance Rates Increasing?

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As company leaders look to protect their leadership, they may notice a rise in rates for D&O insurance. The Directors’ & Officers’ (D&O) liability insurance market experienced huge rate increases in 2020; with some of these increases peaking at over 70%.

Before we dive into why these spikes are happening, let’s review what D&O insurance is, what it covers, and potential risk scenarios.

What is Directors and Officers (D&O) Liability Insurance?

Directors and officers (D&O) insurance offers liability coverage for company directors and officers to protect them if they are sued as a result of fulfilling the responsibilities associated with their position.

D&O insurance serves as a standard indemnification provision, which protects officers in their business role.

What Does D&O Insurance Cover?

Directors and officers insurance can cover costs associated with:

  • Legal action taken against insured individuals (i.e. settlements and defense costs)
  • Other costs associated with wrongful act allegations and lawsuits

What Parties Might Sue Directors and Officers?

The parties suing a director or officer may include:

  • Investors
  • Customers
  • Employees
  • Vendors
  • Competitors, and
  • Other parties

Common D&O Risk Scenarios

Some common D&O risk scenarios include the following:

  • Employment malpractice
  • Reporting errors
  • Inaccurate disclosures
  • Insolvencies, and
  • Regulation violations

What Businesses Need D&O Insurance?

All public and private companies should invest in D&O liability insurance if they raise capital, negotiate contracts, and grow. It’s important to note that small businesses are particularly vulnerable to D&O lawsuits.

Why Are Directors and Officers Insurance Premiums Rising?

According to FitchRatings, possible reasons for spikes in D&O insurance premiums include increased mergers, class action lawsuits, and the cost of regulatory investigations.

Moreover, the current economic environment post-pandemic may be impacting insurers and driving up rates.

Increased Class Action Lawsuits

The increased frequency of class action lawsuits impacts the rates of D&O insurance. 

These lawsuits can be costly to defend and often result in the payment of large settlements. Due to increased lawsuits, D&O insurers have had to pay out more in claims than in the past. As a result, insurers may raise rates to compensate for these increases.

Rising Cost of Regulatory Investigations

Regulatory investigations are time-consuming and expensive. Additionally, these investigations may result in additional fines or penalties.

The Economic Environment

The current state of the economy can prove difficult for directors and officers insurance providers. For example, the stock market is more volatile and leads to several high-profile corporate bankruptcies.

Concerns with Cybersecurity

Cyber attacks are becoming more costly and common each year, growing exponentially since 2016. Potential D&O risks can result from such attacks if leaders fail to take the necessary steps to protect against data breaches and other cyber attacks.

Additionally, directors and officers may face allegations of not notifying all parties or reporting the incidents.

New standardized requirements regarding cyber security practices may cause more D&O losses if leaders fail to comply. The U.S. Securities and Exchange Commission proposed changes such as:

  • Enhanced and standardized rules regarding cybersecurity governance
  • Risk management methods
  • Incident reporting practices, and
  • Overall strategy to prevent and navigate cybersecurity attacks

A Spike in Employment-Discrimination Claims

Public companies are exposed to corporate misconduct, and leaders are facing increased liability in areas such as sexual harassment and employee discrimination. 

These claims could fall under employment practices liability insurance (EPLI) coverage, but many modern allegations also include a lack of management oversight or training.

Private companies and nonprofit organizations are also affected by this additional exposure.

How Can Policyholders Minimize D&O Premium Increases?

Luckily, policyholders can take steps to reduce their risk and therefore, avoid rising rates. These steps include:

  • Investing in cybersecurity training; be sure leadership participates and monitors cybersecurity threats
  • Review D&O risk scenarios with leadership to prevent future claims
  • Work with insurance professionals to identify and adjust any current risks that could lead to D&O losses

Need Help Assessing Your Risk?

At Apex Risk & Insurance Services, we bring the high-touch service proposition back to the San Diego business community, and beyond. We use the Apex Proven Process to guide you to the right coverage for your organization.
Read on to learn more about Apex’s commercial insurance options, including D&O, and what makes Apex Insurance different from its competitors. Then, check out our full guide to directors and officers insurance.

infographic about directors & officers insurance

Insurance Requirements When Undergoing an M&A

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Mergers and acquisitions (M&As) have become increasingly common in the last few decades, hitting new highs in 2021 and bringing in trillions of dollars. In fact, according to PWC, 62,000 M&A deals took place globally—a 24% rise since 2020.

Many company leaders are excited about this rise in opportunity, and they should be! However, company leaders should also be familiar with the insurance requirements before undergoing an M&A. The right insurance policies can significantly change the outcome of the deal.

Read on to learn how to protect leaders with directors and operators insurance (D&O) and drive your deal toward a smooth and successful transition with representations and warranties insurance (RWI).

Protect Leaders with Directors and Operators Insurance

D&O insurance serves to protect directors and officers. This policy covers these team members if they are named as individual defendants in lawsuits, for acts taken in their professional roles at the company. 

What Does Directors and Operators Insurance Cover?

D&O insurance protects the directors and operators in the event of lawsuits from:

  • Employees
  • Shareholders
  • Competitors
  • Vendors
  • Investors 
  • Customers
  • Other parties

D&O policies typically provide coverage for costs associated with lawsuits, such as legal fees, settlements, and more. Additionally, some D&O policies may also provide some form of coverage for the company.

Advantages of Directors and Operators Insurance in M&A

D&O insurance policies typically insure against certain “Wrongful Acts” as defined by the policy that the company or other parties allegedly commit.  

According to American Bar, these policies commonly contain a “change in control” provision that “limits the available coverage for these ‘Wrongful Acts’ if there is a change in company ownership.”

Before any M&A, participating parties should understand any change in control provisions and invest in coverage for their leaders with  D&O insurance.

Additionally, some directors and officers may be entitled to indemnification from the company through employment contracts or company bylaws. If so, those indemnity obligations are typically backed financially by a D&O policy.

Let’s Talk About Representations and Warranties Insurance

A few decades ago, company leaders rarely invested in representations and warranties insurance (RWI) to protect their companies during an M&A transaction.

However, in recent years, RWI has been a rising solution to the unknown liabilities and risks of M&As. Company leaders use RWI as a tool to transfer risk to an insurer and enhance the value of their deals.

What Are Representations and Warranties?

First things first, what are representations and warranties? This term, of course, can be broken into two sections: representations and warranties.

Representations are assertions as to a fact that is given to another party. These representations are given to induce another party into taking a particular action, such as entering a contract.

Warranties are promises of indemnity if the assertions are false or wrong. Therefore, if the representation is false, it’s “inaccurate,” but if a warranty is false, it’s “breached.”

In simple terms, representations and warranties provide sellers with the opportunity to provide accurate information and disclose any issues about their company. From this information, the buyer can correctly estimate the value of the company and know what they are getting into.

What Is Representations and Warranties Insurance?

Representations and warranties insurance, also called reps and warranties insurance or RWI, is a policy purchased for corporate transactions. 

Forbes defines reps and warranties insurance as “an insurance policy used in mergers and acquisitions to protect against losses arising due to the seller’s breach of certain of its representations in the acquisition agreement.

Advantages of RWI in an M&A

RWI has several benefits during an M&A transaction for both the buyer and seller.

For the Seller: Early Termination of Escrow

Representations and warranties insurance allows for the escrow to end sooner. 

For the Buyer: A Longer Survival Period for the Indemnification of Breaches

For the acquiring party, RWI typically provides:

  • Six years of coverage for breaches of fundamental and tax representations, and
  • Three years of coverage for non-fundamental reps

Additionally, the buyer can purchase limits on the policy to exceed the cap on the seller’s obligations surrounding indemnification. 

For the Seller: Limiting Liability with an Indemnity “Strip” or “No Survival” Deal

Parties might agree to reduce or eliminate the seller’s liability for certain representation breaches. 

In an indemnity strip, the retention will “drop down” to a reduced amount after a set period of time. For instance, the retention may drop after one year of closing.

In a “no-survival” deal, some or all of the seller’s reps do not survive the closing.

For the Buyer: Distinguishing Their Bid

RWI can help set the buyer’s bid apart from the competition in the auction process. Additionally, RWI can:

  • Make the bid more attractive to the seller because of its economic benefits
  • Shorten negotiations or increase efficiency over the acquisition agreement

Undergoing an M&A?

Your business changes regularly, and so should your understanding of your insurance coverage. You run a business with complexity; at Apex Risk & Insurance Services, we provide custom solutions to meet your insurance needs.

Read on to learn more about who we work with or contact us for more information on how to protect your business and how to experience an efficient transition when you partner with us.

Lastly, read on if you’re interested in our executive protection policies.

Professional Liability vs. Errors & Omissions Insurance

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While professional liability insurance (PL) and errors and omissions (E&O) insurance are often grouped together or used interchangeably, the two types of insurance have a few technical differences.

Let’s discuss what they are.

Professional Liability vs. E&O Insurance: What’s the Difference?

Simply put, errors and omission insurance falls under the umbrella of professional liability insurance. While all E&O insurance is professional liability insurance, not all PL insurance is E&O insurance. For example, PL insurance can be malpractice insurance, used by medical professionals.

Many professionals have some form of professional liability insurance, often determined by the industry they are in. For instance, basic professional liability insurance is most commonly associated with professional architects, engineers, and consultants. E&O insurance, on the other hand, is frequently associated with professionals in the real estate, accounting, and tech industries.

What is Professional Liability Insurance?

Professional liability insurance protects a business if a customer files a lawsuit over a mistake or error in the services provided by the business. Professional liability insurance includes several different types of insurance, such as medical malpractice insurance and E&O.

What is E&O Insurance?

Errors and omissions insurance (E&O) is a type of professional liability insurance that protects companies, employees, and other professionals against allegations of errors, misrepresentations, or “claims of inadequate work or negligent actions.”

In simpler terms, according to Chron, E&O insurance helps protect business owners from lawsuits accusing them of things they did (errors) or didn’t do (omissions) while providing service.

What Does E&O Insurance Cover?

While plans can vary, E&O insurance may help to protect your business against the following claims:

  • Errors, mistakes, or oversights in the provided service 
  • Inaccurate professional advice
  • Breach of contract
  • Omissions
  • Misrepresentation
  • Violation of good faith
  • Missed deadlines
  • Failure to deliver a service 
  • Professional negligence 
  • Failure to meet a standard of care

If an individual claims that a business made a mistake and sues, E&O insurance may help cover:

  • Legal fees (i.e. attorney fees)
  • Court costs (i.e. paying for witnesses or reserving a courtroom)
  • Damages and expenses 
  • Judgments or settlements

What Doesn’t E&O Insurance Cover?

E&O insurance may not cover:

  • Purposeful wrongdoing or negligence
  • Illegal activity
  • Data breaches resulting from a cyberattack
  • Bodily injured caused by a business 
  • Property damage caused by a business
  • Employee injuries
  • Employee harassment claims
  • Employee discrimination claims

Additionally, the business owner must have a policy at the time of the claim to be protected. If the coverage lapses, the insurer will not cover the claim.

What Businesses Need E&O Insurance?

Businesses that provide professional services to customers for a fee require a form of E&O insurance. These businesses may include: 

  • Real estate agents
  • Accountants or accounting firms
  • Marketing agencies or firms
  • Insurance agents or companies
  • Website developers, software developers, or IT professionals
  • Businesses in the beauty and/or salon industry (i.e. hairstylists and barbers)
  • Wedding planners

According to Forbes Advisor, certain states and licensing boards require businesses to have errors and omissions coverage. For instance, some states require real estate agents to show proof of E&O coverage before receiving their real estate licenses.

Why Do You Need E&O Insurance?

Mistakes happen. Errors and omissions insurance can help to protect your business by assisting with legal fees, settlements, and other expenses in the event of a lawsuit. 

How Much Does E&O Insurance Cost?

The cost of errors and omissions insurance varies depending on the unique needs of the businesses as well as industry risk, coverage limits, and claims history.

Industry or Business Risk

If your business is in a high-risk industry, you’re more likely to pay a higher premium. For example, large financial consulting firms that offer advice on millions of dollars or accounting firms trusted to correctly file taxes on those millions may be considered ‘high-risk’ industries, therefore paying a higher rate. 

Your insurer may review how many lawsuits are in your particular industry to determine the risk of your business. 

Coverage Limits 

Another factor in determining how much errors and omission insurance will cost is the amount of coverage a business will need.

Claims History

An insurer may also consider any past claims your business has filed.

Still Not Sure What Insurance is Right for Your Business?

At Apex, we provide custom solutions to meet your insurance needs. Reach out to us today. Read on to learn more about who we work with at Apex.