Chubb Survey Results Provide Guidance For Purchasing Errors and Omissions Insurance
WARREN, NJ, March 29, 2005 – One in five information and network technology companies reported an errors and omissions (E&O) loss in the past three years,
according to a survey commissioned by the Chubb Group of Insurance Companies. Overall, one-third (30%) reported that the
primary cause of loss was a failure to provide or perform a service.
“Errors and omissions liability protection can be one of the most important insurance purchase decisions any technology company
must make. However, companies are often in the dark as to how much insurance they should purchase,” said Tim Ehrhart, vice
president, Chubb & Son, and global errors and omissions liability manager, Chubb Commercial Insurance. “We sponsored this
study to provide reliable technology E&O loss trend and purchasing information. The data in the survey, coupled with Chubb’s
25 years of information and network technology underwriting expertise, will help companies make better purchasing decisions.”
Chubb’s Information and Network Technology Errors & Omissions Liability Global Benchmarking Study showed that publicly owned
companies purchase four times more E&O insurance coverage than privately held firms. Some 56% of publicly owned companies
purchased limits of more than $5 million, compared to only 15% of privately held companies. Company size also appears to
have influenced the limits that were purchased as well as insurance program deductibles or retentions. Approximately two-thirds
of those companies with revenues over $1 billion purchased limits of more than $20 million, while companies with revenues
less than $10 million purchased limits of $1 million or less. Deductibles/retentions rose in relation to the size of the company.
More than 70% of companies with revenues over $500 million had deductibles/retentions of more than $150,000.
"Publicly held companies purchase more E&O insurance for a variety of reasons. They tend to entertain larger, more complex
contracts than privately held firms. As public entities, they also have to be concerned about the influence of outside boards
or shareholder litigation," said Ehrhart.
The study also found that average indemnity and defense costs related to an errors and omission lawsuit totaled more than
$500,000 for one in eight companies. The study indicated that custom software developers and specialty programmers are more
likely to experience an errors and omissions loss than any other segment of the information and network technology market—28%
filed an E&O insurance claim during the past three years. The second most likely market segments to have a claim are pre-packaged
software developers (17%) and hardware/network equipment and components manufacturers (17%).
“In 2005, we may see less litigation as information and technology companies protect the balance sheet through more sophisticated
risk management. With the ‘tech boom’ behind us, today’s technology companies tend to be more financially stable, manage their
contracts better and may even conduct due diligence on their customers” said Ehrhart. “Despite these positive changes, the
risk continues to be great enough that no technology company should take the gamble of going without E&O insurance. Chubb’s
survey now provides them with a tool to help make intelligent insurance choices.”
PricewaterhouseCoopers, LLP, based in New York, conducted Chubb’s Information and Network Technology Errors & Omissions Liability
Global Benchmarking Study. The firm surveyed 250 agents and brokers, who collectively have more than 730 publicly and privately
owned client companies.
The member insurers of the Chubb Group of Insurance Companies form a multi-billion dollar organization providing property
and casualty insurance for personal and commercial customers worldwide through 8,000 independent agents and brokers. Chubb’s
global network includes branches and affiliates in North America, Europe, Latin America, Asia and Australia.
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