I've been shopping around for professional liability insurance and the quotes are all over the place. Everything from $2,400 a year to $8,000 for basically the same coverage. I'm wondering what other auditors are paying and which carriers you've had good experiences with. Also curious about coverage limits - is $1 million enough or should I be looking at $2 million? I know it depends on client size but looking for some general guidance from people who've been through claims.
Professional liability insurance - who are you using and what's it costing?
I've been with Hiscox for four years now, paying about $3,200 annually for $2 million coverage. Had one claim about two years ago - client disputed some findings and sued for $75,000. Hiscox handled everything professionally and we settled for $15,000. The key is making sure your policy covers both negligence claims AND breach of contract. Some policies only cover one or the other. Also read the exclusions carefully - some carriers won't cover disputes over contingency fee arrangements.
I use CNA through an insurance broker and pay about $4,800 for $2 million coverage. Higher than some but they specialize in professional services and really understand the risks we face. The underwriting process was thorough - they wanted to see sample reports, client contracts, my procedures manual. But when I had a scare last year with a client threatening to sue over a demand charge calculation, CNA assigned a lawyer immediately and the situation got resolved quickly.
Been with Travelers for six years, paying $3,600 for $1 million coverage. Starting to think I should bump it to $2 million though. Client contract values keep getting larger and if you screw up a major audit the damages could easily exceed $1 million. The other thing to consider is legal defense costs - those count against your coverage limit with most policies. So a $1 million policy might only leave you $800,000 in actual coverage after legal fees.
I'm paying $2,800 through CBIZ for $2 million coverage. They have a program specifically for utility auditors and energy consultants. The nice thing is they understand our business - the underwriter actually knew what a demand ratchet was when I was explaining my services. Some of the general business insurance carriers have no clue what we do and either won't write the policy or charge way too much because they don't understand the risks.
One thing to watch out for is the "claims made" versus "occurrence" distinction. Most professional liability policies are claims made, which means the policy that's in effect when the claim is filed is the one that responds. If you switch carriers, you might need tail coverage to protect against claims from prior work. It can get expensive but it's essential protection. I learned this the hard way when I switched carriers and had a gap in coverage.
Great point Walt. I've been with the same carrier (Zurich) for eight years partly to avoid the tail coverage issue. Paying $4,200 for $2 million coverage but it includes cyber liability which is becoming more important. With all the client data we handle and utility website access, cyber security is a real risk. Had one client get hacked last year and they wanted assurance that their data wasn't compromised through my systems.
I use AmTrust through my state CPA society group plan. Not sure of the exact premium since it's bundled with general liability, but I think it's around $3,000 for $1 million professional liability. The group buying power helps keep costs down. Also includes some risk management resources - sample contracts, best practices guides, legal hotline for quick questions. Worth checking if your state has similar group programs available.
Don't forget about deductibles. I've seen policies with $25,000 deductibles that look cheap until you realize you're self-insuring the first $25k of any claim. I pay a bit more for a $2,500 deductible. For most small claims it's worth handling out of pocket anyway, but for anything significant the lower deductible provides better protection. Also make sure the policy covers regulatory investigations - some state boards are getting more aggressive about auditing our work.
Another factor is geographic coverage. Some carriers have exclusions for work in certain states or only provide coverage in your home state. Since I do work across multiple states, I made sure my policy provides nationwide coverage. Also pay attention to retroactive date - some policies only cover work performed after the policy inception date. You want coverage that goes back to when you started practicing or at least when you started with that carrier.
I've had claims with two different carriers over the years and the quality of their claims handling varies dramatically. My current carrier (ACE) assigns experienced lawyers who understand professional services. Previous carrier used general business litigators who had to learn our industry from scratch. Cost more in legal fees and took longer to resolve. Sometimes it's worth paying more for a carrier that specializes in professional liability rather than going with the cheapest option.
One tip is to get quotes from multiple brokers, not just direct from carriers. Brokers often have access to surplus lines carriers that might offer better coverage or pricing for our specific risks. Also consider umbrella coverage if you have significant assets to protect. For an extra $500-800 a year you can get an additional $1-2 million in coverage that sits on top of your primary professional liability policy.
All great advice here. I'd add that documentation is crucial regardless of which carrier you choose. Keep detailed records of all client communications, copies of all reports and analyses, documentation of your methodology. If you ever face a claim, having good records makes all the difference in your defense. I use a client portal system that automatically logs when clients access reports and what they download. Creates a good paper trail if disputes arise later.
Stan makes an excellent point about documentation. I've also started requiring signed engagement letters for every project, even small ones. Clearly spells out scope of work, limitations, fee arrangements, dispute resolution procedures. Most claims arise from misunderstandings about what was supposed to be delivered. A good engagement letter prevents most of those issues. My lawyer reviewed my standard template and it's saved me from several potential disputes over the years.