By Michael Ryder
Errors and omissions insurance is one of the key coverage types the real estate industry relies upon to help it manage claims. When weighing different insurance carriers, many real estate companies will undoubtedly compare premium pricing and services rendered of various providers, both of which may help them make informed decisions about which carrier to choose. However, companies can gain a more comprehensive picture and choose the best carrier for their needs by first understanding how insurers set premium prices and determine which services to extend. Through this greater understanding, today’s real estate companies can make improvements to their businesses to raise their chances of securing a competitive premium rate.
Many factors play a role in an insurance carrier’s (hereafter referred to as “carrier”) development of premiums and coverage offerings. For real estate errors and omissions insurance in particular, the first consideration a carrier will weigh is whether a real estate firm’s (hereafter referred to as “firm”) services and credentials fall within the guidelines of the program. If this guideline is met, carriers will examine several factors to make its premium and coverage determinations, which include but are not limited to the following: the firm’s total gross commission income -before splits with agents, types of services provided (i.e. residential or commercial re-sales and/or new home sales, property management or leasing, etc.), agent/broker experience, internal controls and risk management practices and claims history.
In order to assess these factors, the carrier or designated program administrator requires the insurance agent-broker who is conducting business with them to submit a completed application. This point is important because, generally, carriers will not accept an application submitted directly from the firm. Once a completed application is received, the carrier’s underwriter is able to begin a thorough review to determine the premium and coverage lines that can be provided.