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Filing cabinetIn the professional service industry, buying business insurance means getting errors & omissions (E&O) coverage. These policies are really important to both your own and your clients’ financial security. Yet, you have to keep them active. That means paying for them. E&O policy premiums vary, however, based on multiple factors. Below are just a few of the factors that might make your E&O policy more or less costly.

E&O Insurance and Risks

E&O insurance falls into the realm of liability insurance. Liability coverage applies to the harm that you, the policyholder, do to other parties. Namely, E&O policies apply to your professional mistakes that cause your clients a financial loss. So, for example, if you are a lawyer, and a client sues you alleging that you mishandled their case, this coverage can help you.

Like with all insurance, you must pay a premium for your E&O policy. The premium will likely vary, primarily based on your risk profile. The risk is the likelihood you have of filing a claim on your policy. Therefore, it is also the likelihood of the insurer having to pay on your behalf.

As a result, the higher your likelihood of filing a claim, the more your insurer might charge you. This is partly because they have to make up for the cost risk in case you do file a claim.

Factors Influencing Premiums

When you file for your E&O policy, your insurer will might consider the following items when setting up your premiums.

  1. The Amount of Coverage You Buy - Some E&O policies might provide you with up to $500,000 or $1 million in coverage. Others might provide over $2 million. By the law of supply and demand, the more you buy, the more the coverage might cost.
  2. Size of the Business - Large businesses (both in size and net worth) have higher risks of E&O risks occurring. Therefore, the more assets you need to protect, the more your premium.
  3. Your Industry - Multiple industries, from doctors to lawyers or CPAs need E&O coverage. However, each need specific types of protection. Therefore, if your operation has a high operating risk, then you could have to pay more for your policy.
  4. Claims History - When you make a claim on an insurance policy, it demonstrates that the insurer does have to pay on your behalf. Therefore, they might have to raise your premiums in the future. The premium hike might take effect the next time you renew your policy.
  5. Quality Control Procedures - If you have a significant oversight and review process within the business, then you have a lower likelihood of getting sued. Therefore, you might never have to make a claim on an E&O policy. As a result, your ability to maintain stable premiums might remain intact.
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