In advance of the PLUS Conference, Risk & Insurance caught up with Jill Salmon, head of professional liability lines for BHSI. The following discussion, edited for length and clarity, shares her perspectives on economic pressures, AI, and how insurers can adapt to evolving risks.

Risk & Insurance: Thanks for giving us some of your time, Jill. What are likely to be the key talking points at this year’s PLUS conference?

Jill Salmon: The key talking points are likely to include social inflation, AI and product innovation.

Nuclear verdicts and jury trends are not new issues but continue to impact the professional liability market. As we reach unprecedented levels of claim severity, we should expect the market to react. This should specifically impact pricing for capacity at higher attachments.

I would also expect much discussion around the use of AI as we see increased utilization across all industries. There will likely be a focus on how the current market is addressing these evolving exposures, as well as how the industry is benefitting from the implementation of AI in their own organizations.

Finally, there is a very real need for product innovation in our space. Given the current state of uncertainty in the economy, in the regulatory environment and the swift pace of technological advancement, it is critical. However, the uncertainty makes our task challenging. It is incumbent upon our industry to get ahead of these issues and provide solutions for insurance buyers.

R&I: What macro or micro-economic trends are currently impacting claims and coverage?

JS: One of the key macro-economic trends that continues to impact the market is social inflation. Nuclear jury verdicts and inflated settlement expectations are driving claim payments. Inflation also impacts defense costs which also drives claim severity.

The volatility in the global economy causes businesses to act differently. There is less focus on proactive risk management and fewer resources available for ensuring compliance. It is likely that a business will be more aggressive trying to grow the bottom line which often translates to increased claim activity.

From a micro economic perspective, there are a number of factors that are relevant on an industry specific level. When people are under economic pressure, we see an increase in claim frequency and severity in all professional lines, including lawyers, accountants, consultants and finance professionals. With any economic volatility, we can expect heightened scrutiny of professionals. In these conditions, there is less willingness to avoid litigation and parties are not amenable to working out a business resolution. As a result, there are more claims and they take more time and money to resolve.

R&I: What are the biggest challenges currently facing the professional liability market?

JS: One of the biggest challenges facing the professional liability market is adjusting how quickly we act and react to evolving exposures. The insurance industry generally is historically reactive as opposed to proactive. The world is changing at a quick pace, presenting new and evolving exposures. Our industry needs to be nimble and aggressively strategic about anticipating the risks these changes present – whether technological, social or otherwise. It is imperative that as an industry we also learn to work differently and respond on pace with technology and the ways that the world is evolving. We must recognize that how we work, how we communicate, and how we transact business are all changing.

Specific to professional liability, we are challenged by the notable evolution of the workplace. The world works differently and these changes impact how we should be thinking about the risk inherent in providing professional services. Errors happen more often where there is high turnover, lack of supervision, lack of engagement. The work force is less concerned about longevity with an employer and there is less hands on training happening. While remote work is a great advantage, it makes it difficult to train less experienced employees how to react in unpredictable circumstances.

R&I: What opportunities should companies be looking to capitalize on?

JS: Companies should be identifying where their Insureds see uncertainty – and figure out how they can help to solve for that. That uncertainty may come from the economic environment, the pace of technological change, or various social factors. While it may not be possible to eliminate the uncertainty, our goal should be to address it as explicitly as possible with the intent and willingness to evolve over time. This is a challenging task in today’s environment as the pace of innovation is moving at an unprecedented pace.

One tempting way to do that is to provide affirmative coverage where possible. While this seems like a desirable approach, we sometimes risk intentionally or inadvertently restricting coverage. It is important that we take a measured approach in crafting new coverage grants and exclusions as these new exposures evolve over time. Ideally, the market should be identifying and addressing exposures as they develop rather than taking a reactive approach which as a result of being too late is often too extreme.

R&I: What business efficiencies have early adopters of AI been able to achieve?

JS: That is difficult to determine just yet. With innovation, efficient implementation often takes time. Machine learning that has been in use for years to complete mundane tasks and has well-established productivity benefits. There is cost savings in automating tasks such as claims triage, documents review and data entry.

R&I: What key risks does widespread AI adoption create?

JS: We can easily foresee bias and intellectual property issues, as well as inaccuracies in generated content that are relied upon in the performance of services. Of course, it is the risk that is not yet evident that should be most concerning.

AI related litigation and losses, along with the changing regulatory environment, may accelerate repricing and coverage evaluation. Exclusions are most often borne of claims so when we start to see loss payments materialize, we will see the evolution of policy wording to address those risks and find out what the tolerance is for the market of these new exposures. This will also be evidenced in how the market underwrites the risk. The underwriters will need to define the baseline controls and what is in fact an acceptable level of uncertainty. I think we can expect that to be a moving target.

R&I: What impact will AI have on professional liability lines?

JS: AI is being used in some way across most industries. It will become more prevalent as it develops and its uses are more commonly accepted. Even for those organizations that categorize their approach as conservative, the implementation of AI broadly is increasing at a rapid pace. It is impossible for the insurance market to avoid this exposure.

We can expect an increase in complexity and cost of professional liability claims, certainly in the short term. It is not yet clearly determined where liability sits for AI related claims. Does responsibility lie with the AI vendor, the employer or the individual? The regulators and courts will need to work through these legal issues. Until then, underwriters will have to accept some level of uncertainty.

The market should avoid the need to re-underwrite existing portfolios where AI-related exposures where not initially contemplated. It is imperative that we take a proactive approach in evaluating this risk as it evolves. This should include increased underwriting scrutiny around AI implementation, ethical governance and regulatory compliance.

R&I: How will the professional liability market evolve in the next 12 months and beyond?

JS: It is hard to say how much change we will see over the next 12 months. The actions of the current administration will be impactful. It is still uncertain what the short and long term effects will be on our economy and on human behavior, which greatly impacts the risk landscape and should not be ignored.

I think we should expect to see the development of AI specific insurance solutions. The availability of these offerings will help address uncertainty concerns in the short term. In addition, there will be an underwriting focus on the implementation of the new technology and the risk management of new and evolving exposures.

The professional liability market will continue to push for stronger controls. Notably, this will be expected across the board from all organizations, regardless of size and resources. There will be continued focus on vendor management and third-party risk. This is particularly relevant for Cyber, but has proven relevant in other PL lines as well.

Claims severity will continue – social inflation and nuclear verdicts will continue to negatively impact the professional lability market. This should be addressed by pricing and program structure. The market is still soft but inconsistent. Pricing action has been largely account-specific. Interestingly, we have not seen much movement in the reinsurance market in response to this trend which keeps the direct market more stable than the claim environment would otherwise indicate. Any restriction on reinsurance capacity would have a swift impact on the market. &