3 Factors that Affect the Cost of Technology Errors and Omissions Insurance
As a tech professional, you probably already know why your business should consider carrying Errors and Omissions Insurance. It helps protect your good name by allowing you to quickly address claims that you…
- Failed to complete a project.
- Provided incomplete or subpar work.
- Lost client data.
- Gave faulty professional advice.
E&O coverage is almost always worth the premium, but that doesn’t mean you need to pay an arm and a leg for it. Depending on your business's size and your services, you may pay $2,500 to $4,500 a year for your Errors and Omissions policy (check out more E&O cost estimates).
The good news is you can take some steps to minimize the expense once you learn how policy options, business characteristics, and carrier preferences impact E&O Insurance costs.
1. Policy Options
Every policy has some variables that you can control and that affect your E&O costs, including…
- The deductible. Your deductible is the amount you pay out of pocket before your insurance benefits kick in. A high deductible may mean a lower premium, but be careful. If you don't have the money to pay your deductible for a lawsuit, your coverage won't be much help.
- The coverage limits. Higher limits give you more financial assistance for claims, but your premium may be higher, too.
- A retroactive date. E&O Insurance is usually a “claims-made” policy. That means in order to receive coverage for a claim, the policy has to be active when the triggering incident happens AND when the claim is made. A retroactive date gives you a little extra protection because it extends your E&O coverage to include incidents that happened before the start date of the policy. However, you typically pay a little extra for this option.
Each of these options requires you to consider how much of the risk you’re willing to carry to offset extra costs.
2. Business Characteristics
While you can control some of your policy's features, there's not much you can do to change your business's stripes. Each of these characteristics impacts your E&O premium:
- Industry experience. Many providers may favor stable ventures over young upstarts.
- Company size. The more employees you have, the more risk you take on.
- Services offered. Different services come with different levels of risk. For example, a web designer may pay less than a software developer but more than an SEO consultant.
- Clientele. If your clients have deep pockets, your insurance provider may charge a higher premium.
While you could drop your largest client or stop offering certain services to save some money on your insurance, that trade off is probably not the best move for your growing business.
3. Carrier Concerns
Last but not least, insurance providers have a real impact on E&O costs. Unfortunately, there's little you can do to influence how carriers weigh…
- Your industry. Every carrier has a preference for certain industries or even certain kinds of businesses within that industry. Insurance companies call this their “appetite.” You may get a higher quote from an insurer who has little appetite for your IT consulting business. However, one that typically insures IT consultants may offer a more reasonable rate.
- Your claims history. Prior claims are red flags for insurance providers. Some may charge more if you’ve been sued in the past.
This final category also demonstrates the value of comparison shopping. If you take the first quote you see, you may end up paying more for your coverage. Compare rates from top insurers when you apply for E&O on Tech Insurance.