Professional Liability and Agents E&O
People expect integrity and expertise when they pay for professional services. Regardless of the type of profession, failure to meet the client's expectations can result in significant litigation.
This month we consider the wide variety of professionals that need coverage because their clients expect more from them. The marketplace is open and thriving but coverage can vary significantly by carrier. The insurance professional should consult with experienced brokers who can sort through the various offerings because a low price often means that important coverage may be excluded.
Agency errors and omission specialists are also available. They can provide valuable insight into the agency E&O marketplace because that market remains highly competitive. This might be a good time for you to compare your coverage just to be sure you don't have any of the problematic exclusions outlined in this month's article.
Professional liability: A growth market
Broadening exposures and consumer awareness create opportunities
By Dave Willis
Societal changes, increased online activity and economic factors are driving changes in the professional liability insurance arena. "When people lose money or when they feel that they might have been 'ripped off' in today's society, they get a lawyer," observes Darryl McCallin, vice president of operations at Fox Point Programs. "That's when a business can find itself trying to protect its reputation and financial future."
In the past, he adds, lawyers and doctors were the practices people thought of first when it came to malpractice insurance. "Over the last few years, we've seen a heightened litigious atmosphere," McCallin notes. "This, in the midst of an economic downturn, has transformed the professional liability arena, leading a wider array of professionals to seek coverage."
Retail agents and brokers who understand this shift and respond to it can broaden their value to clients and can boost revenue for their organizations. Several classes of business warrant special attention.
"For instance, states are requiring E&O insurance for certain businesses, such as real estate agents and home inspectors," explains Jason Haughey, Fox Point Programs' professional liability program manager. "Certain industries are requiring their subcontractors to carry the coverage as well." He cites title agents and abstractors as examples.
The arena of professional liability also has changed as a result of increased consumer awareness. "I suspect most people would rather have a construction company that is licensed and bonded working for them and would decide to hire such a firm over a competitor who is not licensed and bonded," Haughey adds. "With this awareness, they might be more interested in paying an E&O-insured company for their services over one that is not."
Cyber liability or information security liability insurance is a specific professional coverage that has seen increased attention. "This area continues to gain momentum as a couple of factors come together," explains Brian DeGraw, director of professional liability for NSM Insurance Group. "Regulatory pressures, including HITECH and HIPAA, are growing. At the same time, new insurance product offerings are making it to market."
Finally, he notes, newsworthy cyber threats are boosting awareness. "What I believe is yet to be fully considered is the emerging—and, I'd say, significant—geo-political threat posed by foreign countries and groups that would like to do harm to the United States and our allies," he explains.
"Recent allegations against Syria and China of hacking into the networks of major U.S. businesses heighten the urgency for businesses to act," DeGraw adds. "Regardless of size or type, they'll need to develop and implement an insurance and risk management plan that will prevent and/or transfer their exposures to these developing threats." His firm is seeing increased interest and demand within many of its professional lines programs for the added protection of both first- and third-party cyber liability insurance.
Market outlook
According to DeGraw, the professional liability insurance marketplace continues to be fractured. "As a whole, there is a distinct trend towards underwriting integrity and profitability," he explains. "However, we find that the approach of achieving improved loss results varies wildly among underwriters."
He says he doesn't believe that markets known for the practice of "buying" business have learned their lessons. "While they are pushing pricing and are better defining risk selection on their renewal book, they continue to follow old behavior on new business," DeGraw notes. "Some product line segments are generally firming more than others, but there really isn't any consistency."
Geography is playing a role in marketplace behavior, he says. "Underwriters are trying to break into areas of the country—the Midwest, for example—where they may not have had a presence," he explains. "They are doing this aggressively from a pricing standpoint. I'm not confident that this is being done with much support from actuarial data to support their rating methodologies."
McCallin is generally optimistic about market prospects. "From Fox Point's perspective, the professional liability market outlook is positive," he explains. "There has been pricing pressure on this line of business for many years, and that tends to increase the likelihood of clients shopping their accounts more frequently."
Agent role
Increased shopping calls for vigilance on the part of incumbent agents and brokers. "Make sure your clients understand the differences in coverage they may have when going from one carrier to another," explains Haughey. "And make sure they understand the difference between admitted and non-admitted products, so they can make informed decisions. Pricing should not be the clients' only factor when buying a professional liability policy." Offering good counsel helps protect the insurance agency's E&O exposures, he adds.
DeGraw concurs. "Too much emphasis is placed on pricing," he explains. "Agents and brokers have a tough job, especially in difficult economic times. With some carriers increasing premiums, clients push agents to 'get the best deal' or risk losing them to a competitor." He says agents and brokers who drill down into coverages and become experts in an area like professional liability are best suited for long-term success.
"They will better assist their clients in navigating the marketplace," he notes, "and they can find the necessary coverage at a competitive price. Agents who regularly meet with clients and reinforce this focus and their expertise gain trust. Their clients will become better educated, placing more importance on protecting their business and livelihood. This approach also leads to underwriters having more confidence in the agent."
DeGraw says that when an agent has identified a focus area where they'd like to gain expertise, they should find underwriters to partner with. "Agents and underwriters working together have the best chance of providing the best solution for clients, with less focus on the price," he explains. "Cyber liability is a terrific example of this. Attend cyber conferences and partner with underwriters and other experts in this segment of the professional liability market."
Haughey encourages agents and brokers to take advantage of account-rounding opportunities. "If you are already insuring a client for E&O insurance, you can cross-sell other products, including cyber liability, employment practices liability and directors and officers liability insurance," he explains. "Provide insight into the exposures clients have, and then request that they accept or reject the offers for these options. This could help you generate new revenue while filling your clients' insurance gaps."
Pursue niches
McCallin says agents looking to grow their professional liability business must be innovative. "Since the universe of professional liability is expanding and people are becoming more and more aware of exposures they face, agents have a great opportunity to capitalize," he explains. "They should examine their local communities, identify a prominent niche class of business or two, and start marketing directly to them. By doing so, agencies can differentiate themselves from the competition."
DeGraw suggests considering dentist practices as a potential market. "The dental malpractice space has tremendous growth potential," he explains. "More and more states are requiring that dentists have professional liability insurance, and the policies are purchased directly by the individual dentists."
In addition, their exposures are increasing. ""Many dental practices are starting to offer added cosmetic-type services," DeGraw notes. "This is a fast emerging trend and needs to be carefully addressed."
Digital risks represent another growth opportunity. "It's very important to include cyber liability as part of your professional lines offering," McCallin explains. "Every business has some sort of cyber liability exposure and they need to be aware of the risks. We strongly suggest encouraging clients to consider cyber coverage along with any other E&O or professional liability policy."
Agents E&O: Do sweat the small stuff
Partner with intermediaries who "speak E&O"
By Dave Willis
The agents errors and omissions insurance marketplace continues to be highly competitive, which means more options and better prices when it comes to buying coverage. But that doesn't mean that agents and brokers should ignore their exposures—or their policies.
According to Mark Lann, executive vice president of Rockwood Programs and an underwriter in its agent E&O unit, "For smaller agencies, the E&O market is still soft. We're seeing minimum premiums of under $1,500, and coverages are available that previously were granted only for large accounts."
Some markets are trying to raise rates for higher-limit policies, Lann adds. "They've generally had limited success doing this. Overall, the market will remain soft through 2014."
Deborah Dioguardi, vice president of NIF Pro, the specialty division of NIF Group, Inc., that handles professional and management liability insurance, tends to agree. NIF Pro acts as an intermediary broker for the placement of insurance agents and brokers professional liability insurance. The unit works with agents, brokers, wholesalers, and MGAs/MGUs that may not fit into national or state association programs—sometimes because they're start-ups or have had claim activity.
"We won't see much of a change in terms of coverages or forms for the next year or so," Dioguardi comments. "The market going into 2014 will be generally stable."
Focusing on details
To address E&O exposures, agents and brokers need to pay attention to their operations and to their coverage. "A key piece of advice I have for agency principals is to read their E&O policy," Dioguardi says. "Too often, I'll come across an agent's or broker's policy and see problematic exclusions."
Sometimes the definition of "professional services" is not broad enough and doesn't encompass everything the agency does. "For instance," she explains, "many agents operate as consultants, offering loss control and risk management services, claims adjusting, even notary public services. Some forms don't cover these exposures."
The definition of "insured" sometimes does not cover an independent contractor or producer. "In this situation, agents and brokers who operate as independents wouldn't have E&O coverage under the agency's policy," Dioguardi notes. "I'm also seeing that they don't have personal injury coverage under the policy or the definition of loss is very limited."
Some policies don't include punitive damages, and some don't have insolvency coverage, she adds. "Sometimes the forms limit the carriers that agents can place business with, based on their financial rating," she says. "For example, they're not covered if the policy calls for carriers to have an 'A' or better rating and they're working with one that's rated 'B+.'
"Too often principals don't realize what they aren't covered for because they don't take the time to read the policy," Dioguardi observes. "It's especially important to look at the 'exclusions' section of the form." She notes that specialists generally know what they're looking for when they review policy forms.
"If an agent is uncomfortable with what they're paying or if they don't know what they're getting, it might make sense to partner with an intermediary who can offer guidance and assistance," she adds.
"Specialists tend to know what the hot topics are and know what to look for," Dioguardi continues. "There's a lot more to good E&O coverage than a low premium. Both premium and coverage should be competitive." She points out that coverage is important, but so are strong carrier financial rating, experience in the market and good claims handling.
Glenn Clark, CPCU, president of Rockwood Programs, concurs. "Our approach to the entire agents E&O business involves markets, forms and rates that are competitive," he says. "But what's especially important, we believe, is having an established claims counsel. For more than a decade, we've partnered with the law firm of Wilson Elser as what we call the 'Rockwood Defenders.'
"Rather than assigning claims counsel on an as-needed basis after a loss occurs, we know who will handle our claims before a loss," Clark explains. "This lets us offer insureds access to pre-claim counsel, hotlines and loss control, as well as advocacy-type defense by E&O experts if the need arises."
To reduce the likelihood of claims, agents and brokers need to focus on internal processes. "Issuance of certificates of insurance has always been problematic," Dioguardi explains. "Even with technology that documents activities and wording, it's still important to make and keep actual copies of certificates. This can help with defense down the road."
"Other ways to help prevent claims include the use of specific procedures for doing business functions, the use of checklists, and careful explanations of coverages and exclusions in quotes," Lann says. "Doing these things consistently will help an agency and its E&O carrier respond to potential claims situations."
Dioguardi encourages agents to make sure their checklists are updated. "That's a big thing," she asserts. "There are new coverages out there that agents or brokers may not be presenting to insureds. Cyber liability is one that, while perhaps not required by contract, should still be part of a checklist at the time of quote."
Lann says agencies should adopt a policy of documenting every interaction with their clients, as well as interactions with their carriers. "Accurate favorable documentation can aid the E&O carrier in resolving claims," he notes.
Technology is another issue. "Better use of technology can be a big help." Dioguardi says. "If you're using it correctly, a good agency management system can help with documentation and workflow consistency. If you're not sure what the system offers, talk with your vendor or other users, or bring on an IT specialist to help."
Dioguardi says agents need to make sure their systems will be operational in the event of a catastrophe. "In our area, a number of agencies were hit by Superstorm Sandy," she says. "Those without a continuity plan in place were at a loss. You can reduce E&O exposures by having plans in place for weather-related or other unusual events."
Staffing and training also deserve attention. "Having the right staff—the right account execs—in place and having them trained in agency procedures can go a long way in helping reduce risks," Dioguardi says. "Properly licensed staff following the same guidelines ensures better outcomes."
Even with risks reduced and policy language understood, agents and brokers need to focus on one more area to be sure their operations are well protected. "Just as we tell our insureds to read and understand their policies, we also tell them to make sure their submissions are done well," Dioguardi notes. "To be honest, some of the worst submissions I receive are from insurance agents and brokers."
Lann concurs. "Agents and brokers should be doing what they recommend to their own clients: fill out their applications completely and accurately," he says. "Include additional information on anything out of the ordinary, such as claims, acquisitions, specialty lines of business placed or programs serviced.
"Giving your underwriter or broker a legible, well-written submission will help ensure that you get the best possible product, pricing and service," he concludes.
The author
Dave Willis is a New Hampshire-based insurance freelance writer and regular Rough Notes magazine contributor.
|
