What Does the Future Hold for Insurance Agents’ E&O?

David Duncan of David C. Duncan Insurance Services in Rancho Santa Margarita, Calif., is worried about whether and how much the cost of his agency errors and omissions insurance might go up next year. Duncan started his agency in July 2006 after having worked professionally in the insurance business for 12 years, and was a partner in another agency before splitting off to create his own business. Duncan, who now pays around $2,500 a year in premium for an excess and surplus policy for his small agency, says “next to the cost of my agency management system, my E&O was probably my first or second highest start up cost.”

Duncan is not alone in worrying about his agency E&O coverage.

Over the past three years, premiums for insurance agency E&O policies increased for more than three-quarters of insurance agencies across the United States, and a majority (57.9 percent) of agencies expect their premiums to go up again for 2007, according to an exclusive survey in Insurance Journal magazine’s Oct. 9, 2006 edition.

Nearly 460 agency principals from 43 states responded to a weeklong online survey conducted in early September 2006. Of those respondents, 77.2 percent said their E&O premium rose over the past three years.

Sixty percent of agents who responded to the survey indicated their E&O premium increased in 2006 compared with 2005; 13.1 percent said it decreased; and 26.9 percent said it stayed the same.

Where E&O rates have been rising, they have reached notable heights, with more than a quarter experiencing hikes in excess of 20 percent. Of those agencies whose premiums have gone up over the past three years, 16 percent said they rose between 6 to 10 percent; 15 percent had a 11 to 15 percent rise; 12 percent had a 21 to 25 percent increase; and 14 percent saw their premiums go up more than 40 percent over the last three years.

At the same time, those enjoying decreases might not have noticed. Of those whose premiums had gone down, 23 percent experienced a decrease of less than 1 percent over the past three years, while 15 percent saw a 6 to 10 percent decrease during that period of time.

The good news is that the worst may be over, at least in terms of prices rising. According to Mark Wolf, assistant vice president, E&O Operations, with the Insurance Agents and Brokers of America’s Big “I” Advantage, costs for agents E&O are beginning to slow.

“There’s softening in the market,” Wolf said. “There are some new players coming in; there are some players being aggressive. … Pricing seems to be softening. I think what you’re seeing right now is availability is going to increase and pricing is going to decrease.”

The complete results of Insurance Journal’s exclusive agency E&O survey can be found in the Oct. 9, 2006, print magazine.