Specialty Lines Markets
PROFESSIONAL LIABILITY MARKET UPDATE
High demand for cyber offers opportunity for agents
On the surface, it appeared to be a good year for the insurance market in 2017. The RIMS Benchmark Survey, conducted by Advisen, found that the average total cost of risk dropped 3% last year, continuing a four-year trend. Across the board, in fact, insurance costs were down.
Except for cyber liability insurance, that is. The RIMS survey revealed that the average cost of cyber insurance per $1,000 of revenue increased 33% last year. Never mind that there were more customers—the percentage of companies purchasing cyber liability coverage grew from 35% in 2011 to 65% in 2017.
It seems everything cyber is poised to impact the professional liability market.
Even cryptocurrencies are being viewed through a skeptic’s lens, says Michael Read, business development director for ABA Insurance Services. “While data breaches and privacy matters remain at the forefront, questions about cryptocurrencies and how traditional policies respond to matters involving virtual currencies are becoming a hot topic.”
The impact of cyber
To date, however, crypto currency is just a conversation. The larger conversation, say the experts, is on cybercrime, particularly data breaches. In fact, Read says cyber insurance is the industry’s leading topic, with buyers seeking information on coverage much more often than in the past. Steven Anderson, vice president and product executive of privacy and network security at QBE North America, says the proof is in the numbers. The stand-alone cyber insurance market, he says, is around $2.5 billion to $3 billion in premiums, 75% to 80% of which Anderson says is U.S.-based and is predicted to double by 2020.
Such high demand for cyber insurance is putting pressure on agents to be on top of the finer points of coverage, particularly within the professional liability space. “Agents need to understand policy forms and claims drivers to adequately explain the risk to their clients in simple, understandable terms,” says Read.
Because professional liability is often misunderstood, agents can best market and sell these policies by explaining the types of losses that can occur and how a policy would respond to these exposures.”
Business Development Director
ABA Insurance Services
That means understanding what exposures are most concerning to clients. “While large-scale data breaches and other network security issues tend to make headlines, your clients are more likely to encounter fraudulent funds transfers, social engineering schemes, or ransomware demands,” Read adds.
As for who the customer is, Anderson says the trends reveal that information as well. “Those who will be buying these policies: Look at who is being victimized now (hospitals, power companies) and which industries are newcomers to digitization (agriculture, mining, construction, hospitality).”
Agents and brokers are adept at recognizing that cyber is both a coverage and an exposure, helping them to select the best options for their clients, says Gregory Leffard, president, Hanover Professionals at The Hanover Insurance Group. “Other insurance coverages can and often do respond to certain cyber exposures, but agents will need to mind the gaps and have meaningful conversations with their customers as to which coverages should be in place to respond to their specific cyber exposures (e.g., are insureds willing to subject their professional lines coverage limits to cyber risk?).”
Agents, says Leffard, are taking care to accurately assess the risks of professional clients, and are looking ahead to future exposure potential. This, he says, gives agents and brokers the ammunition to develop better insurance programs to address businesses’ exposures now and in the future.
Alongside the concerns over cyber liability, experts say a stronger economy is driving more activity in the professional liability arena. David Zell, vice president of specialty programs for QBE North America, says a sound economic outlook means more projects and more exposures. “As plans for significant investments in U.S. infrastructure projects begin, the demand for civil/traffic, and structural engineers and surveyors has increased,” he explains.
“In addition, A&E firms have recovered from the 2008 recession, resulting in gross billings increasing,” Zell says. “The combination of these two factors will result in a growing exposure base in the A&E space for the next several years.”
That’s helping new players join the market, says Anderson, who has seen estimates of around 90 new market entrants. Such expansion, he says, is prompting existing customers to look at more coverage options, such as system failure and dependent business interruption. Also, healthcare remains on top of the new buyers’ wish lists. Anderson also sees the General Data Protection Regulation (GDPR) as having “a significant impact on purchases in both North America and Europe.”
Those new players are approaching the market seriously, says Leffard. “We’re seeing many start-ups and solo operations provide more complex services. This is a great opportunity for independent agents to provide valued counsel around evolving risks and insurance programs to help address their clients’ exposures.”
But good luck getting buyers to commit. “Complexity of coverage and lack of understanding regarding the application remain the largest obstacles for insureds to purchase and brokers to sell,” says Anderson.
Read believes agents and brokers should be connecting the dots for buyers. “The time is now for agents to have a conversation with their clients, because heavy competition and abundant capacity has created a very favorable buying environment. Clients or potential clients who were reluctant to talk about professional liability in the past may be more willing to listen now, as insurance that once might have seemed out of reach or too limited in scope is more accessible.”
As for claims, Zell says QBE’s product is too new to have any claim trend data. “However, based on our experience in times of economic recession, it’s not uncommon to see an uptick in some professional liability claims.”
Read says agents and brokers can be the best defense their clients have against claims. “Retail agents and brokers can best avoid claims problems by creating properly structured insurance programs for their clients. For example, blended programs—those that combine professional liability with coverage for cyber or employment practices or crime—are commonly available today.
“We also see traditional professional liability exposures added to BOPs,” he adds. “While this can be convenient on the front end, it has the potential to create problems when claims occur, because coverage scope and limits are often inadequate. Agents can avoid this type of problem by recommending stand-alone policies.”
Advice for agents and brokers
Most of all, experts say agents and brokers have a golden opportunity to become the go-to resource for their clients. “Because professional liability is often misunderstood, agents can best market and sell these policies by explaining the types of losses that can occur and how a policy would respond to these exposures,” says Read. “We have found real-world claims examples to be the most effective marketing vehicle, bar none.”
So is teaming up with a dedicated carrier, says Zell. “Work with a carrier with claims professionals who will partner with you before, during and after a claim.”
Leffard recommends that agents and brokers help clients get ahead of claims. “One of the best ways agents can help address claims issues is to have conversations with their clients about possible claim scenarios before they happen. By partnering with carriers that provide robust, dedicated risk management resources, such as pre-claims assistance, hotlines, risk management websites, webinars or seminars, agents can offer their clients value-added services to help prevent and manage their risks.”
Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.