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 farreaching 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?”
Ample capacity
“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.”
For more information:
Business Risk Partners
Website: www.businessriskpartners.com
Addressing Consumer Risk Concerns
Dave Willis, CPIA
Attract prospects by understanding the issues they confront
A recent survey of more than 1,000 individuals, conducted on behalf of Travelers, says a significantly higher number of people are worried about cyber threats than in previous years. The company’s third annual Travelers Consumer Risk Index, released this fall, shows that cyber-related concerns grew by more than 50% from last year, moving from the fifthranked concern overall into third place. The number one risk identified was “General Financial Concerns & Risks,” followed by “Personal Privacy Loss & Identity Theft.”
According to Loree Toedman, vice president of field sales at Travelers, “Agents play a vital role as trusted advisors to insurance consumers. We see this anecdotally and through our annual Consumer Risk Index, which says that most consumers prefer talking to an insurance agent about having proper insurance.” She says agents’ position of advisor is reinforced as they help clients understand how insurance connects to an overall financial profile.
She says good agents and brokers are highly qualified to educate clients on protecting themselves and their families with insurance. “Just as they would consult with a financial advisor on their investments, people see the value of consulting with an insurance agent or broker to discuss insurance needs and ensure there is adequate protection in place.”
Agents agree. “Our agency uses a defined risk reduction approach that helps raise the level of awareness for our clients to exposures they may face, both in their businesses and also in their personal lives,” explains Angelyn Treutel Zeringue, CPA, PWCAM, president of SouthGroup Insurance-Gulf Coast in Bay Saint Louis, Mississippi.
Toedman points out that insurance is designed to protect the important things that people work years to acquire—a house, valuable items, financial assets. “A personal finance discussion isn’t complete without including the insurance risk,” she says. “People have a lot of equity built up in their assets, and those assets are at stake if a major loss occurs.”
Peyton Smith, an agent at SouthGroup Insurance Services, says the simplest and most effective means of helping people address their exposures is using a personal risk questionnaire. “Personal insurance can be expensive in some areas, so some of our clients decide to retain certain risks,” he says. “This can be a big gamble, so it is very important that clients understand not only what is covered by their insurance contracts, but also what risks they are assuming.”
According to Stephanie Fanelli, vice president of Paradiso Financial & Insurance Services in Stafford Springs, Connecticut, clients who buy insurance are purchasing something they may never use. “We explain that what they’re really buying is peace of mind,” she notes. “We educate clients when they call in for a new quote, or at the time of their annual review, about the importance of carrying high liability limits and the extreme importance of an umbrella insurance policy.”
Roosevelt Haywood III, president and chief executive officer of Haywood and Fleming Associates in Gary, Indiana, concurs. “Our state has very low limits of personal auto liability: $25,000 per person, $50,000 per occurrence and $15,000 for property damage,” he says. “That’s nothing. We recommend they carry at least a $300,000 combined single limit.”
Nick Pembroke, CIC, CISR, an agent at McClain Insurance Services in Everett, Washington, takes a similar approach. “Our agency minimum for personal auto is 100/300,” he says. “When we talk about state versus agency minimums, we also discuss the importance of an umbrella, which is included in every one of our proposals.”
Fanelli stresses the importance of explaining various coverages. “We find most people don’t realize how uninsured motorist coverage protects them,” she says. “We explain that, in case of an accident, if they’re injured by an uninsured driver, it pays for their injuries. We point out that the premium increase is minimal, and they don’t hesitate to increase their coverage.”
She says the agency also helps customers address financial concerns with life insurance. “That’s something most people are hesitant to buy,” Fanelli remarks. “But once you provide them with a quote and they see how inexpensively they can make sure their family is taken care of, it’s reassuring for them and easier to get them on board.”
Managing risks
Protecting valuable assets before disaster strikes or a problem arises is equally important. “Risk management is about preparation—anticipating what could happen down the road, even if the chance of its happening is unlikely,” Haywood explains. “If something does occur, ‘unlikely’ goes right out the door.”
“At Travelers, we highlight risk management tools and messaging with a dedicated website so consumers can prepare for severe weather or holiday theft, for example, rather than respond to it after the fact,” Toedman notes. She says the safety tips, articles and videos on Travelers.com/prepareandprevent are meant to be shared.
“Our agents are using these informational assets to engage with their customers because it’s an opportunity to say, ‘Don’t wait until it’s too late; protect your investments and your family with these tips,’ ” she adds.
McClain Insurance has several ways of educating customers. “On our autohomeboat.com website, for example, we have a section called ‘Live Proactively,’ which is a collection of safety tips and topics designed to help make customers’ lives safer and easier,” Pembroke explains. “We also have a welcome kit we send to new customers that offers similar advice.”
The Paradiso agency offers a broad range of personal risk management advice using social and other media. “For instance, we send out videos reminding people about the importance of putting lights on timers when away, having someone check on the house and having mail stopped,” explains Bernard Estey III, community manager at the agency.
Cyber and privacy
The Travelers Consumer Risk Index shows that 60% of individuals worry about personal privacy loss and identity theft and 57% are concerned about cyber, computer and data breach risks. “At Travelers, we sell identity theft insurance either as an add-on to a homeowners insurance policy or as an add-on for companies that provide the insurance as an employee benefit,” Toedman explains. “The insurance will pay for some of the associated expenses when an identity fraud event takes place.”
That can include legal advice to help customers through the recovery process. “For instance, in some cases we’ve seen loans that are taken out using people’s credentials, and there’s a legal process required to get those loans reversed,” she notes. “People don’t always think about the expenses associated with such a theft, like dealing with creditors, which might require time off from work. Insurance can help recover some of these expenses.”
Smith points out that almost everybody has had personal information stolen or knows someone who has. “As a risk advisor, I always encourage my clients to add the available identity theft or credit card fraud endorsements, to help mitigate their personal risk from this exposure.”
“In our agency, we include identity theft recovery coverage as a standard offering,” Pembroke says. “From homeowners to renters and more, everybody gets it. It’s important to customers, and it helps us from an E&O standpoint.”
Fanelli adds, “We like to keep our customers as protected as possible, so we make sure that when we issue a homeowners, tenant or condo insurance policy, we add the enhancement package that will cover this exposure.”
“Through agency mailings, stuffers and online resources, including blogs, we communicate information on cyber-related topics,” explains Heather Minkler, CIC, chief executive officer of Clark-Mortenson Insurance and Financial Services in Keene, New Hampshire. “We also include a discussion of this in personal insurance reviews and promote employee personal cyber coverage to business owners. It’s a low-cost benefit businesses can offer that’s very well received by employees. On a personal note, it’s actually been used by a couple of our employees at Clark-Mortenson!”
Paradiso Insurance also uses various media platforms to heighten awareness. “We regularly address the importance of things like password protection, the strength of passwords and being careful on unsecured networks,” Fanelli says.
Toedman points out that there are traditional ways thieves steal, as well as emerging trends. She offers specific preventive measures that consumers can take to protect themselves against both kinds of threats.
They include:
• Carry only the essentials. Leave the unnecessary credit cards and critical documents in a discrete, burglar-proof location in your home.
• Beware of scams. Don’t fall for scams intended to pull at your heart strings. Do not disclose personal information, such as credit card and bank account details, if you receive an unsolicited request.
• Do not throw away— destroy. Shred old bills and financial statements rather than placing them in the trash.
• Make security a priority. Store handbags and wallets in a safe place, never print account information on envelopes of outgoing mail, and be careful about sharing personal information on social media.
Smith also offers tips to mitigate risks:
• Secure all digitally stored private information with complex passwords.
• Keep passwords private and protected and change them regularly.
• Retain the ability to remotely wipe your data from a mobile device in case it is stolen. Cloud access is a method of accomplishing this.
• Keep operating systems and virus protection software up to date.
• Don’t send private information through unsecure email systems.
Fanelli points out that, in today’s world, Social Security numbers—the full number or just the last four digits— have become people’s identities. “This makes it very easy for someone to steal,” she explains. “It’s great that Starbucks offers free Wi-Fi, but when you use public networks, you open yourself up to a cyber-attack. As important as it is to replace smoke detector batteries twice a year, it’s also important to do a regular preventive review of your credit report and look for any changes.”
Tom Minkler, CIC, president of Clark-Mortenson, and his team take these messages and more to customers and prospects in the form of seminars and webinars. “We share with our clients and community at large information regarding data breach, cyber liability and related topics,” he explains. “We bring in IT experts to discuss security protocols, and review insurance solutions available for businesses and their employees.”
Zeringue complements information- sharing with other practical steps to reduce the likelihood of ID theft. “The more education and precautions we can take, the better off everyone is,” she asserts. “As a public service, our agency has held cyber-security seminars, and we provide shredding service around tax time. We also recommend services, such as Lifelock, for consumer protection.”
Pembroke’s agency also offers a taxtime shredding service. “In addition, we do an ‘e-cycle’ event, usually just after Christmas,” he says. “It’s an opportunity for people to bring their computers and have them disposed of properly. It’s a way to really focus on the importance of not leaving personal information where thieves can access it.”
The agency’s internal operations also support keeping customer information secure. “As an agency, we’ve been paperless since 1997,” Pembroke says. “That means every piece of paper goes into a secured box that gets picked up and shredded on site.” The agency also is diligent about password protection on its computers.
In addition, the firm has an added layer of physical security because it’s housed in what used to be a bank building. “The building is secure, with bulletproof glass and other protection,” Pembroke notes. “We’re in a tech-savvy area and have actually gained customers because of our information privacy and security policies.”
Producer success
Independent agents and brokers must address concerns of today’s insurance buyers— whether it’s personal financial well-being, cyber or identity issues or other issues identified in the Consumer Risk Index. By understanding the issues and solutions, they can attract prospects through social and community engagement and ensure that customers are adequately protected and equipped to manage whatever risks they face.
The author
Dave Willis, CPIA, is a New Hampshire-based insurance freelance writer and regular Rough Notes magazine contributor.
