There is no one perfect errors and omissions insurance (E&O) policy because what an individual needs will depend on one’s business activities, and the regulatory requirements in their province.
Not all provinces require you to carry E&O for the sale of life insurance. For example, E&O is mandatory in Quebec, Ontario, Alberta, Manitoba, and Saskatchewan.
Philip Rubenstein, Vice-President at Marsh Canada, describes the perfect E&O coverage as a policy adapted to each broker’s particular needs. Do they have a large clientele? Or a rich one? Or perhaps a clientele with more diverse needs that include mutual funds or other products? Each variable must be considered in assessing a broker’s level of need and the right type of coverage.
At the least, Mr. Rubenstein suggests individuals selling only life insurance should seek coverage for $2 million, and those also selling mutual funds should be covered for $5 million. Endorsements should be added to cover each activity not already covered, and tail coverage for claims related to previous events should ideally be to the death of the insured.
While some provincial regulators stipulate a minimum coverage of $1 million, Mr. Rubenstein says that agents and brokers with bigger books of business, or who derive income from other financial services, should consider larger amounts to ensure sufficient coverage.
Something to look out for, said Jim Bullock, Registrar at Peel Institute of Applied Finance, are the exclusions specific to each policy. In a response to colleagues discussing the new CAIFA-sponsored E&O insurance plan, Mr. Bullock noted, “Until a broker knows what is excluded he should not buy it. Either he knows before he buys what is excluded or he faces explaining to his wife why they are losing the house and RRSPs in an E&O claim because the activity was not insured.”
Exclusions to look out for, explained Mr. Bullock, include those for financial planning, financial needs analyses, and any kind of tax advice. And if a broker acts in a supervisory role, are there exclusions on claims arising from the hiring, supervision, training, or control of a subordinate agent or broker?
Mr. Bullock noted that the mentorship framework common in today’s insurance industry must be fostered by adequate protection for senior agents who wish to take trainees or junior agents under their wings.
CAIFA published a document on its website entitled: “What to look for in a sound professional liability insurance program.” Part of the report cited that “‘prior acts’ coverage should be unlimited. In other words, the policy should not contain a ‘retroactive’ date limiting the time during which errors or omissions occurred.”
It adds that a good plan should also have “tail” coverage. “Every policy should have a provision to allow an insured to purchase coverage to allow for the reporting of claims after termination of the policy in the event the coverage is not replaced elsewhere or if a replacement policy does not provide for ‘prior acts’ coverage.” CAIFA’s website also stated that adequate insurance should provide coverage for actions or directives on the part of the insured’s unlicensed staff.
In addition, attention should be paid to aggregate totals. What the aggregate total does, explained Mr. Bullock, is limit the total amount of claims paid in a single year. Coverage for $1 million with an aggregate total of $2 million, for example, means that the insurer would cover a maximum of $1 million per claim up to $2 million per year. For the big sellers in the industry, that could prove to be a very costly limitation.
Fraud coverage for life agents, particularly for those selling financial services or products outside of basic life insurance, is increasingly important.