Why financial experts recommend E&O insurance coverage.

When was the last time you reviewed your agency’s insurance coverage? Insurance is a hedge against financial catastrophe. You may never need it, but if that worst-case scenario should develop and a death or severe injury befalls your client, your insurance might save your business. 

Optional insurance, such as that covering errors and omissions (E&O), is often placed on a “when we can think about it” list. But it should sit on an “annual review” list to be considered every time you reexamine your agency’s financial health.

In a business that stares down risk every time a trip is booked, travel agents would be unable to complete a ticketing transaction if they did not have what social scientists call “unrealistic optimism”—a cognitive bias that leads people to believe that bad things are less likely to happen to them than to someone else. While that mindset can serve us well in our everyday life, in a business situation, it can create dangerous potential for financial repercussions down the road. 

For example, you know that your client may file a liability claim saying you were negligent in providing incorrect information or in booking specific travel arrangements (a cruise ship with slippery gangways, perhaps), but you probably think you can defend yourself against such a claim without much difficulty. The reality is that the resulting suit could produce hours of legal fees, not to mention a big liability judgment. 

Here’s where errors-and-omissions insurance comes into play. The E&O insurance company will defend a lawsuit for a coverable claim, so the legal fees are theirs, not yours. And if the judgment goes against you, E&O pays that too. 

While assessing insurance needs can appear intimidating, the concepts are actually not very complicated. Here’s what you need to know to make informed decisions about E&O insurance. 

Q: What is E&O insurance?
A: Errors-and-omissions insurance shields a travel agency and its employees against claims that employees performed in a negligent way or did not adequately prepare or inform travelers of risks that ended up costing those clients money. E&O insurance is not mandatory for a travel agency, but it is highly recommended. 

Q: What does E&O insurance cover?
A: Injury incurred on a trip is the most common coverable claim. Whether or not an agent actually did anything wrong, if a traveler tries to hold the agent liable for damages, defense costs can be substantial. The insurance company makes no distinction between fraudulent claims and legitimate ones, and will defend the insured in all cases for which they are covered. 

For example, if the agent fails to inform the traveler of specific risks at a destination and financial harm results, that would be covered. If the agent misinforms clients of the government documentation requirements, and the travelers miss part of their trip as a result, that would be covered. If the motorcoach the agent books for transportation through mountainous countryside loses its brakes and crashes, resulting in physical harm or emotional distress to the client, that would be covered. 

What’s not covered? If the agent quoted a ticket price wrong, a resulting financial loss would not be covered. 

But what if the agency sent clients on a mountain-climbing excursion but did not do due diligence to ascertain that the trails were safe and a mudslide during the trip resulted in bodily injury or death to a client? The agency might be held liable in court. But the E&O insurance company would defend the lawsuit and pay the settlement.

Q: How is E&O insurance different from my general liability insurance?
A: General liability insurance typically covers your place of business and defines a specific coverage territory. Only an occurrence that takes place within the defined territory—which is generally limited to the United States—would be covered. So, if a client incurred a bodily injury outside the U.S. and came after the travel agency, the general liability insurer would not defend the agency against the claim. E&O insurers would. E&O insurance is essentially the same as Professional Liability insurance. It covers your services, while general liability insurance covers your premises and your business.

Q: What is the No. 1 benefit of having E&O insurance?
A: “Peace of mind,” says Dan Francis, director of E&O for Berkshire Hathaway Travel Protection. “You own a business. You’ve worked really hard to build your business, and you don’t want one potential lawsuit or mistake to put you out of business. I can’t tell you how many times I’ve heard people say, ‘I don’t make mistakes.’ But some things are outside your control while the client is traveling. And those things, unfortunately, can put you at dire risk of certain financial loss.”

Q: Should the individual agent buy E&O insurance or does the agency buy it?
A: Generally the agency purchases the policy. The agency policy would then cover all owners, employees and independent contractors while they represent that agency. However, an agent who is acting as an independent contractor should review any host agency’s policy to determine if the level of coverage is adequate; if not, an independent contractor can purchase their own E&O policy. That policy would also cover any of the agent’s bookings not done under the host agency’s name.

Q: How much does E&O insurance cost?
A: E&O insurance pricing depends on several key factors: the sales volume of the business, the type of travel that agency is booking and any risk management procedures they have in place. An agent working as an independent contractor might pay as little as $350 per year for an E&O policy, but pricing can go up from there. A $100 million agency, for example, has considerably more risk than the independent agent simply because the large agency is sending a lot more travelers out into the world. The level of exposure will determine the pricing.

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