By Elisabeth Boone, CPCU
As anyone who’s involved in the professional liability arena knows, it’s a dynamic and constantly evolving market that is influenced strongly by trends in the economy, social norms, and a host of other factors. To get a sense of where the market has been and where it’s likely to go, Rough Notes spoke with Lisa Doherty, president and chief executive officer of Business Risk Partners (BRP) in Windsor, Connecticut, a managing general underwriter and program manager that specializes in professional liability, management liability, and data breach/ privacy insurance as well as hybridized specialty solutions.
“Most professional liability policies are rated on some financial measure, whether it’s assets, revenue, or number of employees, and that typically drives the price,” Doherty explains. “Given that most insureds have recovered from the economic downturn, we are starting to see consistent growth along with higher premiums because exposures are increasing, not because carriers are raising rates across the board.”
Wage and hour issues have been big news over the last year or so as the Obama Administration has directed the Department of Labor to intensify its scrutiny of companies that assign independent contractor status to workers who actually should be classified as employees. Independent contractors have to pay both halves of the Social Security tax, cannot have their federal and state income taxes withheld, and are not eligible for employee benefits. For these reasons some employers assign independent contractor status to workers who actually work full time for the company and are under its direction and control.
“We see significant growth in wage and hour claims as this issue continues to be a hot button,” Doherty observes. “We also see some carriers pulling back on the coverage and some re-thinking how they underwrite the coverage, and I believe we will continue to see underwriters in the wage and hour space trying to figure out how best to approach it.”
Among the exposures created by new kinds of services, Doherty remarks, of particular interest are those faced by providers of medical marijuana, which is now legal in some jurisdictions. A related field is “growing consultants,” who advise providers on the best ways to cultivate marijuana. “As a hangover from the economic downturn and massive layoffs, we’re seeing a lot of people figuring out new ways of making a living, often as consulting in some unusual areas,” she says.
As an active member of the Professional Liability Underwriting Society (PLUS), Doherty attends the annual PLUS International Conference and is able to network with underwriters in the specialty from around the world.
“At the PLUS meeting last fall we talked about the erosion of summary judgment in negligence claims and its effect on agents and brokers,” she says. “In the past, the duties of an insurance agent weren’t expanded beyond procuring insurance, so when a claim arose that alleged failure to advise the insured to buy a certain coverage or a specific limit, the agent’s attorney would file for summary judgment on the basis that the agent is responsible only for procuring the kind of insurance the client tells him or her to procure. In many jurisdictions that defense is being eroded, so agents and brokers have to defend themselves instead of relying on summary judgment to dismiss the claim. As a result,” Doherty explains, “the litigation costs in that space are continuing to rise.”
Agents and brokers who might need to defend against such claims, she says, should review carefully the content of their promotional materials, including brochures, websites, and other forms of advertising. “If you hold yourself out to be an expert, a consultant, or an advisor, you’re vulnerable to claims that you owe your clients a duty beyond just obtaining insurance for them,” she cautions.
A major event at the end of 2015 that Doherty believes will have a far reaching impact on the professional liability market was the announcement of the Chubb/ACE merger. “This news was stunning to most of us in the industry,” she says. “I would expect to see consolidation among smaller insurers, with a market cap of perhaps $1 billion or $2 billion. But to see two behemoths like ACE and Chubb with multi-billion dollar market caps come together has to be extremely daunting for smaller insurers in terms of the capacity for which they’ll be competing. As a retailer, you need to be thinking about the impact of continued consolidation in the industry. If you place coverage with a smaller carrier and that carrier is acquired, what does that mean for you and your clients? Do you have other relationships that you can tap into?”
“Almost across the board, the marketplace is saturated,” Doherty says. “There’s plenty of capacity, there’s downward pressure on rates, and intermediaries and carriers continue to come into the professional liability space as more insurers are under pressure to grow revenue.
“The one place where the market has contracted slightly is in the securities broker-dealer segment. A number of markets have pulled out, but I was amazed by the number of players that immediately piled on. So we saw a mild contraction followed by markets jumping in to fill that space.”
We asked Doherty to comment on frequency and severity in market segments in which BRP is active.
“We see high frequency in several market segments: home inspectors, property managers, and insurance agents,” Doherty observes. “In terms of severity, wage and hour continues to see a high number of claims because of the number of people who typically are affected and the long periods of time over which wage and hour infractions tend to occur. Claims often involve class actions, with attendant publicity, and damages can be substantial. It seems there is a whole cottage industry of lawyers looking for these claims.”
Not surprisingly, the professional liability market continues to abound with both challenges and opportunities, Doherty declares.
“Healthcare continues to be a challenge,” she remarks. “It’s not a market we’re involved in from the standpoint of medical malpractice, but we are active in D&O, EPLI, and insurance agents E&O. The healthcare industry is in an extreme state of flux as institutions must deal with pay-for-performance issues while trying to remain competitive. Recently we’ve heard reports of some healthcare exchanges experiencing financial issues. If you are an insurance agent and you have encouraged someone to go to an exchange, you have a potential exposure. In some cases physicians have not been paid by exchanges that subsequently collapsed, like Health Republic Insurance of New York, which shut down last fall.
“Because so many changes are occurring in the healthcare industry, we professional liability underwriters don’t yet have a handle on all of the exposures faced by the various segments of the industry,” Doherty comments. “This creates an opportunity as we become more familiar with the exposures and create solutions to address them. The same is true for wage and hour exposures.
“Cyber liability clearly continues to be an opportunity as new exposures emerge, like ransomware, where hackers hold an orgainzation’s computer network hostage until it pays up,” Doherty remarks. “You can’t watch the news without hearing about another data breach or cyber extortion. Companies and individuals not only need the protection of insurance but also require the services of an experienced agent. In many cases a cyber liability policy will cover a ransom payment and provide for network restoration up to a certain point. As some experts say, ‘In the cyber arena it’s not if you have a loss but when you have one.’ ” She points out that an entity might be the victim of a data breach and not even be aware of it until months or possibly years later.
Advice for retailers
What advice can Doherty offer to retail agents and brokers who already have a book of professional liability business or would like to build a book?
“What I stated last year continues to be true: To succed in the professional liability market, you can’t be a generalist; you need to be a specialist,” Doherty asserts. “Choose your specialties carefully and go deep so you really understand the exposures in those spaces and how to address them.
“The same advice applies if you want to build a book in one or more professional liability market segments: Know the niche so you can make sure your clients are appropriately covered for every exposure they face. For example, most providers that offer E&O and management liability maintain a library of about 100 endorsements with which you can expand coverage for your clients, so you need to understand the coverage so you know what endorsements to request.”
As always, Doherty emphasizes the importance of carefully selecting the intermediaries with which a retailer works to place coverage in the volatile professional liability arena. “Choose your partners carefully and take the time to build solid relationships with them,” she advises. “They can open the door to opportunities for both you and your clients.”