If you transferred $5.2 million of your client’s money to an impostor, would you be liable? According to a recent lawsuit, yes. Fortunately, the errors and omissions (E&O) insurance policy covered the professional’s financial liability.
Not all victims of increasingly sophisticated frauds are so lucky, though. Professional services firms are not only more vulnerable to social engineering, ransomware, and other types of fraud during times of economic turmoil. They also face more lawsuits from unhappy clients, trade partners, and employees.
Does your E&O insurance provider have you covered? The policyholder was covered by E&O insurance in the above case, but only after a court battle with the insurer.
Partnering with an E&O insurer who understands the evolving business and ethical landscape of your profession is the difference between navigating and circumnavigating liability risk.
Mitigating Evolving E&O Liability Risks
If you feel like a sitting duck, you’re not alone. When the economy turns down, clients are more litigious. Business relationships are under stress as asset values decline, trade credit is strained, and more businesses file for bankruptcy protection.
Your E&O insurance is only as good as its ability to cover your evolving business risks. Those business risks are rising and include an increase in:
- Professional liability claims in investment management and real estate as investment portfolios become more volatile
- Employee litigation and awards as more businesses rightsize and downsize
- Medical malpractice and Medicare lawsuits
- Environmental claims initiated by consumer protection groups and regulators
During the Global Financial Crisis, business insurers had a stabilizing effect on trade and financial markets. They insured trade credit lines, provided financial guarantees for investment products, and stepped in with E&O insurance. With these assurances, professional services firms can more confidently face the rising risk of professional liability claims.
Nobody knows those risks better than a proactive E&O insurer. They thoroughly analyze business risks, quantify them with near-quantum level accuracy, and oftentimes predict them before they happen.
Ethical Guidance in a Changing Risk & Regulatory Landscape
When ethics are overlooked, though, insurance is a defensive strategy against liability risk. When the risk of professional liability claims is high as in the current climate, your professional ethics are under more intense scrutiny. You could become target practice for litigious clients. Or a proactive E&O insurer can help you minimize ethical risk exposures.
Unfortunately, among offensive strategies to manage litigation risk, ethics management is significantly undervalued. Yet whether or not you lose an E&O litigation lawsuit, the reputational damage could be costly. How costly? If your professional ethics are in question, your reputation is at risk. When a negative business event involves reputational risk, the market capitalization losses of a company double, according to a study by Oliver Wyman.
A good E&O insurer knows your profession’s ethical landscape like the early explorers knew the contours of a map of a round earth. They will provide you with:
- Ethical guidance on your business operations
- Guidelines on how to build trust with your clients to create win-win system business and insurance relationships
- Updates on regulations and compliance in your profession
With these risk management tools, your E&O insurer supports you so you can do business the right way.
Evaluating E&O Insurance Brokers Through Recommendations
The question is, how do you separate the navigators from the circumnavigators? The answer is, recommendations. By asking for insurance broker recommendations from your business partners, you can reduce your E&O liability risk.
Insurance broker ratings are one of the most accurate and influential form of recommendations. When reviewing broker ratings, look at:
- Speed and responsiveness of insurance claims processing
- Feedback left. A stellar rating but a 3 out of 5 on claims processing tells a very different story about your insurance broker’s commitment to supporting you when your professionalism is challenged.
- Communication and support team. Did they like the broker but not the support? This review could reflect how well, or not, the insurance company is run.
Positive detailed insurance broker evaluations are an indication that the insurer maintains transparent client relationships
Circumnavigators know and mitigate evolving business and ethical risk exposures. As your partner, they can help you mitigate E&O risks in your day-to-day operations.
Marian Sahakyan is a content writer and a journalism graduate from California State University, Long Beach with a background in marketing as well as UI and UX design. Marian’s previous writing and reporting has been featured in several community newspapers throughout Southern California.