As real estate professionals know well, most signs point to slow progress in real estate industry growth. Professionals are left to manage their costs, make cuts where possible, keep up-to-date on industry trends, fight for the best terms for clients and avoid stepping on any toes. However, nixing some expenses like professional liability insurance in the near term can mean debilitating financial hurdles in the future. Agents and brokers need to be aware of the risks their real estate clients are facing in order to help them be strategic about their use of resources in order to ensure longer term successes. Without the right coverages, real estate clients may put their professional and personal financial future on the line.
The Real (Estate) Risks
Real estate agents, like insurance agents and brokers, are closely tied into their communities. As the economy has tumbled, they have taken initiatives to grow their practices however possible. While being flexible is helping many agents keep their practices solvent in a difficult economy, it can also lead to new risks. Insurance agents and brokers who understand the ways in which their clients are seeking growth can help them manage the exposures they’re potentially overlooking.
One way many real estate agents are trying to improve their financial outlook is by expanding geographic operations. They are accepting listings and representing clients in new neighborhoods or towns. Because real estate markets typically have significant local differences, agents can face major changes when they venture into new territory. From property values to neighborhood rules and regulations, agents need to be informed about the areas where they’re expanding their practice. If they are not up to speed, they risk lawsuits, unhappy clients and potentially losing their practice.
Real estate professionals are also adapting to a tough economic environment by offering new or expanded services. While some are simply bringing back services they provided in the past, others are taking on responsibilities they’ve never tackled. For example, some agents are now operating as property managers, property preservationists, title or closing agents and appraisers. In any scenario, agents who are adding to their list of services may also be adding to their list of liabilities.
Even agents who have experience offering additional services in the past may face new exposures. Agents adding to their repertoire are likely to be unfamiliar with current procedures, methods, issues or regulations. What’s more, many of these agents are hard pressed for time and may not, for example, have taken training classes. Insurance agents and brokers need to explain the professional and personal risk their real estate clients are taking — and the repercussions in the event they are the target of litigation related to their new services.
Closing the deal is arguably the most important step in a real estate transaction. When lending standards are raised, closing can also become one of the most challenging aspects of a real estate transaction. Agents can find themselves on the receiving end of lawsuits if any of the involved parties view them responsible for a sale falling through. Not only can this result in significant reputational damage, but the expense of paying for legal defense and fighting the suit can lead to serious financial stress for real estate professionals.
Protecting the Practice
Insurance agents and brokers play a key role in helping clients protect their businesses. Risk solutions can come in many forms, from product solutions to risk management resources and professional advisors. Agent and brokers need to consider all of the available risk management techniques and solutions when advising their clients about how best to protect their practices.
Maintaining the right Professional Liability insurance products is important to help clients minimize potential exposures. In addition to ensuring clients have traditional E&O coverages, they should be aware of newer enhancements or more sophisticated offerings that help protect against today’s emerging exposures. Some of these offerings include:
• Network and Information Security Offense Coverage: Protects customers in the event of a network or information security breach, virus transmission or theft or loss of client data. With cyber events and hacking dominating the news, and more and more work being conducted electronically, this type of coverage is one that real estate professionals should consider taking seriously. The client information which real estate professionals have on hand can be extremely valuable to a hacker.
• Crisis Event Expense Reimbursement Coverage: Because a client’s reputation can be compromised in the event of a lawsuit, firm breakup, or other publicly-reported crisis, look for an insurer who can provide expense reimbursement for consulting services provided by a public relations firm.
• Failure to Advise: If a real estate client fails to advise a buyer about pollution, fungi or bacteria, they may be sued. Ensuring that your real estate agent customer has this type of coverage can help protect them. With this coverage, clients are not subject to sub-limits or exclusions for neglecting to advise on those damages.
Real estate professionals should also be educated about the resources available to them that help support risk management. These may run the gamut from experts to education, each offering unique guidance and help. By pointing to these resources, insurance agents and brokers can solidify their role as an advisor and solution provider for clients.
• Professionals: Insurers and agents, lawyers, and accountants who manage risk for a living can help identify individual exposures and provide custom solutions to meet a client’s need. In addition, professional liability insurers offer access to risk management advisors for their insureds at no additional charge, so it makes sense to consider this service when recommending insurance placement and risk management.
• Outside Organizations: Many insurance providers, professional liability organizations and risk management associations can offer additional resources (pamphlets, web sites, etc.) that can provide helpful tips beyond coverage.
• Publications: Business magazines, risk management publications, regional magazines and real estate market outlets can put risks into a variety of contexts, each of which will provide value for real estate professionals.
Insurance agents and brokers understand that insurance is sometimes one of the first expenses that may be cut during tight economic times. Additionally, with today’s economic environment, real estate agents may be searching for creative ways to broaden services and improve financial results — often overlooking associated risks. However, producers also know that professional liability insurance coverage can often be the most detrimental corner to trim. Insurance agents and brokers can help by providing education, guidance and solutions to support their clients’ business.
Rea is the real estate and miscellaneous professional liability product manager for Travelers bond and financial products, professional liability.
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