PLUS Report

Turning the Market

The number of professional liability class actions is on a record tear, which should impact rates eventually.
By: | October 12, 2017 • 5 min read

The professional liability (PL) market became increasingly more competitive recently with record levels of capacity and capital and insurers fighting on price and policy terms to gain share.
Among the most competitive areas on coverage and pricing is middle market technology Errors & Omissions (E&O), closely followed by Directors & Officers (D&O) and employment practices liability (EPL).

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With large data and privacy losses from retail and big technology services claims mounting up on top of already expanding global privacy laws and a lack of primary PL coverage for tech firms, opportunities abound, particularly in cyber.

Cyber also drives demand for higher limits in the wake of the recent spate of high-profile cyber hacks and narrow indemnification language in vendor agreements.

With an estimated 500 PL securities class actions expected in 2017, according to industry experts, it’s probably only a matter of time before the market turns.

All of these factors will be key talking points among brokers, insurers and risk managers at next month’s Professional Liability Underwriting Society (PLUS) 30th International Conference in Atlanta.

“Rates are still coming down,” said Brian Wanat, CEO of Aon Risk Solutions’ Financial Services Group. “But with many insurance carriers barely breaking even and a low interest rate environment, some may be forced to try to gain rate or move away from writing those classes of business.”

Brian Wanat, CEO, Aon Risk Solutions’ Financial Services Group

A.M. Best’s latest special report on PL said that key coverages continue to be impacted by “more than ample capacity and competitive pressure on rates, and terms and conditions.”

“Beginning in Q1 2014, the influx of additional competitors in the professional liability market space has slowly but steadily driven rates downward,” the report read.
“In addition, the E&O marketplace is still trying to get its arms around the impact of large data and privacy-related losses affecting the retail and health sectors, along with other technology losses that have breached the six-figure threshold.”

The ratings agency expects PL markets to remain robust in 2017, with heightened competition in D&O and E&O specifically.

The Growth of Cyber

Cyber insurance is big business, not just in America but globally, with total premiums reaching $2.5 billion last year and expected to climb to $10 billion by 2020, according to Willis Towers Watson.

The middle market has become extremely competitive with explicit grants of coverage for ransomware and social engineering in stand-alone cyber forms as more first-time buyers enter the market.

Bob Parisi, managing director at Marsh FINPRO, said that the biggest challenge facing the PL market was the changing way companies do business and interact with their customers, vendors and trading partners, as well as how that risk is underwritten.

“After the latest WannaCry and Petya attacks, companies are a lot more wary and have been focused on their cyber security and controls,” he said. “Technology has skewed everything and added a layer of risk that wasn’t there 20 years ago.”

Parisi, moderating the “Business Interrupted: An Alien Concept?” panel at PLUS, added that insurers expanded their coverage in response to the proliferation of cyber attacks.

Matthew Prevost, vice president of Chubb Financial Lines, said cyber impacted all PL lines, highlighted by the recent wave of Petya and NotPetya attacks.

“After the latest WannaCry and Petya attacks, companies are a lot more wary and have been focused on their cyber security and controls. Technology has skewed everything and added a layer of risk that wasn’t there 20 years ago.” – Bob Parisi, managing director, Marsh FINPRO

“There’s not one line that ‘cyber’ doesn’t touch now, and companies and underwriters need to understand explicitly how it interacts with their business,” he said.

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Prevost, moderator for the “Ransomware Attacks! A Survival Guide” panel at PLUS, said that organizations can mitigate against cyber attacks by backing up their data both on and off line and by regularly patching to keep it updated.

“More broadly speaking, a company needs to be aware of both the internet response to an attack and their own risk management strategies,” he said.

“They need to recognize what to do in the event of an attack, whether it’s an individual device or a network-based ransomware attack.”

Boardroom Risks

D&O direct written premiums remained flat at $6.4 billion for the third straight year in 2016, with AIG maintaining the biggest share of 15 percent, according to Standard & Poor.

While loss ratios improved slightly, the WTW report expects securities class action filings to increase with around 500 expected this year; almost double the 270 recorded in 2016 and well above the 20-year average of 188.

Pharmaceutical industries were the hardest hit sub-sector, accounting for one quarter of the 125 reported filings so far this year, said WTW.

Geoff Allen, executive vice president, national professional services practice leader at WTW’s FINEX North America, who works predominantly with law firms, said that the biggest challenge facing companies in terms of PL was the rising cost of defending lawsuits.

“Coverage offerings are being stretched at an unprecedented pace while more capacity floods the space.” – Al Fantuzzi, SVP, professional liability, Allied World

“As a result we are seeing a number of cases signed off with significantly quicker settlements because of the cost of litigation,” he said.

“Also, from an insurance perspective, ongoing systemic claims are driving big pricing movements, and it’s hard to see where it’s going to end.”

In E&O, Al Fantuzzi, senior vice president, professional liability E&O at Allied World, said that the immediate challenge was maintaining a core portfolio in a constantly expanding marketplace.

“Coverage offerings are being stretched at an unprecedented pace while more capacity floods the space. The carriers that commit to it with underwriting integrity will be the most positive contributors, which in turn perpetuate opportunities to operate in these segments,” he said.

Workplace Liabilities

EPL rates also remained mostly stable with average primary rate increases of five percent, except in California where increases continue to fluctuate between five and 15 percent, said the WTW report.

The EPL market also remains very competitive with capacity of more than $800 million in the U.S., Bermuda and Europe combined.

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Claudia Costa, a partner at Gordon Rees Scully Mansukhani, said that among the biggest challenges for employers were preventing cyber bullying and policing their employees’ use of the internet and social media.

“There is a definite relationship between what businesses are doing to prevent cyber bullying … and cyber security,” she said. “If employees are surfing the internet, an organization is effectively opening up their server to attack, and I think that’s only going to increase.”

Costa, who will be moderating the “Warning — The Internet May Be Hazardous to Employees!” panel at PLUS, said that employers needed to tighten up their policies on internet and social media usage, and to be more proactive in investigating allegations of online bullying or threats of violence made by an employee.

“Companies need to start treating claims of cyber threats and bullying by employees in the same way they would as with a complaint of discrimination,” she said.

PLUS International Conference 2017

Two-time Super Bowl champion Peyton Manning will take a star turn at this year’s PLUS conference, which will be held at the Marriott Marquis in Atlanta Nov. 1 through Nov. 3.

The former Denver Broncos and Indianapolis Colts quarterback will deliver the opening keynote, sharing strategies for adapting to change. &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

In the Fast-Paced World of Retail, This Risk Manager Strives to Mitigate Risks Proactively and Keep Senior Leaders Informed

Janine Kral works to identify and mitigate risks, building strong partnerships with leaders and ensuring they see her as support rather than a blocker. 
By: | October 29, 2018 • 4 min read

R&I: What was your first job?

My very first paid job was working on my uncle’s ranch in British Columbia in the summers. He had cattle, horses and grapes — an unusual combo. But my first real job out of college was as a multi-line claims adjuster at Liberty Mutual.

R&I: How did you come to work in risk management?

Right out of college I applied for a job that turned out to be a claims adjuster at Liberty Mutual. I accepted because they were offering six weeks of training in Southern California, and at the time that sounded really fun. I spent about three years at Liberty Mutual and then I spent a short period of time at a smaller regional insurance company that hired me to start a workers’ compensation claims administration program.

I was hired at Nordstrom as the Washington Region Risk Manager, which was my first job in risk management. When I started at Nordstrom, the risk management department had about five people, and over the years it has grown to about 75. I’ve been vice president for 11 years.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

I would say that technology has probably been the biggest change. When I started many years ago, it was all paper and no RMIS.

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R&I: What risks does the retail industry face that are unique?

We deal with a lot of people — employees and customers. With physical brick and mortar settings, there are the unique exposures with people moving in and out in a public environment. And of course, with ecommerce, we have a lot of customer and employee data, which creates cyber risk — which is not necessarily a unique risk in today’s environment.

R&I: Can you describe your approach to working with senior leaders and front-line staff alike to further risk management initiatives?

It starts with keeping the pulse of what’s happening with the business. Retail moves really fast. In order to identify and mitigate risks proactively, we identify top risk areas and topics, and then we ensure that we have strong partnerships with the leaders responsible for those areas. Trust is critical, ensuring that leaders see us as a support rather than a blocker.

R&I: What role does technology play in your company’s approach to risk management?

Janine Kral, claims adjuster, Nordstrom

We have an internal risk management information system that all of our locations report events into — every type of incident is reported, whether insured or uninsured. Most of these events are managed internally by risk management, and our guidelines require that prevention be analyzed on each one. Having all event data in one system allows us to use the data for trending and also helps us better predict what may happen in the future, and who we need to work with to mitigate risks.

R&I: What advice might you give to students or other aspiring risk managers?

My son is a sophomore in college, and I tell him and his friends all the time not to rule out insurance as a career opportunity. My advice is to cast a wide net and do your homework. Research all the different types of opportunities. Read a lot — articles, industry magazines, LinkedIn. Be proactive and reach out to people you find interesting and ask them about their careers. Don’t be shy and wait for people and opportunities to come to you. Ask questions. Build networks. Be curious and keep an open mind.

R&I: What are your goals for the next five to 10 years of your career?

I have always been passionate about continuous improvement. I want to continue to find ways to add value to my company and to this industry.

R&I: What is your favorite book or movie?

My favorite book is Shantaram by Gregory David Roberts. It’s a true story about a man who was in prison in Australia after being convicted of armed robbery, and he escaped to India. While in India, he passed himself off as a doctor in a slum. It’s a really interesting story, because this is a convicted criminal who ends up helping others. I am not always successful in getting others to read the book because it’s 1,000 pages and definitely a commitment.

R&I: What’s the best restaurant you’ve ever eaten at?

Fiorella’s in Newton, Massachusetts. Great Italian food and a great overall experience.

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R&I: What is your favorite drink?

“Sister Carol.” I have no idea what is in it, and I can only get it at a local bar in Seattle. It’s green but it’s delicious.

R&I: What is the riskiest activity you ever engaged in?

Skydiving. Not tandem and without any sort of communication from the ground. Scary standing on a wing of a plane, but very peaceful once the chute opened, slowly floating down by myself.

R&I: If the world has a modern hero, who is it and why?

I can’t think of one individual person. For me, the real heroes are people who have a positive attitude in the face of adversity. People who are resilient no matter what life brings them.

R&I: What about this work do you find the most fulfilling or rewarding?

It’s rewarding to help solve problems and help people. I am proud of the support that my team provides others. &




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]