As much of the country’s population grows older, many Canadians are being thrown into an unfamiliar new role - one that arguably has become more risky over time.
The risk that comes with being the non-professional executor of a will or an estate trustee has been targeted by the creators of Waterloo, Ont.’s ERAssure, an executor liability insurance product recently opened up to the broker community.
The ageing baby boomer generation, combined with more complicated family relationships springing from divorce and remarriage, and more complex personal finances, have paved the way for this kind of coverage, says Scot Dalton, CEO of ERAssure.
“You’ve got a bit of a storm brewing here where all of these social differences (mean) the environment for claims against the executor is far different than it ever was in the past,” he says.
The product, underwritten by Economical Insurance, “covers the costs of defense and indemnity for damages awarded against them that arise out of errors and omissions committed during the administration of an estate,” according to ERAssure.
It's a risky business
Executors have always had a great deal of responsibility, but the job has arguably become more risky as information becomes more readily available.
“The thing that really surrounds this whole issue is the existence of the Internet,” Dalton says. “The Internet has opened up all kinds of means for people to impose their own sets of accountability on an executor.”
Now, anyone can go online and become their own expert in things like real estate valuation, financial management or the art market, he notes.
The presumption that an executor would do their homework has also made the courts less lenient in cases of errors, Dalton adds.
“In the past, what really has gone on is you would be hoping that if you made a major mistake in estate administration, you would have been hoping that the court would have been sympathetic to your lack of skills.”
A more sophisticated and informed society has led to more litigation, adds Ian Hull, a Toronto estate lawyer with Hull & Hull LLP.
The mass of wealth that’s being passed down is also factor to generating much more litigation activity, he says. “More and more people are being picked as executors; the demographics are gigantic.”
ERAssure itself has noted that an estimated $1 trillion transfer of wealth from baby boomers will occur in Canada by 2050.
Hull says he tells his clients that being an executor is like heading up a mini-business, and that they are responsible for its success.
While he was not part of the consultation process in creating ERAssure, Hull says he thinks the coverage is a good idea.
“An estate brings with it complexities that you can never predict,” he says. “It’s sort of like getting into a car and not expecting to get hit.”
To develop the product, the ERAssure team did consult with various lawyers and actuaries, Dalton says.
Underwriting model built from ground up
“We spent about a year and a half bringing the legal community into the fold as far as validating the need for the product, building the product and advertising its availability through them,” he notes. “It’s really been accepted by the legal community as a very good protection for estate trustees.”
ERAssure is available across Canada, with the exception of Quebec, although plans to launch there are in the works.
“It’s a policy that’s quite appropriate for probably 90% of the estates in the country and it’s got some applicability for the balance of them depending on the individual circumstances,” Dalton says. It may have also an opportunity to provide some protection for longer term trust situations, he adds.
The policy would cover an executor for three years, with a three-month extended discovery period following that. “We do have the capability to renew our policies depending upon the individual characteristics of the estate as well,” Dalton notes, as some estates are active longer.
The company did its own actuarial modelling and built its own underwriting and policy management and rating system that underwrites all of the individual characteristics of the estates. It maintains all the intellectual property for that model, he notes. “We built the underwriting model from the ground up.”
Pricing varies according to the dollar size of the estate, the composition of the assets, the type of executors, the number of executors and the number of beneficiaries, along with some other criteria, but premiums are generally low, he adds.
Brokers have a new opportunity
Still, many people may not be fully aware of the risk associated with taking on the role. “The average person doesn’t have any idea of the personal liability that they have assumed,” Dalton says.
The broker community, he says, can play a role in educating their current clients about the risks involved. “If you let them know that it exists, then the clients have an opportunity to respond to it.”
Spreading the word about executor risk isn’t limited to the ageing population alone. For Lionel Despres, owner and manager of Despres-Pacey Insurance Brokers Ltd., ERAssure addresses a gap in the system for errors and omissions.
The brokerage has a duty to make its current clients aware of executor risk, he says, and it is using its renewal letters to make its clients of all ages aware of the risks involved with being an executor.
For him, executor coverage comes down to being like any other kind of insurance. “People don’t expect that anything’s going to happen,” he says. “Insurance is set up for the unforeseen.”