The Four Horsemen of the Commercial Insurance Apocalypse: Protecting Yourself and Your Clients

As commercial insurance agents, we have a responsibility to protect our clients by offering them coverage options that help safeguard their businesses from unforeseen risks. However, there are four critical coverages that are often overlooked or under-offered by agents—cyber liability insurance, flood insurance, employment practices liability insurance (EPLI), and commercial umbrellas. I like to refer to these coverages as the "Four Horsemen of the Apocalypse."

Why? Because when agents fail to offer these coverages, they not only expose their clients to significant risk but also leave themselves open to errors and omissions (E&O) claims. In this post, we’ll explore each of these coverages in detail, discussing their importance, why agents must offer them at the right limits, and the consequences of not securing a signed letter of rejection when clients decline the coverage.

What Is the Duty to Offer?

Before diving into the Four Horsemen, it’s essential to understand the concept of "Duty to Offer." The duty to offer is a legal and ethical obligation that requires insurance agents to present prudent and reasonable coverage options to their clients. If you fail to offer essential coverages, you expose yourself to an E&O claim, especially when your client suffers a loss that could have been covered by a policy you should have recommended.

Keep in mind, this is not limited to simply offering coverage. You must also offer what you feel to be the correct limits. Oftentimes, agents shy away from offering higher limits because they fear their client will view them as overselling. By explaining your duty to offer on the front end (in terms your client can understand) you eliminate that perception altogether.

By adhering to the duty to offer, you not only protect your clients from risk but also safeguard yourself and your agency from potentially costly litigation. Let’s break down each of the Four Horsemen and why they are indispensable.

Cyber Liability Insurance

What Is Cyber Liability Insurance?

Cyber liability insurance provides protection for businesses against losses resulting from data breaches, cyberattacks, and other technology-related incidents. This coverage typically includes liability for the loss of personally identifiable information (PII), legal costs related to a data breach, business interruption caused by cyber incidents, and the costs of notifying affected individuals.

Why It’s Crucial

In today’s digital age, no business is immune to cyber threats. From small businesses to large corporations, everyone is vulnerable to attacks like phishing, ransomware, and hacking. Data breaches not only lead to financial loss but also damage a company's reputation, disrupt operations, and trigger costly legal actions.

For example, consider a small retail business that suffers a ransomware attack. Not only would the business face significant financial loss due to the ransom payment and business interruption, but it might also be liable for failing to protect its customers' data. Cyber liability insurance provides a financial safety net that can help businesses recover from these incidents.

The Duty to Offer

As an agent, offering cyber liability insurance is critical for any business that handles sensitive data or relies on technology for daily operations. From healthcare providers to retailers and service-based companies, cyber coverage is a must. When offering this coverage, ensure that the limits are adequate to cover not just the direct costs of a breach, but also business interruption and third-party liabilities.

Consequences of Not Offering Cyber Liability

If you fail to offer cyber liability insurance and your client experiences a data breach, they may sue you for negligence, arguing that you didn’t provide them with the necessary protection. An E&O claim could easily follow, costing you both time and money. To avoid this, always offer the appropriate cyber liability coverage and document the offer, particularly if the client declines the coverage.

Flood Insurance

What Is Flood Insurance?

Flood insurance covers damage caused by flooding, including storm surges, flash floods, overflowing rivers, and other water-related events. It’s important to note that most standard commercial property policies exclude flood damage, making flood insurance an essential standalone policy.

Why It’s Crucial

With climate change increasing the frequency and severity of floods, even businesses located outside of designated flood zones are at risk. A single flood event can lead to massive property damage, business interruption, and long-term financial strain. For instance, a manufacturing company located in a historically low-risk area might find itself underwater—literally and financially—after an unexpected flash flood.

The Duty to Offer

It’s easy for clients to assume they’re not at risk because they aren’t in a flood zone, but as an agent, it’s your duty to educate them on the evolving nature of flood risks. Offering flood insurance to all clients—regardless of their geographical location—ensures that they have the opportunity to protect their business from an unpredictable disaster.

When discussing flood insurance, make sure to offer sufficient coverage for both the building and its contents, as these are often overlooked areas of risk.

Consequences of Not Offering Flood Insurance

Failure to offer flood insurance can lead to devastating financial losses for your client. Worse yet, if they experience a flood and discover that they’re uninsured because you didn’t offer them the policy, they could file an E&O claim against you. To avoid this scenario, always ensure that flood insurance is part of your discussion and secure a signed letter of rejection if the client opts out.

Employment Practices Liability Insurance (EPLI)

What Is EPLI?

Employment Practices Liability Insurance (EPLI) provides coverage for claims related to wrongful termination, discrimination, harassment, and other employment-related issues. In today’s litigious environment, any business with employees is at risk of facing a costly employment-related lawsuit.

Why It’s Crucial

The cost of defending an employment practices lawsuit can be astronomical, even if the claim is frivolous. According to recent studies, the average cost to settle an EPLI claim is around $125,000, and legal fees can add tens of thousands of dollars on top of that. As workplace discrimination and harassment claims increase, especially with the rise of social media and public scrutiny, no business is immune.

Consider a small business that faces a sexual harassment lawsuit from a former employee. Without EPLI, the legal defense alone could be enough to bankrupt the company.

The Duty to Offer

EPLI is vital for any business with employees, whether they have 2 or 200 workers. As an agent, it’s your duty to offer EPLI to protect businesses from the financial burden of employment-related claims. Make sure the policy limits are sufficient to cover the rising cost of legal defense, settlements, and judgments.

Consequences of Not Offering EPLI

Failing to offer EPLI can lead to significant financial and reputational damage for both your client and your agency. If a business is sued for an employment-related claim and you didn’t offer EPLI, your client may hold you liable for their uncovered losses, leading to an E&O claim. Avoid this by always offering EPLI and documenting the offer with a signed rejection letter if necessary.

Commercial Umbrella Insurance

What Is Commercial Umbrella Insurance?

Commercial umbrella insurance provides excess liability coverage, offering additional protection when the limits of underlying policies (such as general liability, commercial auto, or employer's liability) are exhausted. Umbrella policies act as a financial safeguard, covering large claims that exceed the limits of standard policies.

Why It’s Crucial

In today's litigious society, lawsuits involving catastrophic injuries, property damage, or significant financial loss can result in judgments that far exceed standard policy limits. For example, a delivery company involved in a multi-vehicle accident may face claims that exceed its commercial auto liability limits. Without an umbrella policy, the business could be on the hook for the excess amount, jeopardizing its financial stability.

Umbrella policies are relatively inexpensive compared to the protection they provide, making them a cost-effective solution for businesses at risk of large liability claims.

The Duty to Offer

It’s essential for agents to offer commercial umbrella insurance to clients, particularly those with substantial assets or higher risk operations. Ensure that the underlying policies meet the required minimum limits for the umbrella policy to respond in case of a claim.

Consequences of Not Offering Commercial Umbrella Insurance

If a business suffers a large liability claim and doesn’t have sufficient coverage because you failed to offer an umbrella policy, you could be facing an E&O lawsuit. By offering umbrella insurance and documenting the offer, you protect yourself from future liability.

The Consequences of Not Fulfilling Your Duty to Offer

As an insurance agent, not fulfilling your duty to offer can lead to significant consequences for both you and your clients. When clients suffer uninsured losses because you failed to offer critical coverages like cyber liability, flood, EPLI, or umbrella insurance, they could hold you liable for their financial damages. This often results in costly errors and omissions claims, which can damage your professional reputation and lead to significant financial loss for your agency.

The best way to avoid these situations is to offer the Four Horsemen of the Apocalypse to all your clients. Even if they decline the coverage, securing a signed letter of rejection protects you from potential E&O claims and ensures that your client was fully informed of their options.

Protect Yourself and Your Clients

By offering cyber liability, flood insurance, EPLI, and commercial umbrella insurance to every client, you fulfill your duty to offer and protect both your clients and yourself from unnecessary risk. Always offer appropriate limits, document the offer, and secure a signed rejection letter if the client declines the coverage. In doing so, you ensure that you’re acting in your clients' best interests and safeguarding your own professional liability.

Don’t leave yourself open to unnecessary risk. Start offering the Four Horsemen today and keep both your clients and your business safe from the financial apocalypse.

Call to Action: If you’re unsure whether you’ve fulfilled your duty to offer these crucial coverages, review your book of business today. Reach out to clients who may not have cyber liability, flood insurance, EPLI, or umbrella policies in place, and protect yourself by documenting all conversations and offers.

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