Company offers"flagship" productalong with workflow innovations
By Phil Zinkewicz
Rockwood Programs executives are (left to right) Francis Huver, FLMI, Senior Vice President/Controller; Ray Scotto, Marketing Director; and Daryl McCallin, Vice President and COO.
Employment practices liability insurance (EPLI) is a relatively new product in the property and casualty insurance marketplace. It first appeared on the scene about 12 years ago, at the beginning of a soft market that was to persist for at least another seven years. EPLI was embraced by the insurance industry right from the start, and insurers chased after the business with relish--until claims began coming in and it became all too clear that they had underpriced the product and underestimated the potential magnitude of claims activity.
There is no question that EPLI can be a volatile line of business, but it also is an essential insurance coverage--one that all businesses should consider and most should buy. Carriers may feel daunted by the high cost of defense and the high frequency of EPLI claims, but the potential market is large enough so that insurers, for the most part, have decided to stay with it. The hard market has brought about significant rate increases, of course, so the line has not been deserted.
EPLI is a coverage that must be actively sold because many businesses resist buying the protection either for cost reasons or because they just can't imagine an EPLI claim happening to them. Statistics tell another story. For example, employment discrimination cases are more frequently heard in the federal courts than are criminal and prisoner-related cases. A recent telephone poll showed that 31% of all female and 7% of all male workers claimed to have been sexually harassed. And a recent Society for Human Resource Management (SHRM) poll revealed that 57% of the 616 respondents said their organizations had faced an employment-related lawsuit at least once in the last five years. The poll also showed that 60% reported moderate to substantial increases in litigation costs for employment matters.
Therefore, the challenge for producers is to get the message across that, in our litigious society, all businesses are vulnerable to employee lawsuits, that insurance protection is needed and that it is available and affordable.
One managing general agency that has taken up the challenge is the Wilmington, Delaware-based Rockwood Programs, Inc. Rockwood was originally incorporated in 1996 as a wholly owned subsidiary of a large domestic reinsurance brokerage operation. Four years later, the Rockwood management team completed a buyout of the company. Today the firm is a full-service MGA, licensed in 50 states, and has the capacity and legal status to handle property and casualty, life and accident and health insurance, on both an admitted and surplus lines basis.
EPLI is Rockwood's "flagship" product. The MGA has served as the administrator for a nationwide EPLI program since 1997. The program, which is underwritten through Gulf Insurance Group, can accommodate companies with between six and 1,000 employees. It is available on an admitted basis in all states except California, and limit options are from $250,000 to $5 million. Rockwood has also cultivated relationships with other EPLI markets to place business that does not fit into Gulf's underwriting parameters.
Recently, Rough Notes spoke with Glenn Clark, Rockwood president; Frank Huver, senior vice president and comptroller; and Darryl McCallin, vice president and COO, to understand just how Rockwood's EPLI program is structured.
"We currently have $29 million in EPLI premium," says Clark. "Our business can be separated into three distinct categories. The first is our 'open market' business, which is a stand-alone EPLI policy written through retail agents. The second is our 'Write Your Own' policy, a concept modeled after the National Flood Insurance Program. The WYO facility allows insurance carriers to offer EPLI coverage to their clients on their own paper with a fraction of the attendant downside risk. Participating companies achieve a level of product differentiation on their existing portfolio by adding a sub-limit of EPLI to their general liability policy, their BOP, E&O or CPP policies. As for the insured, the EPLI portion of the coverage is usually 10% to 15% of open market prices. Reinsurance is purchased either through Lloyd's of London or through domestic markets."
Helping to make Rockwood a premier provider of EPLI are (seated left to right) Thomas Caputo, EPLI Program Manager; Kathy Hasted, Management Liability Program Manager; and (standing left to right) Corlin Hackett, Underwriter; Joanne LaMaestra, Production/Quality Control Coordinator; and Thomas Nolan, Underwriter.
He continues: "The third category is our Franchise EPLI. Several years ago, we launched an initiative aimed at establishing specialized EPLI programs tailored to franchises. There are several aspects that make this particular class of business attractive to us. Franchises have homogeneous risk characteristics, for one thing. Also, there is an identifiable decision-making chain. In other words, there is either a finite number of franchise owners, each one controlling multiple stores, or a single corporate office, such as McDonald's, with the authority to mandate coverage as a prerequisite of franchise ownership. The use of simplified rating algorithms, short-form applications, limited coverage policy forms and a minimal number of limit/retention options makes for a streamlined administrative process," says Clark.
Tools for agents
Huver talks about Rockwood's various workflow innovations, which he says have made the MGA a premier provider of EPLI. "Our Web site provides agents with access to an inventory of downloadable marketing materials and the capability of generating quote indications online in real time," he says. "We offer a streamlined submission process, highlighted by a short-form, two-page application and paperless compliance. We also provide loss control tools, featuring interactive risk management software available to new policyholders. During the third quarter of 2004, we will streamline our workflow further by soliciting our renewals electronically. Agents will receive e-mails containing links to accounts nearing expiration. All of the information related to the policy will be included. By simply updating the data he or she is provided, the agent can receive a renewal quotation in real time. The whole process can be done online at the insured's location. Thus we have eliminated the need to fill out another application in its entirety in order to get an updated premium indication."
The EPLI market has been a tough one in the last few years as insurers have played catch-up to compensate for the underpricing of the soft market years of the 1990s. However, Rockwood's McCallin says that conditions are beginning to soften up a bit, at least in the area of pricing. "We have been quoting at about 10% to 15% over expiration, but we have seen competitors quoting at expiration prices. Nevertheless, we have managed to retain 85% of our business. As far as terms and conditions are concerned, carriers are looking to move up insured retentions within certain business classes, such as the medical field and restaurants."
"Our [EPLI] business can be separated into three distinct categories . . . our 'open market' business . . . our 'Write Your Own' policy . . . and our Franchise EPLI."--Glenn Clark, President, Rockwood Programs, Inc.
Rockwood also has separate errors and omissions programs for life and health agents and for property and casualty agents. Says Huver: "Our life agents' program is tailored to individuals/entities generating up to $500,000 in net revenues annually. We offer a wide range of liability limit options. Policy retentions start at $2,500. The program is underwritten by Avemco Insurance Company. We have also established alternative market relationships for the placement of risks that fall outside the program's underwriting parameters. We have approximately $3 million in life agents' business."
McCallin says that E&O coverage for life agents is essential and yet roughly 45% of life agents go bare. "Surprisingly, some life insurance companies don't require their agents to have errors and omissions coverage. Then, too, when a company does require the coverage, often the agent's coverage lapses and he or she doesn't renew. The life company is not aware of this and is left open to a possible lawsuit by an insured if something goes wrong. This is not as much of a problem with P&C agents. They want to buy the coverage but sometimes can't get it."
Clark says that Rockwood's Main Street/EazyPro program is specifically designed to cover retail property and casualty insurance agents. "It targets those producers that handle lines of business with standard policy forms containing non-negotiable terms and conditions," Clark points out. "Agents with up to $1 million in annual commission revenues are eligible. Various limits of liability and retention options give our insureds the ability to tailor the coverage to meet their specific needs. The program is underwritten through Lloyd's of London. Rockwood has approximately $2 million in P&C business."
Sources of E&O claims
Huver cited a recent research study that described the top five types of E&O claims.
* Failure to obtain proper coverage. Over 40% of all E&O lawsuits allege that the agent failed to secure adequate or proper insurance for clients.
* Misrepresentation. Claims that coverages and benefits were either not fully disclosed or distorted account for nearly 20% of all case files examined in the study.
* Policy change errors. This includes failure to recommend coverage or update the policy with requested changes.
* Failure to notify. Agents failing to properly notify their clients of the actions taken by the insurance carrier (cancellation, non-renewal, coverage restrictions, etc.) fall into this category.
* Administrative errors. This includes failure to remit premium payments on a timely basis or to initiate the renewal process on expiring accounts.
"Many of the tools developed for EPLI are also available for our insurance agent clients," says Clark. "Agents can access our Web site to download applications and obtain useful policy information. Rockwood will also partner with insurance companies and large MGAs to establish sponsored E&O programs for their distribution network. We feel this scenario works to everyone's advantage. The distribution system benefits through group purchasing power. The insurer also realizes some distinct advantages. First, the program provides a first line of defense for all producer-related claims. It also serves to enhance affinity within an agency network. Our E&O team can craft an approach that maximizes participation for all involved," says Clark.
Other programs offered by Rockwood include executive disability, launched in January of this year and aimed at highly compensated individuals; and Rockwood Specialty, a special E&S brokerage facility, established to place risks that do not fit the underwriting parameters of the programs Rockwood administers.
In 2001 Rockwood was the charter agency in the new Target Markets Program Administration Association.
Clark summarizes this way: "We pride ourselves at being 'bridge builders.' We bring markets to smaller niche groups by aggregating enough risks so that the business is attractive to an insurer. In the middle of the spectrum, our team helps retail agents access products and markets via innovative tools to help them sell. Finally, at the top end we can even help insurance carriers improve sales by bringing product enhancements reinsured by others." *
For more information:
Rockwood Programs, Inc.
Web site: www.rockwoodinsurance.com