Would you like to become a professional in providing Professional Liability Coverage?
Professional coverage is no longer limited to just doctors and lawyers. Many businesses have professional liability exposures that they have never considered and their agents have never explored. An insurance agent who develops expertise in handling professional liability exposures has the potential to develop a strong book of business beyond just the professional liability coverage because all professionals also have exposures in other lines of business.
PROFESSIONAL LIABILITY-A VAST MARKET
Expertise, education and focus on niche areas, drive success
By Dave Willis
According to industry experts, the professional liability arena is relatively stable, with shifts in a few areas. "We have not seen upheaval, disruption or great changes in the professional liability marketplace," explains Tom Murphy, RPLU, ASLI, vice president at Quaker Special Risk. "The one big exception is a much stronger interest in assuring adequate data breach/privacy coverage for information technology and allied health professionals."
Jim Donovan, senior vice president, Liberty International Underwriters Professional Liability, concurs. "Exposure to data breach is probably the biggest discussion topic these days," he says. "Many firms are looking to cover that within existing professional liability policies, to avoid the cost of an additional policy." Firms with greater exposure often look at standalone policies, he adds. "They understand the value of the services and breadth of coverage incorporated into a standalone product."
He points out that the vicarious exposure of cyber prompts a rethinking of contracts and insurance coverage. "As firms consider their exposure to a breach, and who might be managing data on their behalf, they are using contractual language to mandate coverages or other avenues of recovery," Donovan explains. "As a result, we are seeing an increase in contractually mandated professional liability and privacy coverages."
The recovery of the real estate market creates an increasing exposure, as well, he notes. "For example, many real estate sector cases stem from a failure to disclose information that, if known, would have changed a property's value," he says. "If a home's value has grown from $350,000 to $450,000 and alleged damages are 20% of current value, the damages claim has gone from $70,000 to $90,000-almost a 30% jump." The issue could bring increased E&O exposure to a number of professionals, including, of course, insurance agents, but also lawyers, escrow agents, title agents, appraisers and home inspectors.
In general, the professional liability insurance market continues to be robust. "There is an established group of insurers that are committed to the business," explains Jeff Klenk, senior vice president, Travelers, Bond & Financial Products. "The state of competition is very risk-specific. In those lines of business that have had more challenging results, or on accounts with more complex risks, we have seen rate increases. In more stable lines, we have seen increased competition for the business from both long-term players and newer entrants trying to write more business."
Murphy agrees. "There is plenty of capacity and, in turn, stiff competition for the best risks," he explains. "Many markets in the design professional arena sought close to double-digit rate increases over the past couple of years, but were able to pick up only nominal rate increases of up to 5%."
Brian DeGraw, RPLU, CIC, director of professional liability, NSM Insurance Group, has his own term for the market: "What I encounter as a program administrator managing several professional liability underwriting programs is a market that can be described as 'crowded.' Standard insurance carriers who had refrained from entering certain segments of the professional liability arena before now are charging in."
He's observed further deterioration in underwriting and pricing judgment, as pressure mounts to utilize capacity. "Couple this with a sluggish economy and stagnant growth in new business formation, and many markets are fighting over the same piece of a smaller pie," DeGraw notes.
Adds Donovan, "The market continues to be very favorable to buyers. Participants may pull back in a particular market-lawyers professional, as an example-but there are still plenty of alternate markets, so coverage is readily available, even for distressed accounts." He's not seen any segments where a concentration of carriers has tightened terms and conditions enough to cause a market movement. "There is nothing to suggest a change in capacity in the foreseeable future," he adds.
"In the architects & engineers niche," Murphy observes, "the exposure basis has grown with the rebound of the construction industry; many firms have higher billings and the rate increases have been moderated with increased exposure basis. We expect competition and capacity to remain plentiful."
DeGraw foresees continued competition, as well. "I also see micro-business as a new target for specialty companies that generally shied away from this segment in the past," he explains. "It was seen as too small to be profitable, but analytic tools and technology resources make it viable and attractive." Segment growth, he says, is being fueled by layoffs, unemployment and older workers tapping into their entrepreneurial spirit and starting new businesses instead of retiring.
Murphy points out that some businesses are reluctant to purchase adequate coverage because they're simply uneducated about their true professional exposures. "This seems particularly acute for start-ups and smaller operations," he explains. "They may think they have coverage in their BOP or that they do not need 'professional liability' because they mistakenly believe it's just necessary for licensed professionals."
He echoes DeGraw's observation, saying, "Several markets have made access to a combined miscellaneous professional and general liability portfolio much easier and more economical for smaller risks over the past few years."
According to Lisa Doherty, president, Business Risk Partners, cost sometimes is a deterrent to purchasing coverage. "Firms are just beginning to recover from the economic downturn and they are reluctant to take on an additional expense," she explains. "Smaller start-ups may not even be aware the coverage exists."
Klenk cites general lack of understanding as a reason why businesses and professionals don't buy adequate or appropriate insurance. "They may not have a complete understanding of their exposures or the potential size of the claims that they could face," he explains, noting that some buyer hesitance is being addressed by the marketplace. "More clients are requiring professionals they hire to carry errors and omissions insurance."
Education is important even for segments that understand the importance of professional liability coverage. "For example, it is generally well established that attorneys purchase malpractice or professional liability insurance," DeGraw explains. "They recognize the importance of the coverage, especially considering the litigious nature of their business. They may not purchase enough limits and may not have taken advantage of soft market conditions to increase their coverage at very competitive prices, but they do buy it."
"Cyber is a different story," he adds. "In general, lawyers aren't purchasing cyber and information security coverage. My sense is many don't understand the exposures enough and may feel the loss is covered under their professional liability policy. This is a major misunderstanding of their exposure and how a cyber liability policy can respond to very costly claims where a professional liability policy will not."
Making the case
Agents can help clients and prospects overcome reluctance in a number of ways.
"They should, first and foremost, become educated themselves in professional liability, and specifically in emerging coverages like cyber and privacy protection," explains DeGraw. "Work with underwriters who are experts in these product lines to provide education seminars and content to buyers. This is an easy way for agents and brokers to differentiate themselves from competitors. Plus, they provide important information to their clients to protect themselves and make educated buying decisions."
Doherty encourages addressing exposures with various client execs. "Often, the insurance decision-maker is the chief financial officer," she says. "It might be worthwhile to include the general counsel in the discussion to not only ensure that contractual obligations are met, but also for the attorney to assist in assessing potential liabilities and the need for protection.
"We often are asked for real claim scenarios from our producing partners," Doherty adds. "Sharing 'war stories' seems to be a very effective way to educate clients to potential exposures."
Klenk agrees. "The best agents and brokers work closely with their carrier partners to offer claim examples to customers that illustrate both the types of claims, as well as the size of settlements and verdicts that they might be exposed to," he notes. "We routinely work with our agents and brokers to provide real-life claim examples and statistics to help in that process. We also strive to make the information available by specific industries and geographies to help agents and brokers drive the point home with specific insureds."
It's important for retail agents and brokers to proactively help identify professional liability exposures for their clients and advise them of the availability of the coverage. "If the agent waits until the insured is required to purchase coverage because of a contract," explains Murphy, "that may cause the insured to seek coverage from another agent."
Because professional liability is such a broad coverage line, agents and brokers may want to concentrate on a few niche areas to gain intimate knowledge of their insureds' business and a thorough understanding of the marketplace. "Once a retailer develops even a small book of one professional niche, it allows him or her to springboard on that," explains Murphy. "They can build their business based on referrals and networking in that segment."
He expects to see continued growth in the technology E&O arena, as well as the medical and real estate-related areas. "So an agent could write, for example, medical billing/coding, medical translators, medical equipment leasing consultants, medical data storage, medical software development and administration," Murphy explains. "All of these exposures are 'medical' or healthcare related, but do not involve writing physicians, hospitals or allied health risks."
"Having a niche makes sense within professional liability," says Doherty. "The exposures of an estate attorney are different from that of an intellectual property lawyer, for example, and they're very different from, say, a structural engineer. Knowing the differences within the lawyers' professional marketplace will help an agent win and place the business. The same holds true within the architects and engineers arena."
"Anyone who keeps up with the news knows that cyber-related attacks continue to become more prevalent and far more detrimental each year," says Klenk. "With this in mind, there is no doubt that cyber liability is a fast-growing segment in our industry. Agents and brokers that educate themselves on this line of business are positioning themselves for long-term success."
DeGraw agrees. "Cyber and privacy are terrific options," he says. "There are very unique and vast product offerings available in the marketplace. Obtaining the coverage is very fast and efficient. There is huge upside potential for producers to increase their revenue from cross-selling this coverage to existing clients. Plus, they can protect their clients from one of the fastest emerging exposures we have seen in the past decade."
Other segments offer promise, as well. "There are several industries that are standing out in the broader economy today, such as the energy and healthcare sectors," says Klenk. "These segments represent significant professional liability opportunity, and are in need of expert assistance on their exposures and coverage needs."
DeGraw has words of advice for those looking to enter the professional liability arena. "Don't dabble in it," he says. "Work closely with a partner who can help you educate yourself and your client about existing and emerging professional liability exposures."
Klenk adds, "Expertise is critical to success in the professional liability industry. Internally, we strive to be a 'trusted advisor' to our agent and broker partners. Agents and brokers that are most successful in this arena are similarly committed to having a deep understanding of the industry, important exposures, coverage issues and emerging trends."
He says one way of doing so is to participate in organizations such as the Professional Liability Underwriting Society (PLUS.) "PLUS is recognized as the primary source of professional liability educational programs and of information regarding professional liability," Klenk notes.
"Enroll in the RPLU (Registered Professional Liability Underwriter) program through PLUS," adds DeGraw. "It is a very robust curriculum and one that has served me well throughout my professional liability career."
Dave Willis is a New Hampshire-based freelance insurance writer and regular Rough Notes magazine contributor.