PGU shows agents the ropes in tough classes
Elisabeth Boone, CPCU
Professional Governmental Underwriters executives include (seated, left to right) Shawn N. Llewellyn, associate vice president, marketing and agency development, and Martin H. Kanipe, CPCU, president; standing (left to right) are Ned Daly, ARM, Midwest branch manager, and Chuck Highlander, underwriting manager.
Columbine ... Kent State ... Abner Louima ... It's hard to imagine more horrifying images than those conjured up by these events in twentieth-century American history. Although such travesties shock and offend us, gradually we've become disabused of the idea that in their dreadfulness they are unique.
No amount of money can fully compensate the people whose lives are shattered by these incidents and others like them. Yet the public entities on whose premises these horrors occur, or whose employees may perpetrate them, must possess some means of compensating victims for their losses. Most claims in these classes fortunately are far less severe than the events mentioned above. Still, in our litigious climate, people are far less hesitant to file suit, and groundless lawsuits may cost as much to defend as those that have merit. Allegations of racial profiling, employee misconduct, and failure to meet the needs of special education students are on the rise, and new legal precedents are being set almost every day.
School boards, administrators, and teachers; municipalities, public officials, and law enforcement personnel--all are vulnerable to claims for which the general liability policy provides little or no coverage. Likewise, the directors and officers of nonprofit entities face a myriad of risks in the execution of their duties and also need protection tailored to their needs.
Professional liability exposures like these, with their demonstrated potential for high severity, aren't "bread and butter" for most independent agents. Even producers who are knowledgeable in these classes need the expert guidance of specialists, and that's where Professional Governmental Underwriters, Inc. (PGU), comes in.
Established in 1993 by professional liability veteran Martin Kanipe, CPCU, who formerly managed the governmental liability division of Markel Corporation, PGU provides underwriting management and loss control advisory services on behalf of its carriers to all types of public, educational, and nonprofit entities. This market encompasses cities, towns, counties, special service districts, authorities, and school districts. PGU targets educational entities with student enrollment under 50,000; programs are available for public and private schools, universities, and community colleges. The nonprofit segment includes all types of 501(c) tax-exempt organizations except those that are medical related.
PGU's headquarters are in Richmond, Virginia, and a recently opened branch office in Chicago now serves PGU's customers in the Midwest and western United States. Under the direction of Branch Manager Ned Daly, ARM, a veteran professional liability underwriter, this office also acts as the administrator for the public officials and school board liability business of Shand, Morahan & Company, which exited those classes and sold the renewal rights to PGU.
PGU is the managing underwriter for the United National Companies (Best's rating A+ IX) for law enforcement, public officials, school board E&O, and nonprofit D&O in an exclusive nationwide program. PGU is also an underwriting manager for the Hanover Insurance Group (rated A XIII) and Old Republic Insurance Group for related lines of coverage.
"We specialize in small to medium-sized public and educational entities; that's really our forte," Kanipe says. "We exist to help the local agent with the smaller municipality that in all likelihood does not have a full-time risk manager. In many cases that agent is the municipality's risk manager, and its officials rely on the agent to help them understand and select these specialized coverages. We in turn help that local agent, who may handle only one or two cases per year of this class of business. Our role is to provide the expertise the agent needs to explain some difficult coverages that differ from carrier to carrier. We try to make the agent look like a superstar at the Tuesday night council meeting."
Broad forms and coverages
In what has become a tight market for PGU's classes of business, Kanipe says: "We pride ourselves on offering some of the broadest coverages in the marketplace. These aren't ISO forms. Every company's form is different, with varying coverage enhancements. We've updated our public officials form three times since 1993, and each time we've broadened coverage to benefit the insured. We've always had the philosophy of offering a 'Cadillac' form."
With in-house limits to $5 million, and broad forms, PGU has the capacity and flexibility to meet a wide range of needs in its target markets. "For police professional liability we can go either way on form--claims-made or occurrence--and either way on punitive damages--included or excluded," says Chuck Highlander, underwriting manager. "Today most underwriters offer pretty much the same features, although sometimes a competitor excludes punitive damages or offers only claims-made contracts."
"Often, especially in larger municipalities, the agent has to field questions from the town attorney or risk manager, and with employment practices liability a lot of legal issues are involved."
--Martin Kanipe
On PGU's other lines of business, he remarks, differences between coverages can be significant. "In public officials, some writers exclude employment practices liability, zoning, and insured vs. insured actions. There are a thousand different ways to pull coverage out of a policy that covers a wide range of exposures," Highlander explains. "A public officials liability policy without exclusions covers any kind of bad judgment or malpractice, and underwriters can narrow that broad coverage grant with exclusionary language." PGU, he says, adds exclusions only when the insured requests it to reduce the premium.
Outlined below are the key features of each of PGU's policy forms:
Law Enforcement Liability: Targeted to townships, cities, boroughs, special service districts, campus/university police, and alcoholic beverage control enforcement officers, PGU's program has a minimum premium of $1,250 and a $2,500 minimum deductible. Maximum limits are $5 million/
$5 million, with $10 million available on a facultative basis. The program is written on an admitted basis in Alabama, Georgia, New Jersey, New York, and Pennsylvania, with nonadmitted paper available in all states. Coverage can be written on either occurrence or claims-made forms and covers defense costs in addition to policy limits.
Public Officials Liability: This program is designed for cities, towns, boroughs, townships, counties, and special service districts and authorities. The minimum premium is $1,000; minimum deductible is $1,000. Maximum limits are $5 million/$5 million, with $10 million available on a facultative basis. Nonadmitted paper is available in all states; admitted paper is available in Alabama, Connecticut, Georgia, Kentucky, Illinois, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, and Wisconsin. The coverage is
written on a claims-made basis and provides defense costs in addition to policy limits.
Public Entity Umbrella Liability: PGU's exclusive program is a follow form (claims-made and occurrence) over all underlying coverage, including public officials, school board E&O, automobile liability, general liability, employers liability, employee benefits liability, and EMT E&O. Underlying coverage need not be underwritten by PGU, and the program is available nationwide on an admitted basis. Minimum premium is $1,000; maximum limits are $5 million/$5 million.
Public Entity Excess Liability: This is an excess of loss program designed to supplement limits provided by a lead umbrella or excess policy. Coverage is written on a follow form basis. The program is designed for schools (public and private), cities, towns, boroughs, townships, counties, and special service districts and authorities.
School Board Legal Liability: PGU's form has a broad definition of insured and provides full prior acts coverage with no retroactive date. Minimum premium is $2,500, with a $5,000 minimum deductible. Maximum limits are $5 million/
$5 million; $10 million is available on a facultative basis. The program is available on an admitted basis in Mississippi, New Jersey, and New York, with nonadmitted paper available in all states.
Nonprofit Directors and Officers Liability: Designed to address wrongful acts not covered by the general liability policy, PGU's program targets educational, charitable, religious, and other public benefit nonprofit 501(c) entities of all kinds that are located in population centers of less than 250,000. These may include libraries, museums, foundations, associations, fraternal organizations, cooperatives, clubs, fairs, churches, urban leagues, and social service agencies, along with any such entities created by public entities or schools and colleges. Written on a pure claims-made form, with prior acts coverage available, the program provides defense cost coverage in addition to policy limits. The minimum premium is $1,000; minimum deductible is $1,000; and maximum limits are $5 million/$5 million.
Partnering with agents
As noted earlier, PGU welcomes the opportunity to work with agents who may have only an occasional need for the firm's specialized liability coverages. "It's very typical for us to work with an agent who writes the local community and maybe a couple of the surrounding communities," Kanipe says. "We're always there to assist them, knowing this is not a coverage they handle every day and that it needs to be explained. For agents, the local municipality is a high-profile account. Writing it is a nice feather in their cap, as well as a good source of referrals throughout the community. Agents want to make sure they handle the account properly and don't fumble the ball."
PGU's experienced underwriters assist agents in a number of ways. "We help prepare them to go in front of that Tuesday night council meeting with a well-organized proposal in hand so they can explain the coverages and answer questions," says Associate Vice President Shawn Llewellyn. "Often, especially in larger municipalities, the agent has to field questions from the town attorney or risk manager; and, with employment practices liability, a lot of legal issues are involved. The agent needs to be prepared to answer some pretty tough questions."
Mindful of this fact, PGU uses a simplified proposal format, says Llewellyn. "Every proposal that goes out the door has a list of specific coverage features, so the agent has a set of talking points for each feature," he says. "The proposal is organized in menu style and can indicate separate rates for different limits, say from $500,000 to $5 million, plus optional coverages."
On certain larger cases, a PGU representative will accompany an agent who is presenting a proposal to a municipality. "We'll put our experience and expertise on the road and play whatever role the agent wants to help sell the proposal," Llewellyn says. "We also provide loss control services if needed, such as jail inspections or policies and procedures manuals. We conduct seminars across the country for sheriff's departments and give municipalities employment manuals to help them create a workplace that minimizes exposures to claims."
Martin Kanipe (left) established PGU in 1993 after managing the governmental liability division of Markel Corporation. Ned Daly directs PGU's recently-opened Midwest office, based in Chicago.
Tight market challenges
When PGU opened its doors nine years ago, the insurance industry was deep in the throes of what would become the longest soft market in modern history. Even for professional liability risks, Kanipe says, coverage was broad and prices low as all-lines insurers competed with the specialty carriers that traditionally dominated these classes of business. "Since 1993, we've seen consolidation within the industry among the multiline companies writing packages on municipalities, as well as among professional lines writers," Kanipe observes.
"I think a lot of the national carriers found out that throwing professional liability into a package wasn't a very good idea," Kanipe continues. "It's very difficult to toss a police professional liability claim onto a general liability adjuster's desk--it's a different animal altogether. For instance, if a wrongful death action arises from a police shooting, that takes not only specialized claims handling but also a specialized defense panel. We've dealt for years with attorneys around the country who are experts in this area."
Similar problems arose for all-lines carriers that offered public officials liability as part of a package, Kanipe comments. "Some of them discovered that they were insuring all of the employment practices liability for all of the municipality's employees and volunteers. If a carrier doesn't have expertise in employment practices liability in both its underwriting and claims handling operations, it's going to find itself in a void when trying to manage these exposures."
Pricing on PGU's classes of business has hardened significantly in line with tightening in the market overall, Kanipe notes. While the terrorist attacks of September 11 may have increased the public's respect for law enforcement officials, he points out, their liability has expanded as the result of efforts nationwide to tighten homeland security. The liability of school boards has increased exponentially with a concomitant rise in rates, in part because of the rash of school shootings and security concerns, and also as a consequence of legal actions in the special education arena. "We're seeing tremendous increases in rates for school board liability," Kanipe observes. "It was written very cheaply for a long time, and today's rates reflect heightened concerns about security and vouchers as well as special ed issues."
Despite rate hikes across the board, Kanipe believes premiums will have to go even higher to account for increased frequency and severity in professional liability claims. "Even after increases of 20% to 40%, I think prices still have to rise further before the industry reaches a level of profitability it will need to provide any kind of coverage," he says. "In the last several months we've seen an increasing awareness on the part of our producers that there are no longer any bargains. They've gotten past the sticker shock, and they understand the need for adequate pricing."
A look ahead
As a specialty underwriter of some difficult and complex liability classes, the experts at Professional Governmental Underwriters are keenly aware of the challenges they face and are confident of their ability to meet them head on. "Our cornerstones are our producers and our markets," Kanipe says. "We know that we exist to serve them. We know that we need to provide strong, stable markets. Our reinsurers are some of the largest in the world, and I think since September 11 we've seen a real flight to quality in the reinsurance market because people want to know we're dealing with strong reinsurers that will be there in case of a catastrophic event."
Strength and quality are also key elements of PGU's approach to technology. "We're constantly plowing profits into our technology side," Kanipe says. "As part of our strategic MIS plan, we'll develop a Web-enabled facility where producers can transact business with us via our Web site. I tell our producers that we only want to provide technology enhancements that make it easier to do business with us. If a technology initiative does not make it easier to approach us and do business with us, then in our view it's not dollars well spent."
For Kanipe, the bottom line is challenging yet simple: "We'll continue to provide coverage forms that are second to none, backed by markets whose strength is unquestioned." *
For more information:
Professional Governmental Underwriters, Inc.
Phone: (800) 586-6502
Web site: www.pgui.com
PGU Midwest
Phone: (866) 334-3777