Professional Liability

Private Label Coverage

Discerning insurance buyers and their brokers increasingly seek specialist wordings from a professional liability community that is desperate to differentiate.
By: | November 2, 2016 • 8 min read

In an increasingly interconnected business environment, it is no wonder many companies are taking a closer look at the changing nature of their liabilities — and seeking tailored coverages to ensure none of their unique exposures slip through the cracks.

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Growing demand from clients and brokers in a tough environment is forcing underwriters to innovate in order to win business and squeeze extra margin from their books. The result is a proliferation of specialist professional liability policies that runs the full gamut of industry sectors, from health care to construction.

The move towards specialization has developed to the extent that now it is possible for various stakeholders within the supply chain of the same industry to each enjoy their own tailored coverages. There are no doubt more niche products to come.

“The trend is being driven by both a willingness from underwriters to look for margin where they can, and also demand from insureds,” said James McPartland, class underwriter, professional indemnity, at ArgoGlobal.

“We now live in a much faster-paced world than even 10 to 15 years ago. The way businesses interact and bring products to market is very different now, and companies can significantly change from month to month.”

Uniquely positioned with their fingers on the pulse of their clients’ evolving risk profiles, brokers play a huge role in identifying coverage needs and driving the development of bespoke wordings.

James McPartland, class underwriter, professional indemnity, Argo Global

James McPartland, class underwriter, professional indemnity, ArgoGlobal

“Agent feedback is crucial; they are the catalysts of change,” said Greg Leffard, president of professional liability at the Hanover Insurance Group.

“As businesses change, exposures change, and so should our coverage.”

He added that brokers see the development of new products as a way to differentiate themselves from their competitors just as carriers do.

“It is easy to compete on price, but agents want more than that. They want private label coverages, available only to them.”

“It starts as one client with a specific need, then before long three have asked the same question in a different way and we know there is a trend and we have to find a solution,” said Elisabeth Case, commercial E&O product leader for Marsh, who added that newcomers to the PL space are often the underwriters willing to concede the most ground in the design of new products.

“We have carriers we know are willing to go the extra mile, both in the U.S. and London. It really does come down to individuals at certain organizations trying to keep their companies at the forefront, or trying to build a book. There are new entrants in the PL and cyber liability space coming into the marketplace all the time, so they often have to offer something unique to get their foot in the door.”

According to Cynthia Evanko Olinger, senior vice president of construction at JLT Specialty USA, modifications to standard PL coverage can often be obtained from underwriters “for little or no premium.”

Whereas a decade ago a $2.5 million PL line for accounts “meant you were a player,” now it is common for insurers to put down $5 million or $10 million. — Brian Braden, vice president, professional risk, Crum & Forster

“We argue, for example, that the technology services are part of the core business that the underwriter is insuring, and our request to affirm coverages for these services should have no premium impact,” she said.

Brian Braden, vice president, professional risk, at mid-market underwriter Crum & Forster, noted, however, that the most flexibility is often likely to be given on larger risks due to the negotiating power of big brokers who control a lot of premium dollars.

“Those changes are usually advantageous to the client and a little adverse to the carrier. Sometimes we follow those changes on an excess basis, but if we’re writing primary we won’t,” he said.

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He added that underwriters are offering bigger lines. Whereas a decade ago a $2.5 million PL line for accounts “meant you were a player,” now it is common for insurers to put down $5 million or $10 million, he said.

“Plus there are many more players, which drives the price down.”

Hanover’s miscellaneous PL group writes over 100 different classes of business, each with its own unique exposure.

“This creates challenges to ensure we provide appropriate protection for all the various sectors, as well as competitive coverage in the marketplace at a reasonable price,” said Leffard, while McPartland noted that the cost of doing business is increasing and pricing new bespoke coverages can be “haphazard” due to the lack of historical data.

As McPartland pointed out, not all clients are interested in a new bespoke PL product, as such products are often purchased out of regulatory or contractual obligation.

“When you strip a PL policy back, 99 percent of all claims would be covered under the negligence clause. Add-ons enhance the product to make it more attractive, but the fundamental driver of purchase is price, and people are prepared to move business around a lot quicker nowadays,” he said.

McPartland added that while brokers could until recently rely on existing clients to remain loyal at renewal, clients are now more interested in what the broker can do for them going forward than what they’ve done for them in the past.

“We are having to work harder to retain our business. The book churns quicker and as a result our modeling becomes more volatile and pricing gets more difficult.”

Niche Demand

Nevertheless, said Leffard, many professionals are becoming more knowledgeable on the benefits of insurance and the true cost of a claim.

“Mature businesses are willing to pay more for a solid form compared to a basic form that just meets contractual business requirements,” he said.

Faye Chapam, medical malpractice underwriter, Argo Group International Holdings

Faye Chapman, medical malpractice underwriter, ArgoGlobal

“Established marketing firms, advertising and public relations agencies, technology firms and home inspectors are also good examples of sophisticated, educated insureds. They are more likely to understand their professional liability exposures and ask for the right coverages.”

The health care sector is ripe for specialist PL covers. According to Faye Chapman, medical malpractice underwriter at ArgoGlobal, quasi-medical practitioners including beauticians and masseurs are seeking PL cover due to the increasingly invasive nature of treatments (such as injectables and laser treatments), which goes beyond the scope of some general liability underwriters’ appetites.

Practitioners offering one-on-one patient treatment may also require abuse of patient cover, she said, though there is some debate within the insurance industry over whether abuse would fall in a liability or medical malpractice policy.

Meanwhile, medical devices including implants present another potential liability exposure as practitioners could find themselves facing a claim if they recommend the use of a substandard or dangerous product.

Chapman noted that insurers are offering extended reporting periods, effectively transforming covers from claims-made to occurrence basis policies, across a number of specialist health sector products.

More broadly, fundamental business themes demand that old coverages be revisited across almost every sector — most notably concerning the proliferation of cyber risk and the evolving use of technology.

“Professionals such as lawyers, accountants and even engineers and architects who are holding personally identifiable information are beginning to realize that negligence could be deemed to be the main trigger for a breach of privacy,” said McPartland, noting that cyber liabilities are increasingly being written into PL, professional indemnity (PI) and errors & omissions (E&O) policies.

Braden said cyber liability risk has “changed the landscape” on a number of products. “Our tech product, for example, used to just be E&O coverage for tech professionals, but over the last four or five years if you don’t offer full first-party coverages including credit monitoring, notification costs, extortion and business interruption, you are dead in the water.”

“It’s an exciting market,” said David Smith, professional indemnity underwriting manager (UK & Ireland) for Lloyd’s underwriter Hiscox, which writes 20 profession-specific PI products.

“In the past it was traditionally professions such as surveyors and architects that bought PI cover, but in recent years we’ve seen the evolution of people being asked to buy PI for their contracts with third parties and interest from a host of new professions — and we see that trend continuing.”

Smith noted that many of Hiscox’s PI products now cover insureds against claims arising from their own websites, such as the unlicensed use of images, in addition to third-party damage.

Elisabeth Case, commercial E&O product leader, Marsh

Elisabeth Case, commercial E&O product leader, Marsh

“Ultimately, what clients will start to want more is an all-in-one E&O and cyber liability policy with potentially some physical loss/damage related to a cyber event if the systems they rely heavily on to deliver their products or services are interconnected to others,” said Case.

Similarly, advances in electronic technology are changing the way many professions operate, and are creating new exposures that need to be written into specialist PL products.

Car parts, for example, increasingly include tech components, which is making auto suppliers seek cover against component malfunctions that could lead to manufacturer recalls, noted Case.

“We are getting lots of requests from various types of manufacturers who have both a manufacturing and design element, who are sometimes confused about what type of cover they should buy.

“People mistakenly think they need an architects and engineers policy if their engineers are designing products, but in fact they need manufacturers’ E&O,” she said.

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The tech industry itself is a complex area when it comes to PL. “Tech clients are very specialized and there are sub-sectors of the tech world that need even further differentiating,” said Case, noting that FinTech companies are often unable to find E&O solutions that cover their entire exposures, so Marsh is creating bespoke coverages by aggregating multiple policies in order to obtain adequate coverage.

McPartland predicted the next area for specialist PL cover could be 3D printing.

“This printing will speed up repair processes but it is also an opportunity for people to make mistakes,” he said. “If someone prints the wrong valve for an oil rig, for example, it could result in a significant oil spill. It’s an area to watch over the next 18-24 months.” &112016_02_riskfocus_sidebar

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.
By: | April 26, 2017 • 3 min read

As insurers become increasingly concerned about the aggregation of cyber risk exposures in their portfolios, new tools are being developed to help them better assess and manage those exposures.

One of those tools, a comprehensive cyber risk modeling application for the insurance and reinsurance markets, was announced on April 24 by AIR Worldwide.

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Last year at RIMS, AIR announced the release of the industry’s first open source deterministic cyber risk scenario, subsequently releasing a series of scenarios throughout the year, and offering the service to insurers on a consulting basis.

Its latest release, ARC– Analytics of Risk from Cyber — continues that work by offering the modeling platform for license to insurance clients for internal use rather than on a consulting basis. ARC is separate from AIR’s Touchstone platform, allowing for more flexibility in the rapidly changing cyber environment.

ARC allows insurers to get a better picture of their exposures across an entire book of business, with the help of a comprehensive industry exposure database that combines data from multiple public and commercial sources.

Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

The recent attacks on Dyn and Amazon Web Services (AWS) provide perfect examples of how the ARC platform can be used to enhance the industry’s resilience, said Scott Stransky, assistant vice president and principal scientist for AIR Worldwide.

Stransky noted that insurers don’t necessarily have visibility into which of their insureds use Dyn, Amazon Web Services, Rackspace, or other common internet services providers.

In the Dyn and AWS events, there was little insured loss because the downtime fell largely just under policy waiting periods.

But,” said Stransky, “it got our clients thinking, well it happened for a few hours – could it happen for longer? And what does that do to us if it does? … This is really where our model can be very helpful.”

The purpose of having this model is to make the world more resilient … that’s really the goal.” Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

AIR has run the Dyn incident through its model, with the parameters of a single day of downtime impacting the Fortune 1000. Then it did the same with the AWS event.

When we run Fortune 1000 for Dyn for one day, we get a half a billion dollars of loss,” said Stransky. “Taking it one step further – we’ve run the same exercise for AWS for one day, through the Fortune 1000 only, and the losses are about $3 billion.”

So once you expand it out to millions of businesses, the losses would be much higher,” he added.

The ARC platform allows insurers to assess cyber exposures including “silent cyber,” across the spectrum of business, be it D&O, E&O, general liability or property. There are 18 scenarios that can be modeled, with the capability to adjust variables broadly for a better handle on events of varying severity and scope.

Looking ahead, AIR is taking a closer look at what Stransky calls “silent silent cyber,” the complex indirect and difficult to assess or insure potential impacts of any given cyber event.

Stransky cites the 2014 hack of the National Weather Service website as an example. For several days after the hack, no satellite weather imagery was available to be fed into weather models.

Imagine there was a hurricane happening during the time there was no weather service imagery,” he said. “[So] the models wouldn’t have been as accurate; people wouldn’t have had as much advance warning; they wouldn’t have evacuated as quickly or boarded up their homes.”

It’s possible that the losses would be significantly higher in such a scenario, but there would be no way to quantify how much of it could be attributed to the cyber attack and how much was strictly the result of the hurricane itself.

It’s very, very indirect,” said Stransky, citing the recent hack of the Dallas tornado sirens as another example. Not only did the situation jam up the 911 system, potentially exacerbating any number of crisis events, but such a false alarm could lead to increased losses in the future.

The next time if there’s a real tornado, people make think, ‘Oh, its just some hack,’ ” he said. “So if there’s a real tornado, who knows what’s going to happen.”

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Modeling for “silent silent cyber” remains elusive. But platforms like ARC are a step in the right direction for ensuring the continued health and strength of the insurance industry in the face of the ever-changing specter of cyber exposure.

Because we have this model, insurers are now able to manage the risks better, to be more resilient against cyber attacks, to really understand their portfolios,” said Stransky. “So when it does happen, they’ll be able to respond, they’ll be able to pay out the claims properly, they’ll be prepared.

The purpose of having this model is to make the world more resilient … that’s really the goal.”

Additional stories from RIMS 2017:

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]