Coverage gaps in errors and omissions policies almost always come down to a single thing – a mismatch between what a client believes they have bought and what their policy actually covers, according to Valerie Cusano (pictured), vice-president of commercial for Alberta at Westland Insurance.
Clients understand their own exposures and buy a product they think addresses them, whether through a broker or direct, Cusano said. The gap opens when no one keeps that understanding current. A client who bought an E&O policy in a startup phase five years ago may still carry the same coverage today, she said, even though the business has grown and the technology underpinning its daily operations has changed. Without ongoing, meaningful conversations about how the business has evolved, the true exposures go unrecognized and the coverage no longer matches the risk.
Closing those gaps sometimes takes more than a broker can supply alone, she said. Brokers cannot know everything, which is where enhanced underwriting techniques, loss engineers and other specialists come in – on the architecture side, for example, where genuinely understanding the professional exposures demands industry-specific expertise.
Much of the current movement is on the AI side, Cusano said. Historically, many policies are silent on AI exposures, and the insurance industry has treated silence as inclusion rather than exclusion. That convention is now shifting. Insurers want to understand AI exposures before agreeing to cover them, she said, and are deploying more onerous systems to gauge a company's true AI risk.
Policy wordings are changing as a result, either excluding AI risks outright or including them only if the client completes a detailed questionnaire on what those risks look like for their industry. That should narrow the gaps on evolving exposures, she said, provided the attention and investigation are there.
Underwriters are increasing scrutiny and rethinking how they rate risk, Cusano said. Rather than charging every accountant a standard rate on a million-dollar policy, they now want to know who is genuinely best in class and what each applicant's actual exposures are.
Rates may climb for certain industries and within them, depending on the maturity of a firm's risk management, its staff policies, its handling of evolving AI risk, and its approach to fraud and cyber – an area, she noted, where breach alerts from hotels, travel agencies and airlines have become a near-daily occurrence. The result is more questions and more supplementary questionnaires layered onto the original E&O application.
At renewal, the best thing a broker can do is sit down with the client in person, where possible, Cusano said, work through a proper checklist, and understand exactly how the business has evolved and where it is heading in one, two or five years. The aim is to behave as though embedded in the client's business, she said – to have a true perspective on what the exposures actually look like.
Westland runs what it calls stewardship meetings to do exactly that, discussing change, growth objectives and known exposures before introducing the ones the client hasn't considered, drawn from claims the brokerage has seen elsewhere in the same industry.
"What keeps you up at night is the question that gets asked," she said.
The harder constraint is time, Cusano acknowledged – particularly for the small and medium businesses that dominate the Canadian market, where decision-makers often gravitate to the broker who asks the fewest questions and quotes fastest. Westland's answer is specialization, she said. By training small-business specialists deeply in particular industries such as farm, down to poultry operations, the broker arrives already carrying the expertise, so the client spends less time explaining the risk.
"That client is going to have to spend less time educating the broker," she said, "because the broker already specializes in this area every single day."
