The Professional Liability Marketplace
Professional liability coverage is needed by any business that provides a service involving specialized training. Many of these businesses may be small as individuals are leaving larger firms and starting their own. Professional liability can be used as the lead line in developing a new customer. As an example, most professional customers need but often do not consider cyber liability coverage. These professionals also need disability coverage because the skill the professional possesses is the revenue generator for the business. If that individual cannot provide the skill, the revenue will cease.
The professional liability marketplace is very competitive now and many new carriers are entering the arena, so this could be the perfect time for a retail agent to approach potential customers. However, as with entering any new market, it can be worthwhile to work with brokers and MGAs with a long history in the area in order to understand important differences in coverage and the carriers that offer it.
Professional Liability Opportunities
Understand market trends to build a solid book of business
By Dave Willis
Competition and growth potential mark the professional liability arena these days. Producers who understand the various market trends and issues can build and keep a solid book of business.
"In recent years we've seen significant competition-from both the standard side and the E&S side," observes George Schalick, RPLU, vice president of underwriting in the management professional liability division at Philadelphia Insurance Companies. "Most firms want to acquire business as quickly as they can."
Jeff Brunken, president of The MGIS Companies, says his market-medical professional liability-is soft right now, with competitive pricing. "At the same time, claims experience is edging upward and operating margins are narrowing," he comments.
His sector has seen numerous acquisitions. "Smaller carriers start up when the market's hard," he says, "but if they don't gain sufficient traction, they're attractive acquisition targets. That's happening right now." Brunken says there's very little organic premium growth in the market and carriers are focusing on retention through pricing, add-ons and coverage extensions.
"More than ever, customers are looking for value-demanding comprehensive coverages and competitive pricing," explains Gregory Leffard, president of professional E&O at The Hanover. "At the same time, they're looking for a fast, reliable application process. Carriers that succeed provide agents and insureds with excellent products, along with efficient systems for ease of doing business."
There's a broadening universe of customers who need professional liability insurance, according to Mark Azzolino, assistant vice president of middle market executive liability insurance at The Hartford. "While business owners in certain professions-accountants, tax preparers and consultants, for example-are typically more aware of the need for insurance," he says, "virtually any business providing a service that involves specialized training should consider professional liability insurance."
Schalick has seen growth in the number of smaller accounts buying professional liability. "I believe that's driven by the recent economic downturn, which led highly qualified individuals to leave larger firms and start their own shops," he remarks. "That's happened in technology, healthcare, management consulting and other industries. Submissions for one- to five-person shops are definitely up."
"The growth of professional industry segments is creating increasing demand for professional liability coverages," Leffard adds, "and there's greater need for clients to carry professional coverage to meet contractual requirements."
Agents can play an important role by educating clients and encouraging them to review insurance requirements prior to signing contracts with customers, Azzolino notes. "By doing so, insurance costs can be factored into the overall fees for the services being provided rather than having to address cost separately after a contract has been signed."
He points out that, while professional liability coverage is often required of a service provider as part of a contract, it's an important coverage to consider even if it is not a contractual requirement.
"Within our small commercial business, we find that business owners don't always consider the risk of a lawsuit, and professional liability insurance isn't top of mind," explains Lynn LaGram, assistant vice president of small commercial product at The Hartford. "The reality is, any business can be the target of a lawsuit and the consequences can be very costly and time consuming, especially for smaller businesses."
Cyber liability-also called privacy liability or data breach coverage-has seen increased interest over the past year. "With more carriers entering the marketplace, coverages offered are expanding, including first-party losses such as business interruption and cyber extortion," explains Lynette Gibbs, vice president and professional lines broker at AmWINS Brokerage of Georgia. "Every insured has a need for this coverage, and minimum premiums are coming down."
Schalick encourages agents and brokers to find carriers with both professional liability and cyber products. "Often the placement is in tandem because of contract requirements imposed on many professionals," he notes. "Whether the carriers can do it inside the professional liability policy, with an endorsement or a separate coverage, or you have a robust stand-alone solution working together with the professional liability, it's important now and will be more so going forward."
In his market, Brunken adds, "Stand-alone cyber is very important. Some policies have no-cost cyber liability extensions, but they often have very low limits."
Build revenue
A number of strategies and tactics can help producers grow their professional liability book. "Agents can find ways to make the experience seamless for themselves as well as their clients," LaGram says. "For us, ease of doing business is top of mind. Earlier this year we launched a new professional liability endorsement to our business-owners policy that provides agents and small business owners the convenience of one policy and one bill."
"Understanding coverage offered under a cyber liability policy will help agents show insureds their exposure," Gibbs notes. "Most clients think this is only for larger corporations that make the news." She points to CE courses and carrier webinars that offer agents basic coverage information.
"Also," she adds, "partnering with a wholesaler that deals with this coverage every day is a good idea. It may take a year or two before an insured sees the need for the coverage, but they'll remember the agent that pointed it out in the first place."
Leffard points out that professional service providers work on a referral basis. "It's second nature to them," he says. "If professionals are happy with their independent insurance agent, it's common for them to recommend him or her to other professionals they have a relationship with."
He also notes that significant market capacity leads prudent insurance buyers to look for more from their agents and brokers. "They aren't just seeking a competitive premium; they expect more," he explains. "Successful agents and brokers sell value, like providing risk management advice wherever they can." He encourages agents to work with carriers to build a comfort level with the product and with client needs.
Schalick says agents and brokers should have processes that create ease of acquiring business and that keep it low-touch. "Use online platforms and submission-free renewals for middle to small market business," he suggests, "because the fewer times you touch it-and this isn't news for retail brokers-the more successful you'll be."
He also reminds agents that small businesses often become large businesses. "Building a book of small business helps agencies grow over time," he says. Also, he points out that competitors don't always meet customer needs, and a cost-effective and comprehensive professional liability solution can be an entrée to new business.
Brunken encourages agents and brokers to grow revenue by focusing on client needs. "Stop selling just what you think you're good at selling and look at the world through your customers' eyes," he advises. In his market, customers worry about disability.
"Physicians have invested time and money in their education and career, and they recognize that if they become disabled, it all goes out the window," he points out.
"Doctors entering practice or getting their practice to the point where they feel like they can afford it are definitely looking at disability insurance," he adds, noting that disability for physicians is specialized. "For example, if an orthopedic surgeon is injured and can't perform surgery, as far as he's concerned, he's disabled. But a typical disability policy will say if he can look at slides, for instance, he can work and is not disabled, even though his income will be slashed in half, maybe more."
Service and retain
Agents and brokers also can play an important role in helping clients minimize losses. "Business owners often don't realize how much a lawsuit could cost them," LaGram remarks. "An agent who is a product expert and can clearly articulate consequences can have a big impact on a client." She says agents can build their knowledge of professional liability and other coverages through ongoing training, including courses offered by The Hartford School of Insurance and others.
"Many carriers offer policyholders risk management services that include monthly or quarterly newsletters and informative videos regarding the latest cyber news," says Gibbs. "Some offer insureds risk management credits to be used toward selected products and services, to assist with their company's information security. Agents should make sure insureds are aware of and using these services."
Brunken points out that many agents and brokers aren't in a position to provide these services for free, and in his market, for example, "doctors really don't want to pay for it. It's important to understand what types of risk management services your carrier offers."
He adds, "Many medical malpractice providers offer courses that carry complimentary continuing medical education credit. Some courses focus on the clinical side of the business, some on soft skills. Brokers need to understand what the carrier offers, what the physician needs, and what will fit into his or her busy schedule."
"Providing risk management services and education allows professional liability customers to minimize their risks, and it also lets them focus more on their business and run it more efficiently," Schalick adds. He also recommends talking with underwriters and carrier reps about their market observations. "Use this information to build or find resources to help serve your joint customers," he says.
Leffard says offering pre-claim assistance services, from dedicated and specialized claims professionals who work directly with insureds to help prevent potential claims, can bring great value. "Similarly," he adds, "good claims units also work with policyholders after claims to evaluate what could have been done differently to avoid or mitigate the claims."
Effective use of risk management resources can help boost retention. Other strategies also come into play. "Know your clients," Gibbs advises. "Being able to explain exposures and gaps in their insurance can boost retention and lead to cross-selling opportunities."
"Agents who understand their clients' current business activities and customers, as well as strategies and plans, can identify potential professional liability exposures and recommend appropriate insurance products in their ongoing client conversations," Azzolino adds.
Brunken recommends that agents understand what customers want in terms of service-ask them-and then make sure they're getting it, either in house or through the carrier or program administrator. "Customers want to understand their product, and they want to know what risk management resources are available," he says. "Service the heck out of your clients. Make sure they know you're there, and they'll be less likely to look around."
He also encourages cross-selling as a way to improve retention. "Provide other types of insurance your customers need," he suggests. "Be important to clients, and they'll stay with you." There's another reason to cross-sell. "Agents who don't recommend coverages that customers truly need may have exposures of their own," he notes.
Leffard adds, "While clients may know their businesses well, many are far less informed about their professional liability exposures. Agents and brokers who lead with expert counsel and service as differentiators, and really make them priorities, strengthen client relationships."
He says that offering value-added services, such as pre-claim assistance, can help improve retention, as can cross-selling all lines of insurance. "A competing agent would then have to match those high-quality services in order to win the customer," Leffard says.
According to Schalick, agents and brokers can bring value in client contract negotiation. "We're seeing really high contract requirements for cyber liability," he says. "Helping insureds negotiate a reasonable liability limit can be a very powerful tool to improve the risk and drive more business. If you did a good job for them, they'll tell their friends."
Efficiency also comes into play. "Make the renewal process as easy as possible," he advises. "Get out ahead of it. Make sure the coverage complies with the customer's contract needs. Also, deliver the solution early to beat the competition to the punch."
There's good reason to do so. "Even though there's a lot of competition in the small to middle market, once you acquire business, it tends to stay a lot longer with responsive carriers and retail brokers than do larger accounts, which focus more on cost and cost reduction," he notes.
Leffard says agents and brokers should partner with a carrier that is committed to the opportunity in the professional liability marketplace and has invested heavily in products, underwriting expertise and tools for ease of doing business.
"Working with a knowledgeable wholesaler on a line of coverage an agent does not deal with every day is key," adds Gibbs. "Don't be afraid to ask questions."
Schalick recommends that agents and brokers make use of expertise-building resources. "PLUS-the Professional Liability Underwriting Society, which offers the RPLU professional designation-also can be a resource," he remarks. "The PLUS community is very much about growing our business and making our accounts better risks. They offer a wealth of information, from local seminars and meetings to national events and of course the RPLU designation."
The author
Dave Willis is a New Hampshire-based freelance insurance writer and regular Rough Notes magazine contributor.
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