Risk Management

Simple Steps to Reduce Your E&O Costs

by Lisa Robinson, CIC

Your Errors & Omissions policy is a critical component of your business operation. E&O premiums have risen significantly in the past few years due to increased litigation against real estate firms. The following information will assist you in your efforts to reduce your E&O premium.

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Factors that Determine Your Premium

Underwriters will access the amount of risk your firms generates based on some of the following characteristics:

  • Residential vs. Non-residential activities (property management, land/lots and commercial)-Anything outside of residential may result in a surcharge to your premium.
  • Size of firm/Number of agents-additional credits available for larger firms.
  • Claims/Department complaints-less claims allow for more premium credit.
  • Total gross commision income-as your revenues grow your premium will increase.
  • Years of prior acts coverage-credits will apply for limited prior acts coverage.
  • Limits of Liability carried and deductible level-your premium will increase for higher limits of liability and lower deductible levels.
  • Optional coverages-enhanced coverages/endorsements will increase your policy premium.

Risk Reduction Tools that Positively Impact Your E&O Rates

The following activities undertaken by the firm and its agents will allow for additional credits to your E&O rate:

  • Attendance of loss mitigation/risk reduction seminars
  • Continuing education classes
  • Use of standard contracts and disclosure forms
  • Use of home warranties
  • Use of home inspections
  • Professional designations
  • Experience of agents and broker
  • Years in business
  • Standardized policies and procedures