A “responsibly competitive” market
provides adequate protection, for now
By Joseph S. Harrington, CPCU
It’s pretty easy to name the big challenges facing independent insurance agents and brokers.
At the top of the list is the determination of replacement costs and building property limits in response to catastrophe losses, along with the scramble to assemble multiple layers for liability towers as jury verdicts soar. Close behind are the challenges of providing stable coverage in a distressed auto market and staying ahead of ever-evolving hazards and policy provisions in cyber insurance.
It’s harder to identify what’s easy, or at least more stable and predictable. Fortunately for producers, “stable” and “predictable” seem—so far—to characterize the market for the protection they buy for themselves: agents and brokers errors and omissions (E&O) insurance.
“I would characterize the market for agent E&O as one of responsible competitiveness,” says Mark Angelucci, senior vice president and head of specialty lines for Utica National Insurance Group. “Carriers are carefully underwriting accounts and focusing on sound risk management practices.
“Only a few carriers are providing higher limits,” he adds. “This is a high severity line, and limits management is important to being a consistent, stable carrier.”
“There is competition in the market, which is helping to keep prices down,” says Mike W. Smith, president and CEO of Axis Insurance Services. “Some of our carriers are trying to get 10% to 15% rate hikes on renewals but are having a hard time, given the market conditions.”
Of course, silver linings often have some dark clouds. For Angelucci, the clouds are limitations he sees some carriers (not Utica National) placing on the policy definition of “professional services,” a critical matter for agencies and brokerages that provide risk management services and rely on non-licensed staff members to process business.
For his part, Smith is starting to see deterioration in claims experience, which he expects will result in higher rates over time. “Claims are definitely up in both frequency and severity,” he says. “Defense costs are increasing 20% to 30% and juries are awarding punitive and treble damages on top of escalating verdicts. As a result, we are seeing more carriers attempt to settle.”
Smith adds that claims experience in agent E&O is aggravated by personnel issues arising from high employee turnover, brisk merger and acquisition (M&A) activity, and the shift to remote workforces that are less well trained and supervised than previously. “The combination of these factors has led to increased claim frequency and severity, driving up overall claims costs,” he says.
“Claims are definitely up in both frequency and severity. Defense costs are increasing 20% to 30% and juries are awarding punitive and treble damages on top of escalating verdicts.”
—Mike W. Smith
President and CEO
Axis Insurance Services
E&S reliance
Another factor contributing to E&O claim frequency, if slightly, is the increasing amount of business being placed with excess and surplus lines (E&S) carriers, according to Angelucci. “Claims frequency is up slightly due, in part, to more non-admitted policy placements,” he says. Unlike admitted carriers, E&S markets typically do not have to file their policy forms for approval by state regulators.
“Producers must carefully check the terms and conditions on quotes and policies they place with non-admitted carriers,” Angelucci adds. “Quotes from providers may not include all the coverages or limits requested on an application. There may be conditions attached for triggering coverage. Things like that must be checked and communicated to a client.”
Related to the E&O risks posed by growing use of E&S markets are those arising from the growing role of managing general agents (MGAs) and other “delegated underwriting authorities” in providing both admitted and non-admitted coverage.
As Smith tells it, placing coverage for a client through an MGA often means submitting application information into boxes on online portals rather than having the client fill out the application and without the benefit of direct discussions with underwriters to clarify what’s needed. “The agent or broker is often left holding the bag for leaving out details a portal did not ask for,” he says.
No “water cooler” education
The challenge of adjusting to the growing role of MGAs and E&S carriers, and to an expanding number and range of risk exposures and coverages, is compounded by a widespread turnover in agency employees, driven in part by a surge in retirements.
One can see the effects of this turnover in a lack of preparation among many agency employees, says Smith. “Quiet quitting, remote work, and retirements resulting from significant M&A activity have left big holes in the training of the next generation,” he notes.
“Many of the newer hires don’t have mentors to help them develop the skills necessary,” Smith continues. “They don’t have the ‘water cooler’ education many of the older generation experienced by being present in person.
“Effective onboarding for new hires is critical to maintaining good E&O ‘hygiene.’ Make it a formal process.”
—Mark Angelucci
Senior Vice President and Head of Specialty Lines
Utica National Insurance Group
“This also means additional automation systems are needed to track performance. Unfortunately, many agencies don’t have those systems. This really creates an E&O problem,” he explains.
“Invest in your people,” Smith says. “They are the assets of the agency. We often take it for granted that everyone knows what we know. They don’t.
“A strong mentoring program combined with a strong training program will alleviate a lot of E&O concerns,” he notes. “Invest in systems and reports to assess the effectiveness of your team and pay your people well. It’s harder to replace employees than to treat them right and keep them.”
Angelucci agrees. “Finding quality people is always a challenge,” he says. Allowing flexibility in work location—hybrid and remote—helps agencies find and keep qualified staff.
“Effective onboarding for new hires is critical to maintaining good E&O ‘hygiene,’” he adds. “Make it a formal process. Just because a new hire has previous experience, do not assume he or she does not need training in your agency’s guidelines, processes, and documentation standards.”
Investing in employees is well worth the cost, says Angelucci.
“Good E&O risk management practices lead to better client service,” he says. “Being clear about coverage you have placed on behalf of your customers is good customer service.
“Letting them decide on the limits they are comfortable with and in setting property values gets their buy-in to the process and enhances their understanding of what insurance can—and cannot—do for them.”
As for E&O coverage itself, Angelucci advises agencies to “look for a carrier where you have direct access to underwriting, claims, and risk management staff.
“The insights these professionals have about many E&O policies will result in better advice and resources for you to call on,” he concludes.
For more information:
Axis Insurance Services
axisins.com
Utica National Insurance Group
uticanational.com
The author
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P&C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.
