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Specialty Lines Markets

Professional liability: A growth market

Broadening exposures and consumer awareness create opportunities

By Dave Willis

Societal changes, increased online activity and economic factors are driving changes in the professional liability insurance arena. "When people lose money or when they feel that they might have been 'ripped off' in today's society, they get a lawyer," observes Darryl McCallin, vice president of operations at Fox Point Programs. "That's when a business can find itself trying to protect its reputation and financial future."

In the past, he adds, lawyers and doctors were the practices people thought of first when it came to malpractice insurance. "Over the last few years, we've seen a heightened litigious atmosphere," McCallin notes. "This, in the midst of an economic downturn, has transformed the professional liability arena, leading a wider array of professionals to seek coverage."

Retail agents and brokers who understand this shift and respond to it can broaden their value to clients and can boost revenue for their organizations. Several classes of business warrant special attention.

"For instance, states are requiring E&O insurance for certain businesses, such as real estate agents and home inspectors," explains Jason Haughey, Fox Point Programs' professional liability program manager. "Certain industries are requiring their subcontractors to carry the coverage as well." He cites title agents and abstractors as examples.

The arena of professional liability also has changed as a result of increased consumer awareness. "I suspect most people would rather have a construction company that is licensed and bonded working for them and would decide to hire such a firm over a competitor who is not licensed and bonded," Haughey adds. "With this awareness, they might be more interested in paying an E&O-insured company for their services over one that is not."

Cyber liability or information security liability insurance is a specific professional coverage that has seen increased attention. "This area continues to gain momentum as a couple of factors come together," explains Brian DeGraw, director of professional liability for NSM Insurance Group. "Regulatory pressures, including HITECH and HIPAA, are growing. At the same time, new insurance product offerings are making it to market."

Finally, he notes, newsworthy cyber threats are boosting awareness. "What I believe is yet to be fully considered is the emerging—and, I'd say, significant—geo-political threat posed by foreign countries and groups that would like to do harm to the United States and our allies," he explains.

"Recent allegations against Syria and China of hacking into the networks of major U.S. businesses heighten the urgency for businesses to act," DeGraw adds. "Regardless of size or type, they'll need to develop and implement an insurance and risk management plan that will prevent and/or transfer their exposures to these developing threats." His firm is seeing increased interest and demand within many of its professional lines programs for the added protection of both first- and third-party cyber liability insurance.

Market outlook

According to DeGraw, the professional liability insurance marketplace continues to be fractured. "As a whole, there is a distinct trend towards underwriting integrity and profitability," he explains. "However, we find that the approach of achieving improved loss results varies wildly among underwriters."

He says he doesn't believe that markets known for the practice of "buying" business have learned their lessons. "While they are pushing pricing and are better defining risk selection on their renewal book, they continue to follow old behavior on new business," DeGraw notes. "Some product line segments are generally firming more than others, but there really isn't any consistency."

Geography is playing a role in marketplace behavior, he says. "Underwriters are trying to break into areas of the country—the Midwest, for example—where they may not have had a presence," he explains. "They are doing this aggressively from a pricing standpoint. I'm not confident that this is being done with much support from actuarial data to support their rating methodologies."

McCallin is generally optimistic about market prospects. "From Fox Point's perspective, the professional liability market outlook is positive," he explains. "There has been pricing pressure on this line of business for many years, and that tends to increase the likelihood of clients shopping their accounts more frequently."

Agent role

Increased shopping calls for vigilance on the part of incumbent agents and brokers. "Make sure your clients understand the differences in coverage they may have when going from one carrier to another," explains Haughey. "And make sure they understand the difference between admitted and non-admitted products, so they can make informed decisions. Pricing should not be the clients' only factor when buying a professional liability policy." Offering good counsel helps protect the insurance agency's E&O exposures, he adds.

DeGraw concurs. "Too much emphasis is placed on pricing," he explains. "Agents and brokers have a tough job, especially in difficult economic times. With some carriers increasing premiums, clients push agents to 'get the best deal' or risk losing them to a competitor." He says agents and brokers who drill down into coverages and become experts in an area like professional liability are best suited for long-term success.

"They will better assist their clients in navigating the marketplace," he notes, "and they can find the necessary coverage at a competitive price. Agents who regularly meet with clients and reinforce this focus and their expertise gain trust. Their clients will become better educated, placing more importance on protecting their business and livelihood. This approach also leads to underwriters having more confidence in the agent."

DeGraw says that when an agent has identified a focus area where they'd like to gain expertise, they should find underwriters to partner with. "Agents and underwriters working together have the best chance of providing the best solution for clients, with less focus on the price," he explains. "Cyber liability is a terrific example of this. Attend cyber conferences and partner with underwriters and other experts in this segment of the professional liability market."

Haughey encourages agents and brokers to take advantage of account-rounding opportunities. "If you are already insuring a client for E&O insurance, you can cross-sell other products, including cyber liability, employment practices liability and directors and officers liability insurance," he explains. "Provide insight into the exposures clients have, and then request that they accept or reject the offers for these options. This could help you generate new revenue while filling your clients' insurance gaps."

Pursue niches

McCallin says agents looking to grow their professional liability business must be innovative. "Since the universe of professional liability is expanding and people are becoming more and more aware of exposures they face, agents have a great opportunity to capitalize," he explains. "They should examine their local communities, identify a prominent niche class of business or two, and start marketing directly to them. By doing so, agencies can differentiate themselves from the competition."

DeGraw suggests considering dentist practices as a potential market. "The dental malpractice space has tremendous growth potential," he explains. "More and more states are requiring that dentists have professional liability insurance, and the policies are purchased directly by the individual dentists."

In addition, their exposures are increasing. ""Many dental practices are starting to offer added cosmetic-type services," DeGraw notes. "This is a fast emerging trend and needs to be carefully addressed."

Digital risks represent another growth opportunity. "It's very important to include cyber liability as part of your professional lines offering," McCallin explains. "Every business has some sort of cyber liability exposure and they need to be aware of the risks. We strongly suggest encouraging clients to consider cyber coverage along with any other E&O or professional liability policy."

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