Factors That Govern the Technology Errors and Omissions Insurance Policy(solespire.com)
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Factors That Govern the Technology Errors and Omissions Insurance Policy
https://www.solespire.com/articles/4-factors-that-govern-technology-errors-and-omissions-insurance-policy/
10 comments
> I recently just renewed my errors and omissions policy and was a little shocked to find out if you let the policy expire then the policy does not protect you even in past while the policy was active.
This is to protect the insurer against adverse selection. Errors and omissions policies are typically on a "claims-made" basis, which means they cover claims that were filed against you during the policy period, as opposed to incidents occurring during the policy period.
It is assumed that if you let your policy lapse and then buy a new policy, that you know that there is some incoming claim against you for which you need protection from.
This is to protect the insurer against adverse selection. Errors and omissions policies are typically on a "claims-made" basis, which means they cover claims that were filed against you during the policy period, as opposed to incidents occurring during the policy period.
It is assumed that if you let your policy lapse and then buy a new policy, that you know that there is some incoming claim against you for which you need protection from.
I don't have a ton of experience in E&O, but I do work in insurance and I don't think this is right. Buying a policy to file a claim for an event that already happened is called fraud, and while it does happen, it's generally pretty easy for insurers to detect and prevent.
In general the advantage of claims-made policies from an insurer's perspective is that they don't have to hold incurred but not reported (IBNR) reserves after the policy term. With an occurrence-basis policy on a relatively long-tailed line like E&O, the insurer generally needs to hold IBNR for several years after the end of the policy term. It's expensive to lock up capital for that long - as the insured you effectively pay for that capital (through higher premiums) at the insurer's cost of equity, generally upwards of 10% annualized for stock insurers.
Obviously the insurer's tail risk is also lower for a claims-made policy, but that's less of a factor at scale since it's diversifiable. (Or at least mostly diversifiable - there might be some contagion risk.)
In general the advantage of claims-made policies from an insurer's perspective is that they don't have to hold incurred but not reported (IBNR) reserves after the policy term. With an occurrence-basis policy on a relatively long-tailed line like E&O, the insurer generally needs to hold IBNR for several years after the end of the policy term. It's expensive to lock up capital for that long - as the insured you effectively pay for that capital (through higher premiums) at the insurer's cost of equity, generally upwards of 10% annualized for stock insurers.
Obviously the insurer's tail risk is also lower for a claims-made policy, but that's less of a factor at scale since it's diversifiable. (Or at least mostly diversifiable - there might be some contagion risk.)
You are correct, those are some of the advantages of claims-made vs. occurrence policies. Claims-made policies started because the industry went through a crisis in the 60's and 70's.
>Buying a policy to file a claim for an event that already happened is called fraud, and while it does happen, it's generally pretty easy for insurers to detect and prevent.
Detection has underwriting costs associated with it. Investigating whether you knowingly purchased an insurance policy with an incoming claim is not something that is automated. By default a claims made policy will prevent the issue in the first place by resetting what is known as the retroactive date. This causes the lapse in coverage the OP was referring to.
There are specialty insurers who will allow you to explain extenuating circumstances, and/or set retroactive dates prior to the effective date of the first claims-made policy. You obviously pay for the additional risk this poses to the insurer though.
>Buying a policy to file a claim for an event that already happened is called fraud, and while it does happen, it's generally pretty easy for insurers to detect and prevent.
Detection has underwriting costs associated with it. Investigating whether you knowingly purchased an insurance policy with an incoming claim is not something that is automated. By default a claims made policy will prevent the issue in the first place by resetting what is known as the retroactive date. This causes the lapse in coverage the OP was referring to.
There are specialty insurers who will allow you to explain extenuating circumstances, and/or set retroactive dates prior to the effective date of the first claims-made policy. You obviously pay for the additional risk this poses to the insurer though.
I understand the potential reasons, but still if I had an active policy in 2020 but let it expire in 2021 and something happened in 2020 while I had coverage I am not covered. Feels wrong since I paid my premiums for 2020.
The policies cover claims made during the period of the policy, not events that occurred during the period of the policy. It's not car insurance.
But this isn't how other insurance policies work, at least in the US. Let's say I destroy someone's property today using my truck. Something simple, like I drive across their front yard and break their water line. I leave the scene and just go home.
6 months later, an investigation is conducted and they find surveillance footage of me driving in and out of the neighborhood and come to the conclusion that I broke the water line. A claim is made against my insurance. At that point, it doesn't matter if the policy is still active or even if I'm dead. The liability insurance I have will cover the cost of the damages provided someone gathers enough evidence and presents it.
6 months later, an investigation is conducted and they find surveillance footage of me driving in and out of the neighborhood and come to the conclusion that I broke the water line. A claim is made against my insurance. At that point, it doesn't matter if the policy is still active or even if I'm dead. The liability insurance I have will cover the cost of the damages provided someone gathers enough evidence and presents it.
> But this isn't how other insurance policies work, at least in the US.
How an insurance policy works depends on the terms of the policy. No more, no less.
> An occurrence policy will cover claims related to activities or events that occurred while your policy was in effect. Even if your policy expired or you canceled it, the claim would be covered if the event happened during the policy period. […]
> When you buy a claims-made policy, you will be covered if both the event and the claim arise while the policy is active and are reported during that time period. If you do not add the expired term to the subsequent policy period, you will lose coverage for any previously unknown claim that took place during the prior policy cycle. […]
* https://www.embroker.com/blog/claims-made-vs-occurrence-insu...
> An extended reporting period (ERP) is a feature you can add to your claims-made professional liability insurance policy. It allows you to report claims even after your policy expires. This policy endorsement is also known as tail coverage.
* https://www.insureon.com/insurance-glossary/extended-reporti...
> The liability insurance I have will cover the cost of the damages provided someone gathers enough evidence and presents it.
Does it? Have you read the terms of your policy? Or are you just assuming it does? Even if you're right, it could be that, since vehicle insurance is mandated in most jurisdictions for public roads, certain clauses are also mandated as well. Whereas other types of insurance, which are not government-mandated, it is the responsibility of the purchaser to actually get check the contract they're signing.
How an insurance policy works depends on the terms of the policy. No more, no less.
> An occurrence policy will cover claims related to activities or events that occurred while your policy was in effect. Even if your policy expired or you canceled it, the claim would be covered if the event happened during the policy period. […]
> When you buy a claims-made policy, you will be covered if both the event and the claim arise while the policy is active and are reported during that time period. If you do not add the expired term to the subsequent policy period, you will lose coverage for any previously unknown claim that took place during the prior policy cycle. […]
* https://www.embroker.com/blog/claims-made-vs-occurrence-insu...
> An extended reporting period (ERP) is a feature you can add to your claims-made professional liability insurance policy. It allows you to report claims even after your policy expires. This policy endorsement is also known as tail coverage.
* https://www.insureon.com/insurance-glossary/extended-reporti...
> The liability insurance I have will cover the cost of the damages provided someone gathers enough evidence and presents it.
Does it? Have you read the terms of your policy? Or are you just assuming it does? Even if you're right, it could be that, since vehicle insurance is mandated in most jurisdictions for public roads, certain clauses are also mandated as well. Whereas other types of insurance, which are not government-mandated, it is the responsibility of the purchaser to actually get check the contract they're signing.
You can request a clause to be added:
> An extended reporting period (ERP) is a feature you can add to your claims-made professional liability insurance policy. It allows you to report claims even after your policy expires. This policy endorsement is also known as tail coverage.
* https://www.insureon.com/insurance-glossary/extended-reporti...
An insurance policy is a contract that you are entering. Like all contracts you need to read and understand it (or get a trusted lawyer to do it on your behalf).
> An extended reporting period (ERP) is a feature you can add to your claims-made professional liability insurance policy. It allows you to report claims even after your policy expires. This policy endorsement is also known as tail coverage.
* https://www.insureon.com/insurance-glossary/extended-reporti...
An insurance policy is a contract that you are entering. Like all contracts you need to read and understand it (or get a trusted lawyer to do it on your behalf).
Wow, didn’t know that.
I swear, insurance is the biggest scam ever. You feel all warm and cozy but the moment you need it, some exemption or carve out gets you and you find out you are not covered.