National Underwriter recently interviewedJeffrey Grange, head of Management, Liability &Professional Lines for QBE, to get his views on thestate of the market for professional liability coverages, theimpact of increasing regulatory burdens and the evolving risksfacing companies and the insurers that cover them.

Q: You've served in various capacities in managementliability and professional lines underwriting areas for more than25 years. How has this line evolved in that time in terms ofexposures, and what are some of the greatest exposures thatexecutives need to be insured against these days?

Jeffrey Grange: The pace ofchange has been remarkable; 60% of the economy is represented bythe service sector. Further still, so much of the “new” economy isinformation based and revolves around data, the derivation anddissemination of content. “Services” and “service” providers arenot only proliferating at an exponential pace but their businessmodels are entirely transformed because their services areincreasingly delivered by technology. The convergence of thetraditional errors & exposures of service providers and theirtechnological enablement–including content dissemination, medialiability, technology errors & omissions, privacy violations,network security breaches and intellectual property rights disputescoupled with the rapid and long term secular growth trends in thesesectors of the economy amplifies existing risks and creates newexposures. The risks and exposures facing customers are changing.This creates challenge for underwriters to identify and effectivelyunderwrite and price these exposures. This complex and morphingenvironment is the jumping off point for product innovation asleading underwriters stay current and relevant as solutionproviders in the customers in the risk mitigation and risk transferstrategies.

The regulatory burden and the costs of compliance for directorsand officers of private & public companies continue to growunchecked. The litany of high profile bankruptcies and corporatefailures synonymous with Enron accelerated the pace ofre-regulation and new regulation and spurred wholesale changes inaccounting rules and securities disclosures. Investment BankingIPOs laddering claims, research analysis conflict of interestclaims, market-timing and late trading claims, market-conduct andsales practices claims, the aftermath of the global financialcrisis and LIBOR are all examples that have generated increasedpersonal liabilities for directors & officers and much morestringent best practice standards for corporate governance in theglobal economy. In the course of the past twenty five years we havewitnessed the globalization of directors & officers legalliabilities. A decade ago examples of directors & officersclaims or employment related actions outside of the United Stateswere the rare exception. Today, the plaintiffs' bar, the explosionof (re)regulation and the personal liabilities of directors &officers has gone viral and global. There are no safe harbors andunderwriters need to go where their insured persons and theirinsured organizations go by providing truly multinational policysolutions. These include globally compliant “master” programs andlocal admitted policies that address the inter-connectivity of theglobal economy and the risk management needs of multinationalcustomers.

How would you characterize the current rate environmentfor D&O coverage? What are some of the contributing factors towhere rates are now, and do you see that changing at all in2014?

The D&O market place is not monolithic, and the rateenvironment looking forward to 2014 varies from segment to segmentwithin the market. For example, the private-company managementliability segment has experienced rate increases throughout 2012and 2013 driven by the increased numbers of private companybankruptcies post global financial crisis. The depth and length ofthe recession also saw a major spike in employment practices claimsdue to business failures, reductions in force together withexpanded liabilities for employers (e.g. Wage & Hour claimsarising from FLSA).

In the financial institution segment, the large scaleoperational failures in the global financial crisis as systemicevents such as the LIBOR scandal have led to a dislocated market,with reduced capacity and a steady diet of rate increases.

By contrast, the commercial public company segment, especiallyin the excess attachments and “Side A” classes has enjoyed arelatively benign loss experience, is oversubscribed with capacityand continues to see a highly competitive price environment.

Your bachelor's degrees are in human physiology andpolitical science (from McGill University in Montreal). What drewyou to a career in insurance, and what motivates you now?

I was very fortunate to graduate and join the Chubb Corporationone of the great franchises in our industry. Chubb is recognizedfor its commitment to learning & development and a superb trackrecord of underwriting excellence. I loved the vocation ofunderwriting from the start. Over the course of my career I wasprivileged to apprentice with some great teachers, mentors andleaders across the industry that “paid it forward” with me. Mypassion for the craft of underwriting motivates me every day. QBEenjoys an unrivaled position of market leadership in the managementliability and professional lines in Australia, throughout Asia, inLloyds and across Europe. At QBE North America we will build thesebusinesses in the deepest pool of opportunity in the global marketto reinforce our global leadership in these lines of business. Aswe build the U.S. franchise I look forward to developing the nextgeneration of underwriting leaders and “paying it back.”