Real estate errors and omissions coverage available to real estate agents and brokers is also available to appraisers, auctioneers, property management firms and mortgage brokers, according to Catherine Williams, program manager at Victor O. Schinnerer & Company, Inc. She adds, “All have different exposures. Agents and brokers are most often sued for misrepresentation. Appraisers are sued for valuing properties incorrectly. Discrimination claims can affect any of these groups.”

Rebecca Swanson, Quicksource underwriting manager at Markel Corporation, Inc., explains, “In many cases, the exposure is covered by the employer, but to an increasing extent we have seen agencies require employees to provide this insurance through their own individual association membership or, in hard to place cases, on their own as an independent.”

Because a real estate agent operates in a professional capacity in an increasingly litigious environment, Rochelle Elliott, professional lines manager at Burns & Wilcox's Scottsdale office, believes that individuals offering this service need to protect themselves. She says, “Coverage can be tailored to fit any client’s needs and cover claims alleging negligence arising from fee-based professional service. It can even extend to economic losses sustained by others as a result of the insured’s alleged negligence.“

Many markets provide this coverage. John Torvi, director marketing & sales at Herbert H. Landy Insurance Agency explains that they have a new product through General Star National Insurance Company called Realty Express. He explained “It is suited to smaller real estate and appraiser firms meeting revenue criteria. For larger firms, a standard Real Estate E&O policy is available that can accommodate secondary activities such as mortgage brokering and property management.”

Programs are offered through the American Association of Real Estates, according to Ms. Swanson but coverage is also available through Markel Corporation, RSUI, PIA, Hiscox, London markets, Lexington and others. Ms. Williams says, “We compete against many carriers, several of which have been in and out of the market. Historically, we’ve seen our competitors aggressively enter the market with low premiums and exit the market after two to three years on average, due to poor loss experience.“

The marketplace offers coverage on both admitted and nonadmitted paper. According to Ms. Elliott, “There is a vast range of services a real estate brokerage office can provide under its license. The services provided and prior claims experience determines the market that best fits a particular risk's E&O needs.” According to our other experts, some other differences are based on the state involved and the size of the risk.

Capacity does not appear to be a problem in the real estate errors and omissions marketplace. Mr. Torvi explains that the Realty Express program has limits of $1,000,000/$1,000,000 available and limits of $1,000,000/$2,000,000 for standard business. Ms. Swanson says that Markel Corporation, Inc. targets the middle to small market, distressed agent or agent practice, finding $5,000,000 to be at the top end of their appetite.

According to Ms. Elliott, Burns and Wilcox have limits available ranging from $250,000 to $5,000,000, depending on the services, location and needs of the real estate office. She goes on to say, “Some of the franchise operations are required by contract to carry minimum limits of $1,000,000, which is the most common limit chosen.”

Ms. Williams explains that Victor O. Schinnerer also offers limits between $250,000 and $5,000,000 because its business is made up of small to medium size firms generating less than $20 million in residential sales and $2.5 million in other real estate services. Most of its firms purchase either the $500,000 or $1,000,000 limit options.

Pricing is difficult to evaluate at the present time because of the changes taking place in the real estate industry. According to Ms. Elliott, “Many offices have decreased revenues or reduced staff size, which usually results in lower premiums. However, due to the stresses in the economy, agents are turning to services presenting higher exposures that brings the price back up.”

Ms. Williams agrees that overall premiums are decreasing due to decreasing exposures. In addition she says, “As firms lose revenue, they search for lower premiums to reduce their expenses.” The filings being made by General Star also reflect changes in the market, according to Mr. Torvi, as they change from a head count basis to a revenue basis.

Account acceptability and pricing can vary geographically. For example, according to Mr. Torvi, General Star does not write in New York, Alaska or Louisiana. Another approach is to consider the actions in the real estate market itself. Using this line of thinking, Ms. Elliott believes the markets that are most difficult to underwrite in are the ones with the highest foreclosure rates. Arizona, California, Nevada, Florida, Michigan and Ohio are the hardest hit areas. Ms. Swanson advocates considering the real estate licensing requirement as an important consideration but that it cannot be the only consideration and offers this example, “While both California and Wisconsin have very strong and vigilant requirements for agents, we find California to be very litigious while Wisconsin has perhaps the lowest rate of claims in the country.”

The real estate industry is in great turmoil at the present time. However, according to Ms. Elliott, claims in this class tend to manifest themselves two to three years after a transaction closes. As a result, we may not see the claims effects from this distressed market for a few more years. Ms. Swanson expects the current consolidation trend in the real estate industry from small, regional or totally independent agents to larger national agencies to continue. In any event, Ms. Williams believes that insurance carriers will continue to jump in and out of the marketplace but that risk selection and appropriate pricing, as well as risk management and claims handling, will be the keys to establishing a successful program with longevity.