Understanding Insurance: How to Best Protect Your Collection Business

May 28, 2022
By Cornerstone Staff

The global cyber insurance market is expected to grow by 25 percent in the next six years. That indicates the serious risk your business faces from surging cyber threats and data breaches.  Do you operate a collection agency, and you want to ensure you have the right insurance coverage? Understanding insurance coverage options can help you make the right decision.

Insuring Your Collection Business

As a debt collector, you face risk as you do your job every day. Collection agents are often portrayed and regarded in a negative light.   Although debt collection is helpful to the economy and to help consumers raise their credit scores in order to recover their buying power, debt collection is frequently met with negative attitudes that have been fostered by some collectors who have treated consumers poorly and politicians that generalize the industry.  As a result of this negativity, some consumers react accordingly when approached by a collection agency. 

Your business may face the risk of a lawsuit if a debtor decides to take revenge. Proper insurance coverage is an important component in protecting your collection agency. Your business is a financial asset, and you must have liability insurance to protect it.

Here are some things to check for when you review your debt collector’s insurance policy:

1. Errors and Omissions Insurance

Errors & omissions insurance is valuable in any industry, but is particularly critical in the litigious collections industry. Premiums take into account your revenues and loss history. Even frivolous claims can cost you money to defend, and E&O insurance can protect you from the defense costs and damages.

In general, errors & omissions insurance (also called professional liability) protects your business if you get sued for an honest mistake in the normal course of your business activities. Not all policies are the same, but a collector or debt buyer needs to make sure they purchase a policy that does not exclude coverage for lawsuits naming the FDCPA and FCRA.

If you are sued, you simply report the claim to the insurance carrier. They evaluate each claim individually to determine whether it falls under the terms of the policy, then assign an attorney to work with you in resolving the claim. You are responsible for the deductible amount on the policy, but the insurance company pays any remaining defense costs above the deductible amount.

2. Insurance For Cyber Crimes (or Cyber Liability Insurance)

Cyber liability coverage is a vital, constantly evolving, and often confusing form of insurance. With the increased frequency of hacks and breaches worldwide, collection firms are potentially attractive targets due to the large amount of stored consumer data with personally identifiable (PII) and protected health information (PHI). Cyber insurance has become a standard requirement for many collection contracts and association membership certifications.

It is important to have a basic understanding of the components of cyber liability insurance to make sure you have the protection you need. The results of a network security incident or breach can range from an inconvenient stoppage of daily operations, to a financially devastating breach with costs for notification requirements, lawsuits, investigations, credit monitoring and more.

A cyber claim, regardless of the incident, can involve two types of costs: first-party and third-party expenses. First-party costs include any expenses of the company directly related to the breach including state regulated notification costs, reputation management, legal and network investigation costs, and the loss of income during a breach. Third-party costs cover expenses incurred from outside the company and may include legal defense, settlements, and regulatory fines and penalties.

3. General Liability Coverage

This type of policy provides protection coverage from the many liability issues that a business can face in ordinary business practices. If your business suffers a claim of bodily injury, personal injury, or property damage as a result of a company’s products, operations or the premises.  

This insurance covers the foundational basics for most businesses. If you rent your office space this policy is often a requirement.

4. Directors and Officers

D&O insurance is for anyone who serves as a director or an officer of a for-profit business or nonprofit organization. This  policy insures them against personal losses and helps to reimburse the business for legal fees and other costs incurred in defending them against lawsuits.  Since civil and criminal actions are often brought against directors and officers simultaneously, the coverage can also extend to criminal and regulatory investigations or trial defense costs.

5. Employment Practices

Employees are what makes a business flourish and grow.  An employee can also be a source of vulnerability if the work-relationship sours and an employment-related lawsuit emerges. As a result, every business should consider whether it can afford to defend itself against alleged wrongful employment practices accusations.  Employment practices liability insurance protects against discrimination, sexual harassment or wrongful termination suits from your current, future and former employees.

Understanding Insurance

As a debt collection company, you face risks that other businesses might not consider. More importantly, your agency will have specific policy coverage needs that are not available from an ordinary insurance salesman.  We have an approach to insurance that studies the specific requirements of an industry and we work with underwriters to develop the insurance coverage options that the industry participants require.  As a result of this insight, we can answer any questions that will help you in understanding your insurance coverage needs.

Contact Cornerstone Support to discuss our industry-specific insurance coverage. We will help you find the right insurance to protect your business.


Cornerstone Staff

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