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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

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]