Saving money is important.  We all want to maximize our bottom line, and reducing expenses (such as insurance premiums) is a key element of any businesses budgetary goals.  However, there are certain products where an initial savings in premium can be disastrous in the long-run.  Insurance is one of these products.

This is not to say that selecting the most expensive insurance premium is always in your best interest.  The point is that insurance is, at its basic, a legal contract between the carrier (insurer) and you (insured).  Too often we see clients who make the decision to select a sophisticated legal contract that potentially impacts their entire practice, based upon a flawed set of criteria; price and/or relationship.

This article will provide a high level overview on why insurance should never be purchased based on price, or relationships.

The Value of Insurance

The reason professionals purchase insurance is to protect their practice against arising from errors or omissions in delivery of professional services.  Keep in mind, a firm does not always have to make a mistake for a client to sue and you would still need a legal defense against any allegations.  A claim against your firm can;

1. Have a financial impact for the legal defense and potential damages
2. Have a financial impact based on lost opportunities
3. Have a financial impact based on personnel time & resources
4. Have a financial impact based on public relations and reputation
5. Have an emotional impact based on concern of all of the above

Your professional liability policy is intended to mitigate the impact on your firm by providing a legal defense and indemnification for damages you may incur.  The issue is that not all professional liability policies are the same.  As previously referenced, your insurance policy is a complex legal document that contains significant conditions, definitions, exclusions, and endorsements that define, amend, and exclude potential coverage.  If you purchase your coverage based on the cheapest premium without understanding the extent of coverage provided, you are not saving money, but in fact undermining the primary reason of purchasing insurance in the first place - protection.

At minimum, prior to purchasing professional liability insurance you should be able to identify:

1. Who is covered under the policy - (named insured)
2. What is covered under the policy - (professional services)
3. What is not covered under the policy – (exclusions)
4. What endorsements modify the policy coverage – (endorsements)
5. Any potential gaps in coverage, and alternative coverage for such
6. The financial strength and experience of the carrier

The Value of Relationships

You might believe that since you have an insurance agent they are responsible for all of the above, and you simply rely on their recommendation.  Yes and No.

Undoubtedly, your insurance agent does owe you certain professional obligations.  However, common law dictates that once you are in receipt of your policy, it is your responsibility to read and understand the policy.  Relying solely on your insurance agent can be a costly mistake.

It is an axiom that not all agents are the same.  You may have a client who is an insurance agent and because of that relationship, provide the professional courtesy for them to handle your professional liability insurance.  This too can be a costly mistake.  Insurance agents typically are “generalists” and professional liability is outside their comfort zone and expertise.  Understanding personal or commercial insurance is vastly different from understanding the nuances of professional liability.   Because of this, a number of the leading professional liability programs are only available to “select” agents.  General agencies do not have access to the entire marketplace, limiting your options.

In addition, a specialized agency will have direct relationships with the underwriters, claims personnel, and law panels adding more clout behind your coverage.

Common sense dictates that working with an expert is the soundest strategy.  Professional liability markets and trends change frequently.  Your agent should be your partner in providing you resources and education on these trends as they happen.  In addition, your agent should be able to provide you multiple options with enough information that you can weigh the differences and make an educated decision.

Measuring your Value

As a professional, maintaining professional liability insurance is essential to protecting your practice, and providing you peace of mind.  Your decision process in selecting insurance should be based on the value that you receive, as opposed to the cost of the insurance.

1. Does the policy cover the services that I provide?
2. Are all of my employees, partners, independent contractors, and others (past, present, and future) covered?
3. Is the insurance carrier financially stable, and have experience in this industry?
4. Does my insurance agent understand my business, the industry, and have a relationship with all of the carriers who serve the market?
5. Does my insurance agent simply provide me just a policy every year, or do they keep me updated on trends and risk management items that are beneficial to my practice?

Honestly answering the above questions will ultimately help you save money, and maximize the value of your insurance.

“Price is what you pay, value you is what you get” – Warren Buffet