COVID-19 Impacts Specialty Insurance:
Management Liability & Professional Liability Lines
by Lisa Doherty, BRP President and CEO
Management and Professional Liability lines are experiencing the hardest market I can remember.
I started my career as a D&O underwriter at AIG in 1987. The old timers, who might have been there two years more than I, would talk about torchlight sessions, working until 10 pm to get through all of the new business submissions. It was a baptism by fire, and a real bonding experience for those underwriters. That was 1985-1986. Fast forward 35 years, and with the exception of some tightening post 9/11, and re-underwriting of certain segments particularly Financial Institutions (FI) risks post Great Recession, we have had a prolonged buyers or soft market. The growth of the industry, both from buyers and capacity providers has seemingly hidden the declining rates. Rising claims costs, broadened coverages and continued rate erosion was catching up to underwriters as we started 2020. Then Covid-19 struck, the stock market dropped dramatically, the economy slowed with the shutdowns, and underwriters realized that they would see a new round of claims on a portfolio that was already not likely profitable.
Sweeping Changes for D&O and EPLI
Today we see markets pulling back dramatically. Many are not writing new business, others are adding Covid-related exclusions and all are trying to get rate, not only to fix past ills, but to be prepared for the onslaught of additional litigation. D&O and EPLI are the two products that across the board are seeing the most sweeping changes. Within those products, certain segments, such as hospitality, retail, healthcare, and FI are some of the hardest hit. Unfortunately, those firms most negatively impacted by Covid are the most likely to see claims from employees and shareholders. Law firm Fisher Phillips is tracking Employment Litigation. Its data shows 300 cases filed with the most common being Remote work and Leave-related conflicts. CA, FL and NJ lead the states with the most employment litigation.
Healthcare & Insurance Agents E&O
Certain lines of Professional Liability are under heavy pressure as well. Healthcare carriers, particularly those insuring senior living or long-term care facilities, are very concerned about the Covid outbreaks amongst our elderly population. The New York Times estimates that 43% of Corona virus deaths in the U.S are linked to nursing homes.
Insurance agents E&O is another segment under pressure. As companies and organizations look to policies to cover losses, particularly business interruption losses, and carriers are typically denying claims as there was not physical loss to trigger the coverage under the property policy, the firm often looks to the insurance agent for not having adequately protected them from the exposure.
More to Come
Hunton Andrews Kurth, a law firm with an online Covid Complaint Tracker notes that 3270 claims have been filed related to Covid. In June alone, there were 831 cases. Not surprisingly, early and hard hit New York leads the way with 754 complaints. CA follows with 419 while Texas and Florida have 221 and 250, respectively. No doubt as their cases grow, so will the complaints.
There is great uncertainty in the economy at the moment, and underwriters prefer predictability. One key to underwriting is to identify patterns of practice that avoid risk, as well as increases risk to help with better risk selection. In this environment, that becomes difficult. Underwriters use tools such as increased retentions and tightened terms and conditions as a means of managing risk when risk selection is more challenging. The longer the uncertainty continues, the longer buyer will continue to face a hardening market.