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What Is Debt Collection Insurance?

By Adam BocikMarch 31, 2022
 

Insurance is critical for protecting the investment you’ve made in your business. This is especially true when starting a collection agency or debt buying firm.  While there is not a single specific product for debt collection insurance, there are several important types of insurance policies that you will need to guard against possible claim scenarios.  Below is a quick summary of some types of coverage to consider.  

 

Where you buy your insurance is as important as what insurance you buy.  You need to use a specialized agent – Despite the recent trends toward online quotes for some types of insurance, these do not apply to classes of business with higher claim exposure such as debt collection. Using an online rater or an inexperienced agent can result in having the coverage written incorrectly, or having an application declined altogether. 

 

Errors and Omissions Insurance (E&O) 

Mistakes happen. It’s true in every facet of life, and that includes business. Unfortunately, any professional can be sued or held liable for mistakes made in the course of conducting business. In our highly litigious society, errors and omissions insurance is a good idea for many types of businesses. But in the collections industry, this coverage represents a vital layer of protection. 

Errors & omissions (E&O) insurance – also called professional liability – protects professionals from defense costs and damages stemming from lawsuits related to their services. Most credit grantors will require a collector to carry a certain amount of E&O coverage before contracting to do business with the agency. 

 

An E&O policy is written on a base professional liability form, with a series of policy endorsements that mold the coverage to fit your business. It is important to pay attention to the endorsements, which may enhance or restrict your coverage. 

 

Lawsuits can be extremely costly to defend and settle. The language in the Fair Debt Collection Practices Act (FDCPA) can be interpreted very loosely, and collection agents can be sued for a wide range of activities including a letter or a phone call to a consumer. A seemingly benign phone conversation can be construed into “harassment” or “misrepresentation”, and even frivolous claims cost money to defend. 

E&O rates can be expensive in the collection industry due to the high frequency of claims. As with any purchase, it is important to shop the market to make sure you are getting the best rates and coverage for your business. 

 

Cyber Liability Insurance 

By its nature, the ARM industry is rooted in data and information management. Businesses ranging from debt collection, debt buying, collection law firms, and repossession partners are controlling or processing sensitive personal information.  Holding this information makes companies susceptible to hacks or ransomware.  Utilizing data security best practices is imperative and excellent planning needs to include a robust cyber liability policy.  There are a variety of policies of different sizes and shapes that cover hacking incidents, data breaches, privacy notification costs, etc.  Cyber Liability insurance can help prepare your company to respond effectively in the critical hours and days following a data breach. 

A thorough review of cyber liability insurance should consider the following: 

  • Crime coverage 
  • Fraudulent funds transfer coverage 
  • Ransomware coverage 
  • Business interruption coverage to recover the losses of being down. 
  • Exercise caution about sublimits for digital forensics and consumer remediation 
  • Cyber riders or association policies due to low aggregate limits 

 

General Liability Insurance 

General liability is another type of specialty insurance carried by many businesses, but it is important to note that general liability does not cover lawsuits related to professional services. Instead, general liability policies cover bodily injury and property damage caused by the insured. Only E&O policies protect against FDCPA claims and other similar allegations. 

 

Directors and Officers Insurance 

Directors & Officers coverage (D&O) can defend company officers against bad-faith management claims from investors and shareholders. This coverage is often packaged with employment practices liability to cover claims for wrongful termination, discrimination or harassment. 

 

Why should you use Cornerstone Support for insurance? 

The reason to use Cornerstone/Integrity First as your agent is simple- we are the only insurance agency that (1) specializes in coverage for collectors AND (2) can offer you options with multiple insurance companies. Cornerstone is committed to shopping the market to give our clients options each year to make sure they have the best value.  

 

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