What’s the Difference Between D&O Insurance and E&O Insurance?
I was asked in a meeting today, what’s the Difference Between D&O Insurance and E&O Insurance?
D&O (Directors and Officers) insurance and E&O (Errors and Omissions) insurance are two different types of insurance policies that provide protection to businesses and individuals in different ways.
D&O insurance is designed to protect directors and officers of a company from personal financial loss resulting from claims of wrongful acts committed in their capacity as directors and officers.
This type of insurance covers claims related to breach of fiduciary duty, negligence, misrepresentation, and other similar acts that can lead to legal action against directors and officers.
D&O insurance does not cover claims related to bodily injury, property damage, or other types of liability. These types of claims fall mostly under General Liability insurance.
Here’s a real-life claims scenario for Directors & Officers Liability:
A plaintiff filed a complaint against their competitor alleging that a former employee, now working for the competition, engaged in unauthorized use of confidential and proprietary information and committed other acts of unfair competition. As a result, the plaintiff alleges it has suffered an irreparable and immediate injury. In addition, the plaintiff alleges that the defendant has possession of its confidential information and intellectual property. The plaintiff asserts causes of action for misappropriation of trade secrets, confidential information, and unfair competition. Total Defense Cost and settlement exceeded $450,000.
On the other hand, E&O insurance is designed to protect businesses and professionals from claims of negligence or mistakes in their professional services or advice.
This type of insurance covers claims related to errors, omissions, or other mistakes made by professionals in the course of their work that result in financial harm to their clients.
Very often, it is not the result of a mistake, but rather a displeasure with the outcome that gives rise to an E&O claim. Even frivolous lawsuits will incur defense costs!
E&O insurance is commonly purchased by professionals such as lawyers, accountants, doctors, and consultants that provide a service to others for a fee.
Here’s a real-life claims scenario for Errors & Omissions Liability:
A software developer sold timekeeping software to a company. After removing all previous timekeeping clocks and installing software, the customer discovered it did not function properly. It failed to correctly apply the hourly and overtime rate of pay resulting in over and underpaid employees and the need to replace the original time clocks. The company sued the provider of the software for damages and expenses resulting in $550,000.
In summary, D&O insurance is focused on protecting directors and officers from personal liability, while E&O insurance is focused on protecting businesses and professionals from liability arising from professional services or advice.
If there’s one thing I can emphasize about each of these coverages, even frivolous lawsuits will incur defense costs! No matter if you were in the right on a given matter but were sued by a third party for alleged wrongdoing, you must hire attorneys to defend these allegations. This is most often the biggest cost when it comes to a claim and an insurance policy is intended to defend you for actual or alleged wrongdoing.
3 Most Costly Types of Cyber Insurance Claims
A good cyber insurance policy starts with two core coverage components. These are:
- Data Breach coverage
- Cyber Liability coverage
Data Breach coverage is also referred to as 1st party coverage. This helps your business respond to a breach if PII (personally identifiable information) gets lost or stolen, whether it’s from a hacker breaking into your network, or an employee accidentally getting their laptop stolen at a coffee shop.
Data Breach insurance coverage can help pay the [expensive] costs for such things as:
- Notifying affected customers, patients, or employees;
- Hiring a public relations firm for damage control;
- Offering ongoing credit monitoring services to data breach victims;
- Business income coverage to help replace lost income if you can’t run your business because of a data breach;
- Extortion Coverage helps cover the amount you paid if someone takes your business’ data and demands a ransom.
Between data breach coverage and cyber liability coverage, more than 95% of cyber insurance claims costs come from data breach losses! And these data breach losses fall into three broad categories:
Theft of funds
This is the straightforward theft of money from a company’s bank account. The fact that nearly every business can now move its money around electronically and remotely means that it is much easier to steal. Instead of stealing physical funds, criminals are increasingly stealing electronic funds through social engineering scams. And if a business has somehow been negligent in allowing this to happen, their bank may not reimburse them.
Theft of data
Data is valuable, and if something has value, it is worth stealing. Identity theft has reached record levels around the world and in order to commit identity theft, criminals need data. Seemingly harmless information such as names and addresses stored on a computer network can be worth more money than you think
Damage to digital assets
In order to operate, businesses now have an incredibly high dependency on their systems, and criminals know that. By either damaging or threatening to damage a company’s digital assets, attackers know that they can extort money from their victims who might prefer to pay a ransom rather than see their business grind to a halt. And even after paying up, the victim is often left with systems that are unusable and costly to fix. Your cyber insurance policy will help do this too…..fix and patch your system.
So, when contemplating the purchase of a cyber insurance policy, data breach coverage (1st party coverage) is the heavyweight coverage you must incorporate into your policy. Cyber liability (3rd party coverage) is just as important, but that’s not where the bulk of the claim dollars are paid in the event of a data breach.
Regardless, make sure both of these coverages are included in your cyber insurance policy. And then drill down even further into the data breach coverage section to make sure the line item coverages such as Incident Response Expenses, Cyber Extortion Loss, Network Restoration Expenses, and Business Interruption are included as well.
No two carrier policies are the same and cyber insurance is absolutely not one size fits all!
2023 Commercial Property Insurance Outlook
The commercial property insurance market has been a tough one over the past several years. Unfortunately, 2023 won’t be any better. The property insurance market will certainly see increased rates in 2023, so it’s critical to start renewals well before deadlines. At least 90 days + prior to expiration.
Most seasoned industry brokers and underwriters agree that 2023 will likely be the firmest market they have ever experienced, despite most buyers feeling that they didn’t think things could get much worse after the last few years.
Almost all carriers have had less reinsurance capacity and options available to them to offset rate and retention increases, so without a doubt, buyers need to be prepared for carriers to pass the bulk of these costs onto them.
It’s more important now than ever to start property insurance renewals as far out as possible because it’s likely that renewal terms will continue to come down to the wire, despite everyone’s best efforts. As insurance programs see changes and increased costs, policyholders will need to see various deductible and limit options, and each option will take time to iron out with underwriters.
This post definitely has a pessimistic tune which is not how I like to sound. I’m simply passing along what I’ve seen in the market and what I have heard from industry leaders.
The positive in all of this is knowing that this is the state of the commercial property insurance market which we cannot control. What you can control is being prepared ahead of time for your policy renewals, so that you can secure the best possible terms for your organization.
Is the Cyber Insurance Market Stabilizing?
I just wrapped up a sizable Cyber insurance policy renewal and based on the results of our marketing efforts, I think it’s a good indication that the market is beginning to stabilize.
The cyber insurance market has been in a hard market for the past several years.
This particular cyber insurance renewal is for a middle market company that works with Fortune 500 companies. They’re required to carry $50,000,000 in coverage by contract.
The insured’s services are viewed as a higher risk for the cyber market. It is a technology-based business that holds a lot of third-party sensitive data. They do about $75M – $80M in annual revenues. Cyber liability and data breach are definitely their primary risk exposures.
This policy renewal took 10 carriers to quota share the risk and the year-over-year premium is down in 2023 by 4-5%.
I had a feeling the renewal premium wouldn’t spike as hard as it did last year, but I was pleasantly surprised there was actually a slight DECREASE for this renewal.
The cyber insurance market is a lot like the mortgage industry prior to 2008.
Up until a few years ago, you could buy cyber insurance by providing very little information and carriers practically gave away quotes. And not very expensive ones relative to the risk.
Then hackers decimated the cyber insurance market with ransomware and social engineering attacks. Millions upon millions of claims dollars were being paid by carriers as a result.
Underwriting ultimately tightened and those looking to secure cyber insurance coverage must now show preventative measures are in place for their organizations such as data encryption, multi-factor authentication (MFA), data backups, etc.
Underwriters won’t even think twice about insuring a business if these types of measures are not in place.
Cyber insurance pricing and trends vary by company. However, in this particular case where we have a sizable middle market company with above-average cyber risk, a decrease in premium this year is a positive sign.
Let’s hope the cyber insurance market continues trending in this direction.
Each and every company/policyholder will see different outcomes with their cyber coverage and rates based on their own unique makeup. However, if you can show that your organization takes preventative measures to help mitigate cyber risk up front, you’re in a favorable spot.
It Takes Twice as Long to Close California Workers’ Comp Claims Compared to Other States
File this under the “I’m not surprised” file, it takes seven years to close most workers’ compensation claims in California, more than double the time in the median state.
The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) released a report detailing duration drivers for California workers’ compensation claims.
The report, Drivers of California Claim Duration, describes duration drivers for California workers’ comp claims, including how claim duration differs regionally across the state.
Here’s the report:
Highlights of the report include:
- It takes seven years to close 90% of claims in California compared to three years for the median state.
- Longer California claim duration is driven by four “duration drivers,” including a higher share of permanent partial disability and cumulative trauma claims in California, greater utilization of medical-legal services in California and regional differences within the state.
- Claim closing rates rose steadily following the reforms of Senate Bill 863, particularly for PPD claims of lower-wage workers.
- Claim closing rates declined during the pandemic in 2020 and were relatively flat in 2021.
California, why do you have to make everything so complicated? [banging head on desk]
Source: Insurance Journal
Be Observant When You’re Buying Insurance or Any Product or Service For That Matter
I’m working on some Worker’s Compensation insurance options for a referral which is a physician’s office. Very black and white with no question the proper classification is 8834 – Physician Practices and Outpatient Clinics.
This prospect received a “much less expensive” quote from one of the many carriers you see on every TV commercial break with their comedic ads. This quote was classified as a jewelry store with about a third of the total annual payroll. Of course, it is cheaper.
Folks, be observant when you’re buying insurance or any product or service for that matter. It’s only going to cost more in the long run if you don’t do your due diligence in reviewing and understanding what you’re buying. And most of that cost is YOUR time lost in trying to resolve the issue.
My Interview with Candy Messer on The Different Types of Insurance To Protect Your Business
Thank you to Candy Messer from Affordable Bookkeeping and Payroll Services for interviewing me on the topic of “The Different Types of Insurance To Protect Your Business” Some of the key items we discussed are:
- Tailoring Insurance Coverage for each unique business
- Commercial General Liability Insurance
- Workers Compensation Insurance
- Errors & Omissions (Professional Liability) Insurance
- Do home based businesses need a business insurance policy?
- Is business insurance required by law?
- Insurance for contractual requirements and lease agreements
- Employment Practices Liability Insurance
- The difference between Commercial General Liability and Errors & Omissions Insurance
- Cyber Liability / Data Breach Insurance
- How much does business insurance cost?
- Ways you can keep your insurance costs down
- Negotiating premiums with Carrier underwriters
Check out our interview together here:
Thanks for watching
Insurance for Accountants, CPA’s and Bookkeepers
Accountants, CPA’s, Bookkeepers, Tax Preparers, and other financial services professionals work with a lot of sensitive, personal financial information which can expose them to high levels of risk. And that’s in addition to the every day risks they face – like damage to their place of business or business-related records, etc.
The Hartford is a great insurance carrier for Accountants, CPA’s & Bookkeepers and other financial professionals. They offer a product which bundles General Liability, Professional Liability (Errors & Omissions), Data Breach, Property, and Business Income into a single package policy at a really reasonable price.
Whether you’re a sole practitioner, or partner at a large accounting firm, you should consider The Hartford for your business insurance if you don’t have a policy with them already.
Contact me if you would like to see what The Hartford can offer. I am an appointed broker who can help you out with a quote for this.
Commercial Auto Insurance Prices Likely to Keep Rising
Most lines of insurance cycle between soft and hard markets over a number of years, which has a direct impact on the price of insurance. The commercial auto insurance market is currently hardening after many years of a soft market, which has resulted in higher prices for both commercial and personal auto policies.
Between 2011 and 2016, competition between auto insurance carriers created a soft, buyer-friendly market. Since then, however, the high cost of claims and increasing costs of vehicle repairs have contributed to a noticeable transition in the market.
Contact me today. I can provide you with resources to help you understand and save on commercial auto insurance, including this prior post, “California Commercial Auto Insurance – Losses & Costs Rising.”
What Does Business Insurance Cover?
Business insurance coverage for a commercial operation can include the following and more:
General liability insurance: Covers third party liability claims for injuries to other people.
Professional liability and malpractice insurance: aka Errors & Omissions Insurance (E&O). E&O covers professionals against loss due to negligent professional duty, wrongful acts, and advice and services that lead to another person’s loss or injury.
Product liability insurance: Covers against faulty products and damage, illness, injury or death that may occur from using a faulty product.
Property insurance: Covers loss and damage to your commercial business property due to fires, theft, storms and other causes.
Commercial vehicle insurance: Covers commercial vehicles and drivers for collision, liability, property damage, personal injury and “comprehensive” (now known as “other than collision”).
Workers compensation: Covers your employees if they become ill or injured while working on the job.
Loss of income: Also referred to as Business Income, this covers your business expenses such as rent and employee wages if you can’t operate your business.
Key person insurance: Covers loss of income that may result from the head of the business or other key personnel becoming incapacitated or passing away (also known as key man insurance).
Cyber-crime insurance: Provides protection for risks due to Internet use and online communications.
Each and every business is unique. A food products manufacturer or distributor doesn’t have the same risk exposures as a software developer. As an everyday Joe, you’re expected to know if you need these coverage’s or not for your business. If your head is spinning or you’re feeling overwhelmed, this is why you work with an insurance agent or broker.
Let’s face it, most people really don’t like insurance, they don’t care to read their policies, and they just wish someone else would take care of it for them. I like insurance (don’t judge me), I read policy forms all day long for my clients, and people call me to handle all their business insurance needs so they don’t have to. Pick up the phone and call me today or email me if you have questions about these overage’s and whether your business needs them or not.