Do Travel Agents Need E&O Insurance?
It’s been awhile since I wrote an article that digs into the sectors covered in red tape—namely government regulations and insurance. As it happens, I got a few E&O insurance emails last week and I figured hey, why not? Let’s tackle this bad boy.
Friends, today we chat on what E&O insurance is, where to get it, and make sure you have realistic expectations on what it can (and can’t) do for you. Settle in for an enticing read!
You know I’m not an attorney or insurance expert (or I hope you do, my friends and I make rainbow cookies for heaven's sake!). I’d be the worst attorney/insurance person in the world so keep that in mind when reading this.
What is E&O Insurance?
First things first. E&O insurance stands for Errors and Omissions insurance and it’s a common policy for travel agencies (and other businesses) to have. Why? Because it covers the errors and omissions you may make.
Errrrrrgh, or that’s what most travel agents think. Don’t let the name fool you. As it turns out, it doesn’t cover all errors, nor does it cover all omissions. In fact, I think looking at it as catastrophic insurance is a much smarter way of going about it. It’s for those big-time-doozy occasions when something goes horribly wrong.
If you’re thinking E&O insurance is going to cover the $500 mistake of booking the client in the wrong room, you’re going to be sorely disappointed. On the flip side, if someone sues you for an exorbitant amount, E&O comes in really handy.
So, What Does E&O Insurance Cover?
Well, blanket statements don’t work well when it comes to Errors and Omissions insurance but if I were to make a blanket statement, it would be a) dangerous and b) something like, E&O covers errors and omissions that do not benefit the traveler or the travel agent. E&O insurance also covers your legal defense.
In my opinion, the legal defense is probably the most attractive reason for an agency to have E&O insurance. No matter how frivolous the lawsuit, your legal defense will be covered up to your policy limit, until you were proven guilty. Some caveats where your legal defenses would not be covered: sexual misconduct, intentional acts, and criminal acts.
My best advice here is to read the policies carefully, they're not all the same. If your agency works with specific groups of travelers or is in a specific niche, make sure the travel you’re booking is covered.
What Doesn’t E&O Insurance Cover?
Many agents would assume their E&O policy covers things like debit memos from the airlines or if you told a client the wrong info for travel insurance. While policies vary, chances are those situations aren’t covered. In fact, you should be aware many errors common to travel agencies aren’t covered. Sad face, I know.
However, let’s not forget the big picture—insurance companies are in this to make money. Abuses to the insurance system hurt profits and they want to plug those leaks.
Enter the term, moral hazard. Moral hazards are not covered.
In other words, if your error/omission had no negative consequences beyond paying the deductible, and you/your client benefited from the error/omission, that’s a moral hazard. And insurance companies don’t pay on those claims.
Sample Situation #1: An agency quotes a client $4,000 for a trip that really costs $5,000.
The verdict: Your client is happy because they saved $1,000. You’re happy because the client booked. But the insurance companies will call that a moral hazard, accident or not, and will not foot the bill.
Sample Situation #2: Your clients are going on a cruise out of Thailand. You let them know they don’t need any special visas, etc. Except, the flight is delayed and they miss the cruise and have to catch up with it at the next port, Vietnam, which requires a visa. Whoops. They end up missing ½ their cruise while things are straightened out and are suing you for the cost of their trip.
The verdict: Your client is not happy and did not benefit. You did not benefit and could not predict the flight delay. The insurance companies would probably cover this since it doesn’t fall under moral hazard.
The Whole “Using the Host Agency’s E&O Insurance” Thing
Some host agencies allow their independent contractors to be under their E&O policy; some require that the independent contractor obtain their own. There is no right/wrong, just different ways of doing things.
But, a few tips if you are using your host’s policy: I worked at a host agency that included E&O insurance in the program costs and I was always concerned with how few agents asked for details on our policy. I mean, for all they knew, our deductible could have been $20,000 and the policy only covered where their clients were trampled by sloths!
Don’t forget to ask the host agency:
- What is the deductible?
- Could they send over a copy of the policy for you to look at? (make sure it says it covers independent contractors)
- How many agents are under the policy?
- How much will the policy cover total, for all claims? (most hosts have a policy with a $1M or $2M aggregate limit)
- What’s the payout limit per claim?
These questions can help you understand the risk in sharing a policy. Now, I do want to say that E&O claims are very rare—since they started hosting, most host agencies I know are still in the single digits when it comes to claims. Not having to purchase your own E&O insurance can save you a chunk of change, but it does mean the risk (even though small) is increased because it is a shared policy.
Also, be aware that if you book any travel not under the host agency’s accreditation number, that said travel isn’t covered by their E&O policy.
Do You Need an E&O Policy?
Technically, no. You’re not required to have an E&O policy by law in the United States. It’s a choice you get to make. Everyone has different levels of risk they’re comfortable with. You know your situation best—do what you need to do so you can lose sleep over something else (like getting trampled by adorable sloths).
And for you Canadian readers, certain provinces have legislation requiring an agency carries E&O insurance. Although after 45 minutes of searching for that info, I've come to the conclusion that the government is insistent on avoiding specifics on which provinces those are. They just tell you that certain provinces require it. (Gosh, thanks.)
It’s worth mentioning that while it may not be required by law everywhere, E&O insurance may be required in other situations: For instance, members of the National Association of Career Travel Agents (NACTA) and members of the Association of Canadian Travel Agents (ACTA) that live in non-regulated provinces are required to have E&O insurance. Some host agencies require proof of E&O insurance before an agency can join.
Where to get an E&O Policy for a Travel Agency?
Technically, you can get them from most insurance providers. You could call up whatever company you have your homeowners or car insurance with and ask them to add E&O insurance to your policy.
The cost of an Errors & Omissions policy is based on the total agency sales, so you’ll have to ask around to get specific prices. Also, make sure to ask your consortia, travel agents associations, and/or host agencies about any preferred supplier agreements with E&O companies—that could save you some moola!
There are advantages to having all your policies with one insurance agent, and there are advantages to working with someone that understands the nuances of the travel industry. Here’s a few of the popular carriers that have travel agent specific E&O policies (let me know if I missed any!):
ACTA Protect by Brokerlink (Canada)
And here’s a FB thread of agents sharing who they use for their E&O insurance. And don’t be shy to jump on the thread and share your experiences!
Just Can’t Get Enough?
I know. Who doesn’t love a good legal/insurance article? Legal jargon and complications are the perfect way to wind down and relax before bed.
For more delightful reads, check out our articles on:
Travel Agency Licenses (Seller of Travel Laws)
The Final Takeaway
E&O insurance can be confusing and it's important that travel agents understand it's not a silver bullet for fixing mistakes. Like any business decision, it's about knowing and weighing out the risk and ultimately doing what you're comfortable with. Would love to hear the route your agency takes in the comments section! And of course, there is our newsletter. If you found this article helpful, I'm pretty sure you'll dig our monthly newsletter!
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Special Thanks: A thank you to Jason Coleman, Issac Cymrot, Bob Duglin, Joe Matteis, and James Shearer for taking the time to speak with me about specifics for this article! And another big thanks to all of you who shared your experiences on my FB post!