 |
 |
 |
Accounting industry takes account of insurance needs Innovative solutions open up new insurance markets By Phil Zinkewicz The 1980s were watershed years for the property and casualty insurance business in general and for accountants professional liability in particular. It was a decade of boom and bust—the early 1980s providing the boom as insurers wrote any and all types of exposures to obtain premium dollars to invest, and the mid-1980s bringing about the bust as insurers dug their heads into the sands for fear somebody would notice they were there. As for accountants, it was a “now-you-see-it, now-you-don’t” decade, with coverages readily available at bargain-basement prices during the early part of the decade, only to disappear in 1984-1985. But it was the late 1980s when things changed dramatically for the traditional property and casualty insurance industry. It was in that part of the decade that innovative entrepreneurs began looking for alternatives to the traditional insurance marketplace. In the accounting industry, new insurance markets began to open, and those markets are still flourishing today. For example, CAMICO Mutual Insurance Co., the nation’s largest CPA-owned mutual insurance company and second largest provider for accountants professional liability insurance and risk management services, opened its doors in 1986. Created by CPAs to protect CPAs, CAMICO is owned and directed by its CPA policyholders. Sponsored by state CPA societies in Arizona, California, Colorado, Indiana, Kentucky, Mississippi, Missouri, Nevada, New Jersey, New York, South Carolina, Tennessee, Virginia and Washington, CAMICO has become recognized as committed to providing a stable, reliable source of protection for CPAs across the country, according to Dan Crouch, public relations manager for the company. But it all started back in the 1980s. “In the mid-1980s, CPAs were faced with a mounting liability insurance crisis,” says Crouch. “The major insurance carriers—victims of their own rate-cutting war—found themselves with insufficient funds to cover their claims. Most companies discontinued their professional liability insurance coverage for CPAs. Those who continued to offer CPAs liability insurance imposed huge premium increases to cover cash shortfalls. As a result, liability coverage became unaffordable for many CPAs.” In response to the crisis, the California Society of Certified Public Accountants convened a task force to study the situation. The task force recommended the creation of a mutual insurance company owned by and for CPAs dedicated to assuring its members professional liability coverage at stable rates. The company would operate solely for the benefit of its members. Accordingly, any excess revenue, after claims payments and administration, would belong to policyholders. Says Crouch: “On June, 24, 1986, CAMICO opened its doors for business with a staff of two full-time employees reporting to then-President John A. Dodsworth. Within a month, 1,250 policyholders were signed.” Today, the company has total assets of more than $151.4 million (as of 9/30/06), and in-house staff currently serves more than 6,826 policyholder firms with underwriting, claims management and loss prevention services. To date, CAMICO has turned over more than $30.4 million in returns to policyholders. Another firm that traces its origins back to the 1987 insurance market is Insight Insurance Services, Inc., a program administrator specializing in professional liability insurance. Co-owners of the firm are Jim Romano and Michelle Duffett. “We saw a need back in 1987,” says Duffett, who began her career in 1979 as an architects & engineers’ professional liability underwriter. She quickly moved on to the underwriting and management of other types of non-medical professional liability insurance, including accountants liability. “When we founded Insight Insurance, the market was coming off the turmoil years of 1984-85. Our basic idea was that we could provide better professional liability services than any other program administrator. We believed the path to being better was in taking an industry focus combined with offering personalized service.” Both Duffett and Crouch describe today’s accountants liability market as “soft” and “very competitive.” “There seem to be new programs that are coming into the marketplace,” says Crouch. “Availability of coverages is not a problem at all and prices are down.” Rough Notes asked if new regulatory scrutiny, particularly the Sarbanes-Oxley law, and corporate scandals such as Enron and WorldCom have had any material effects on accountants liability insurance. “There is a whole new, heightened awareness of conflict of interest situations,” said Duffett. “Sarbanes-Oxley was intended to address the services of major accounting firms, but it has trickled down to all sizes of accounting organizations. This has caused a heightened public awareness of accountants professional liability. As yet, we haven’t noticed a serious upturn in claims activity as a result, but new claims may come in time.” Crouch says that one major effect of Sarbanes-Oxley is that it has created more work for CPA firms. “Some accounting firms out there do not have the staff to accommodate that workload.” And, in general, Crouch says that accounting firms are very much in need of attracting new talent. “Today’s CPAs are reaching retirement age and are being forced to postpone retirement until new accountants come into the industry. That, of course, will take time—time for students to graduate and acquire experience. The talent problem is likely to bring about merger activity in the industry.” One firm that specializes in underwriting accountants professional liability, AXIS Pro, started up in the 2001 hard market. John Wynn, vice president and accounting professional liability product manager for AXIS Pro, confirms that the market is soft and he allows that attracting talent to the industry has become problematic. “I’ve heard various complaints among our clients to the effect that it is becoming difficult to attract young people into the business,” Wynn says. “Perhaps they have been turned off by developments regarding Enron and other corporate scandals. On the other hand, Sarbanes-Oxley has created new challenges for accounting firms that may be attractive to new talent.” Jim Eades, vice president and manager for professional liability at Arlington/Roe & Co., a managing general agency, says that the corporate scandals involving accounting practices and Sarbanes-Oxley have “put a microscope on everything accounting firms do,” especially in smaller shops. “Sarbanes-Oxley has had a profound effect on the accounting industry,” he says. “We’re now seeing corporate CFOs having to sign off on every project. Large and small accounting firms are under greater scrutiny than ever before. While that has created more pressure, I think that, in the long run, it will be a good thing. We need greater transparency to make certain that the numbers we look at are the same numbers that go to the regulatory agencies.” That aside, however, Eades agrees that today’s accountants professional liability market is soft. “There are a lot of players in the market,” he says. “Those players include Philadelphia Insurance, Safeco and CNA. Each of these players has crafted segments of the market that suit them. And, yes, there are the players that came out of the hard market of the mid-1980s, such as CAMICO. All this makes for a very robust, competitive market.” * |
|
||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||
