|
Specialty Lines
The professional liability market
Wholesalers and carriers see challenges and opportunities
By Dave Willis
“It’s been a bit tricky.” That’s how Neil Bolton, head of US Casualty for Hiscox USA, the New York-based unit of specialist international insurance group Hiscox Ltd., describes this year’s professional liability market. “It’s been an ever-softening market,” he adds.
Generally speaking, the market has remained soft, notes Garrett Koehn, executive vice president of Crump San Francisco. “In D&O, we continue to see premium reductions across most industry classes,” he explains. “This has been going on year over year over year.” Public D&O remains soft, he adds, and private D&O continues to slowly decrease in price. “There is a bit more pressure there.”
Pricing is firmer in management liability, Koehn adds. “Private equity firms have really struggled. We are generally seeing pricing increases there. Financial institutions, especially community banks, have faced massive rate increases. Larger financial institutions and anything real estate-related are under a lot of pressure.”
Robert Gadaleta, Hiscox USA senior vice president and management liability product head, says management liability is “in somewhat of a transition phase right now. There was a lot of talk late last year and earlier this year about market hardening. I’m not sure we’re seeing that, but we’ve seen premium stabilization.” But increased market capacity is impacting rates.
According to Paul Romano, president of Avon, Connecticut-based OneBeacon Professional Insurance, “There is a significant amount of capacity and good, innovative competitors. In several of our lines, underwriters are more frequently utilizing coverage enhancements to win business.”
The errors and omissions market appears to be relatively stable. “The market remains fairly soft for most standard E&O,” Koehn says. “A lot of the rating there is based on revenues. What happens is a low revenue base is, at times, compounded with rate decreases. Agents and brokers business has been mostly soft, but it seems to be firming.”
Pricing is an overriding issue at Southfield, Michigan-based insurer Meadowbrook Insurance Group. “It is still a pretty competitive marketplace,” says Arthur Pletz, company chief underwriting officer. “We compete against other carriers that are fairly aggressive with pricing and limits.”
In terms of reinsurance, he adds, “We haven’t gotten significant decreases, but we’ve been successful in avoiding what I’d consider to be significant increases.”
Market factors
“With the economy as it is, and that is an underlying factor, I believe the market will probably remain flat,” Pletz notes. “I don’t envision pricing will dip down, but I don’t see it skyrocketing, at least for the next nine months. Maybe by mid-year 2010 that could change.”
The impact of liabilities related to subprime lending have not fully worked their way through the system, adds Romano, whose firm works with wholesalers and retailers, typically on a brokerage basis. “That said, I do believe they will ultimately be manageable losses for most organizations. We continue to watch closely those most impacted by this—mortgage brokers, banks, real estate agents and lawyers, for instance—and we are making sure we properly account for it.”
Claims activity drives the market, as well. “Generally, the bulk of the claims volume has been employment practices-related,” says Gadaleta, whose unit serves not-for-profit organizations and private companies. “We’re seeing more discrimination cases and more wrongful termination cases. Of course, due to the current economic climate, that’s to be expected.”
In addition, he notes, with the number of highly publicized scandals that have surfaced in the last several months, “we’ve seen an increase in D&O claims related to either bad investments or not having enough funds to operate as was expected.”
Agents have been through this before, Romano notes. “With pricing down, obviously commissions are being pressured,” he says. “At the same time, new business is challenging, because most carriers are doing everything they possibly can to protect their incumbent book of business.”
According to Bolton, retail brokers are still feeling the pinch from “the Spitzer period, which pressed them to display their revenue clearly to their clients.”
Wholesalers are experiencing the same challenges as their retail counterparts. “Premium volume is down to some degree,” says Pletz, “so they have to write more business and pick up more exposure simply to maintain the same volume. Not all of them have been successful at that.”
Facing issues…together
It’s not all bad news. For instance, the abundance of market capacity is good for competition, Gadaleta believes. “It’s good for the brokerage community that is looking to build bigger insurance towers than they ever have before for both private companies and not-for-profit organizations, and it’s certainly good for clients, because it helps to keep prices at a stable level.”
At the same time, Romano senses, brokers may be moving toward reducing the number of carriers they do business with. “Two things can tend to happen as a result of that,” he says. “First is an increased leverage that comes with larger book of business; second is a better understanding of carrier appetites.”
The key, regardless of the number of carriers a broker represents, is finding targeted solutions for customers, he adds. “This is a differentiator in this market. It always has been. But it requires a thorough understanding of client risks and how to best address them.”
Wholesalers can be a good resource for retail agents and brokers in this regard. “They play an incredibly important role in making sure that the right kinds of coverage find their way to client organizations,” Romano says.
Pletz agrees. “Wholesalers have expertise in the lines of business and segments they work with,” he says. “They really understand the policies well. Clearly, a part of their role is to help retail agents learn more about the risks and markets.”
Carriers help in this regard, as well. “We’ve staffed our organization with folks who have deep experience in the lines of business we write and high specialization in the segments we serve,” explains Romano. “Our underwriters are ready to help brokers.”
Additionally, he says, his firm is building out its risk services capability “to help agents and brokers deliver services to support their clients. Also, we’ll work with newer or younger brokers to help train them and help them better understand the professional liability environment.”
Bolton’s organization has a similar focus. “Our approach has been to work very closely with brokers and to actually meet with clients, to help them understand our products and services,” he explains. “It’s a collaborative effort. That’s why we put an operation here in the United States—to make sure we’re closer to the brokers that are producing the business and closer to their clients.
“It’s one thing to produce a brochure,” he adds, “but it’s actually more important to give underwriters and managers time to work with clients and brokers closely, to understand their risks better.”
Underwriters aren’t the only ones involved. “As part of the acquisition process, we involve our claims people to help clients and brokers understand our approach, our interpretation of our wording and how we go about handling claims,” Bolton notes. “Claims people need to understand our insured’s businesses so that they apply the policy in the correct way.”
Advice for agents
Bolton has words of wisdom for retail agents looking to work in the professional liability arena: “Place business with organizations that are writing it at a profit,” he says. “They will be there long term. It’s the key to creating a business that is sustainable. Our chairman has always said, ‘Profit is sanity, premium is vanity.’ By that he means that to be there for the long term, we have to make an underwriting profit and offer great service and quality products.”
He encourages agents to develop relationships and work closely with claims staff. “At the end of the day, that’s who is providing the products your clients are buying,” he says. “Insureds are looking for excellent claim service and excellent claim handling.”
Koehn encourages agents to consider the benefits of taking a contrarian approach to the market—something he says is working well for certain carriers. “For instance, carriers working with financial institutions are getting pretty good rates,” he says. “A lot of bad things have already happened in that market. Retailers who concentrate on that can do well, also.”
He echoes others’ advice to not go it alone. “If retailers don’t have expertise in the space, they need to partner with somebody who does—someone who understands private equity or venture capital or community banks,” he says. “Then, it’s a matter of ‘look in your backyard.’ There are community banks everywhere. There are private equity firms all over the place, and all are struggling right now with insurance.”
With revenues off, some retailers are outsourcing certain marketing to wholesalers who can, as he says, “do it faster, cheaper and better than many retailers can.” Public D&O accounts used to offer $50,000 of revenue just off of the D&O portion, he adds. Not anymore. “It is nowhere near where it used to be. Retailers need to look at who can best market a $7,000 account.”
Gadaleta offers two pieces of advice from a carrier perspective: “First and foremost, make sure you’re communicating with your client,” he says. “Make sure they understand the process every step of the way. Second, don’t set unrealistic expectations. In a market like this, telling your client you can absolutely get them 20% off what they’re paying now may be unrealistic.”
The author
Dave Willis is a New Hampshire-based freelance business and insurance writer and regular Rough Notes contributor.
|
