SPECIALTY LINES MARKETS
A lot of questions, some answers, some wishes
By Larry G. France
"Specialty lines" isn't synonymous with bad business, as some agents seem to label it. Specialty lines are risks or lines of business that need special policy wording, extra loss control, or separate governmental filings. Oil drilling risks are a specialty risk because of the nature of the exposure. A doctor's office is a pretty standard piece of business until it becomes necessary to address medical malpractice.
In the last few weeks some have commented that the "hard" market will be short-lived. In our industry there basically are only two ways for insurers to make a profit. One is underwriting profit. That is when the carrier has something left after all expenses, claims, etc., have been paid. (See ancient history/insurance on your search engines!) The other--the most familiar to us in recent years--is to amass the most premium you can, regardless of underwriting guidelines or proper pricing, and take it to Wall Street for massive financial gains.
For the most part, neither of those profit-making methods is succeeding on a grand scale. The stock market is trying to gain back its momentum, but nothing is predictable at this point. K-Mart is running a "Red Ink Special"; and the Enron debacle, in addition to stripping retirees of their life savings, is taking its toll on the D&O market.
Tonya Hollederer, a production broker with Russell Bond, an MGA/E&S broker in Buffalo, New York, observes that markets are generally seeking 10% to 15% increases on renewals; and the huge increases in employment-related claims activity have caused underwriters to focus on this area. She says: "Many are skeptical of risks with no claims activity and may seek several years of hard copy loss runs. Clients can expect more through review of financials and should be prepared to explain significant reduction in revenues, deficits and the like. Turn-around has moved from one to two days to one to two weeks."
According to Hollederer, retentions are firming more in certain areas than in others. "Country clubs, for example, have seen increased discrimination-based claims activities thus resulting in rather significant price hikes. Health care and other social service risks likewise can expect increased scrutiny and higher costs due to substantial increases in employment-related claims and uncertainty caused by the fact that many are in poor financial health."
Regarding nonprofit organizations and social services, Mike Liguzinski, division vice president for Great American Insurance Company, says: "We are re-underwriting our portfolio like everyone else and obtaining 20% increases on average. There are certain sectors of our target marketplace that have hardened extremely, e.g., habitational, particularly affordable housing and, to a lesser degree, group homes. Fleet auto for transporting clients has hardened considerably. If these classes are being renewed, they could be above 50%. Some are non-renewed and end up back in the surplus lines arena."
Liguzinski explains that "given the state of the economy and the events of September 11, the funding for nonprofits has shrunk considerably, which increases the exposures for some of these classes due to the fact that funds for loss prevention, training, repairs, etc., have dried up. We expect the current conditions to remain for at least the next 6 to 12 months."
At the most recent mid-year conference of the American Association of Managing General Agents (AAMGA), during the Presidents Panel, five out of six presidents of insurance carriers forecasted that the hard market will continue for 12 to 18 months. The increased cost of reinsurance was cited as a major contributor.
Regarding private-company D&O, Hollederer says that underwriters are reviewing this class much more closely now than they did during the past 14 months. "They focus not only on financial results but are ary of the significant increase in employment-related claims. Clients should be prepared to explain HR policies and procedures, as well as any deterioration in financial performance. Markets are reducing liability limits offered, especially to those with past claim experience and are returning to split retention, with higher retention on EPLI." High-tech and I.T. accounts are experiencing tighter standards according to Hollederer.
Regarding publicly held companies, Hollederer explains that some markets are seeking up to 100% increase. "We held one major renewal to a 15% increase. As always, there can be a wide market disparity in coverage and pricing. The Enron bankruptcy is likely to invoke a wave of serious debates on financial reporting, as well as how the D&O market can review, interpret, and underwrite major corporate exposures."
Recently, new investment capital has been introduced in to the insurance market. This is encouraging, but it is not an immediate cure-all for past woes.
An article in The Indianapolis Star reported that Weiss Rating, Inc., a Florida-based independent financial rating firm that tracks more that 15,000 companies nationwide considers 23.5% of property/casualty carriers to be weak or vulnerable to financial troubles in a recession.
Although most economists are predicting that we are coming out of the "recession" or downturn in the economy, it will still be some time before most every player is financially strong.
Recently our society lost not only a fine person, but also one who was tremendously successful in business. Wendy's restaurant founder Dave Thomas once said: "Make sure your customer knows you and make sure that you know your customer." Do you really know enough about your clients to professionally represent them to a carrier in order to obtain the best coverage for the best price? Does your client know you? Are your clients aware of all the financial exposures of their operations and have you addressed them to the clients? As a carrier, are you communicating to your agents what your direction is for the future? Do they know what you require for a competitive quote?
Discussions with markets over the past year reveal that the major problems in working on an account seem to be receiving a completed submission that includes loss experience, and knowing exactly what the client really does. Know your client. It is a two-way street.
In order to bring the markets to the agents, The Insurance Marketplace is co-sponsoring four Specialty Lines Seminars. The first seminar will be held in May in St Louis, followed by Denver in July, Seattle in August and Tampa in December. Specialty lines providers will be in attendance to present more than 200 coverages and programs.
Time will be set aside for you to network with each market. Registration forms can be found in the March and April Rough Notes magazine. Attendance is limited to 100.
For additional details contact Larry France at (800) 428-4384.
Note: In January, The Specialty Lines Bulletin Board was added to the Rough Notes Web site (www.roughnotes.com). The Specialty Lines Bulletin Board will list new products, product enhancements, appointment opportunities, carriers entering or exiting a market, and contact changes. This information will be archived for 90 days.
For more than 640 coverage and program listings access, free, the Insurance Marketplace site (www.insurancemarketplace.com). *
Correction
In the "Specialty Lines Markets" article in the January issue (page 76), Gulf Insurance Group was listed as a market for several contractors coverages which it does not write. Gulf is not a market for the following contractor classes of business:
Alarm and sprinkler; general contractors; residential home builders, including subcontractors and trade contractors with residential exposures; all artisan-type contractors including those doing insulation, roofing, door and window work and interior remodeling; and concrete contractors with building exposures.