Annual report for year ending March 31, 2021
Established in 1988, E&O has just entered its 34th policy year. E&O is a not-for-profit special-act corporation formed solely to provide errors and omissions insurance to real estate licensees in BC. E&O pools the assessments paid by real estate licensees in a fund that is used to pay the costs of defending and indemnifying licensees against professional liability claims. Essentially the fund covers professional negligence losses.
The coverage provided by E&O is set out in the annual Indemnity Plan. You can find a copy of the current Indemnity Plan here. You should familiarize yourselves with the terms of the Plan. The Indemnity Plan provides up to $1 million in coverage against negligent errors and omissions that may occur in the course of your activities as a real estate licensee.
For more than 33 years, E&O has provided the BC real estate industry with stable and cost-effective coverage. Your annual premium of $350 ($700 for the two-year licensing period), payable when you obtain your license and then upon each renewal, has not increased since 2011.
E&O’s mission statement is “to provide cost-effective professional liability insurance, loss prevention tools and legal support services for the protection of real estate licensees and thereby the public.”
Despite the economic uncertainty resulting from the COVID-19 pandemic, E&O has continued to operate smoothly and remains in a strong financial position. Check out the audited financial statements for the year ended March 31, 2021.
In the fiscal year ending March 31, 2021, E&O generated net income of $3,149,966 and increased the accumulated surplus by that amount to $29,371,504, an increase of approximately 12%. The surplus acts as a premium stabilization fund, a buffer in the event our claims expenses change for the worse.
E&O’s Minimum Capital Test (MCT) ratio (a solvency test used by insurance regulators) increased from 259% to 303% this year. This continues to be within the target range of 250-350 set by our Board of Directors.
The value of investments in the insurance fund increased from $57.91 million to $61.8 million. These investments are managed by Phillips, Hager & North, professional investment managers, pursuant to a written investment management agreement setting out clear investment objectives that are consistent with the “prudent investor rule” as required by the Real Estate Services Act, SBC 2004, chapter 42 (RESA).
More than 11,150 claims have been reported to E&O since its inception in 1988, and more than $100 million has been spent on defence and indemnity payments for those claims. The most common type of claim, comprising approximately 50% of the total, involves allegations of negligent misrepresentation or non-disclosure of the condition of the property.
There were 276 claims reported to E&O this year, compared to 267 last year. Although claims reported in the first half of the year were down due to the pandemic, the numbers rebounded in the latter half of the year when the market picked up. The annual residential sales on the MLS and the number of claims reported are closely correlated — usually between three and four claims per 1,000 sales. As a result, there will likely be an uptick of claims arising from the extremely hot market over the last six months.
Of the approximately 3,883 claims reported since 2008 and now closed, only 16% have involved payments other than defence costs. Another 17% of the claims have resulted in payment of defence costs only, with the remaining 67% of the claims being closed without payment by E&O.
As of March 31, 2021, E&O had 448 open claims, with 74% of those claims in litigation. To save costs, staff lawyers are currently handling approximately 43% of the litigation matters in-house. In an average month, 25 to 35 claims are reported.
Claims liabilities remained stable this year at $25.2 million, compared to $25.3 million last year. This number is the actuary’s estimate of the cost that will be incurred, in addition to the amount already paid out, to eventually close the 448 claims that were open as of March 31, 2021.
Board of directors
E&O currently has seven directors, four appointed by the Real Estate Council of BC (RECBC) and three appointed by BCREA. This will change when amendments to RESA come into force later this year. These amendments will allow E&O to appoint three of its own directors. BCREA will continue to appoint three directors and the provincial government will appoint one director through the Crown Agency and Board Resources Office. E&O will be working with governance experts over the summer to develop a sound process for future appointments to the board.
When RESA was amended in 2016, RECBC became a government organization. It also appointed the majority of E&O’s directors, so when RECBC became a government body, so did E&O. With the upcoming changes to the board appointment process, E&O will no longer be a government body. This is consistent with the recommendations made by D. Perrin in his 2018 report Real Estate Regulatory Structure Review.
E&O actively promotes loss prevention to reduce claims and keep premium assessments down. In addition to publishing quarterly Risk Reports with loss prevention articles and tips, over the past year E&O’s staff lawyers have participated in loss prevention seminars for BCREA and conducted numerous seminars for real estate boards and brokerages throughout the province. If you’re interested in a seminar for your brokerage or board, please contact our office.
E&O also partnered with BCREA and the RECBC to develop the “What would you do?” series of loss prevention presentations for managing brokers. Topics included conflicts of interest, misrepresentation, implied agency and sticking to your area of expertise. These materials, along with other support material can be found in the Managing Brokers section of our website.