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  1. #1
    John Remark's Avatar
    John Remark Guest

    Default Things you need to know about your E and O

    Gentlemen,

    I have been coming to this board on and off for a couple of years. I have seen some great conversations, insightful comments and the occasional flame. I need to get some information across regarding your errors and omission policy that many many many home inspectors are not understanding which also have a real impact upon your business.

    Probably 99% of you (if you are insured) are insured through a Claims Made policy. This is opposed to an occurrence policy. The only company that offers occurrence, (that I am aware of is Allen). The rest of us all offer a claims made policy.

    for a good general comparison regarding the two please go to this website. http://www.piam.com/Insurance_Products/claimsmade.html

    What I am finding is that most home inspectors do not understand is that if they stop payment, cancel their insurance or have a break in coverage with a claims made policy, they lose all their coverage going back to day one.

    Let me repeat that-- stop your coverage, lose your coverage. Period, end of story. Nothing we can do (any of us).

    Why is this the case? Because with a claims made policy you are paying for an option to lay a claim at the insurance carriers doorstep one year at a time, the current year going back to your retro-active date. If you decide to leave you need leave the industry (not go to another carrier), you need to purchase an ERP (extended reporting period) AKA a Tail.

    A tail is a one time payment for a period of time (generally 1, 3 5 or unlimited years). You will not be covered for any additional inspections, but you will have coverage for all the previous inspections

    OK—Then why not just choose to get an Occurrence policy? One word: COST. The average claims made policy for $500K of coverage is going to run you about $1,800-$2,500. On Allen's website- he says $2888-$3300. The $500K/$1MM is $4300 on the application.. You will save about $1,000-$2,500/year by going with the claims made form. The other thing is you should ultimately get more coverage from the claims made form. From my Understanding (and anyone from Allen Insurance, please feel free to correct me and I will make an apology) The Allen occurrence policy only covers for 4 years. This is good coverage and should cover you for almost all your claims. But a claims policy covers you back to your retro-active date (the date you first started having e and o coverage in an unbroken manner). So ultimately you could have 10-20 years under coverage.

    Here is how the math works:

    Total Cost for 10 years, claims made policy- $22,500 + $4,500 for a 5 year tail= $27,000
    Total Cost for 10 years-Occurance Polcy-- $45,000

    Cost differential- $16,000

    I tried to make a chart-- the site would not format correctly. The savings only go up the longer you are covered under a claims made form.

    The price of the savings is the need to save up for the tail purchase. Tail costs run the gamut of 75% from FREA (but the annual costs are much higher) to 200% for 5 years from my company but our yearly costs are much much less.

    I know times are tough, and many of you are thinking of leaving the industry. Many of you cannot afford to buy the tail (times are tough). Before you do, please make sure you have covered all your bases with your clients. Make sure there are no problems. Call your clients. Expose the problems while you have coverage. Maybe even talk with your broker and see if they can cut you a deal if your volume is going to be close to 0 inspections to get you a year of coverage that is less expensive than buying a tail. The last thing you want is to be out in the cold without coverage, legal defense, and an angry client. Bad news.

    The key to avoiding this is to save up while you are in business. Most of my clients are saving 1-3 inspections/year and putting them away for the day when they retire or times get tough and they want to leave the industry. They can leave on their own terms and not be concerned about coverage going into the future.

    Sorry for the rant, but you guys are great home inspectors and fantastic clients. I just wanted to get out this information. It seems like this has not been explained well or often to many of you, and that is a shame.

    John Remark
    Program Manager,
    Home Inspectors E and O
    First Indemnity Insurance

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    Last edited by John Remark; 05-25-2010 at 07:04 AM. Reason: Formating
    F.I.R.E. Services

  2. #2
    Join Date
    Mar 2007
    Location
    Spring Hill (Nashville), TN
    Posts
    5,847

    Default Re: Things you need to know about your E and O

    I belive that Allen offers both Claims and Occurrence type coverage.

    Scott Patterson, ACI
    Spring Hill, TN
    www.traceinspections.com

  3. #3
    John Remark's Avatar
    John Remark Guest

    Default Re: Things you need to know about your E and O

    Scott- You are absolutely correct. Allen offers a number of programs including a claims made, pay as you go in addition to the occurance policy. It was not my intention to infer otherwise. Thanks for the catch.

    John Remark
    Program Manager,
    Home Inspectors E and O
    First Indemnity Insurance


  4. #4
    Join Date
    May 2009
    Location
    Washington State
    Posts
    358

    Default Re: Things you need to know about your E and O

    Up here in Washington State you "HAVE" to have a per occurrence policy if you are a home inspector, unless something has changed in the last year or so that I haven't heard about?.


  5. #5
    John Remark's Avatar
    John Remark Guest

    Default Re: Things you need to know about your E and O

    and that is why first indemnity created an created an automatic 2 year extended reporting period that satisfies the law/rules at a much more affordable rate than the occurrence policies currently offered. we generally save our clients $1500- $2000 versus the same limit levels. give us a call or e-mail for details.


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