OVER THE last decade, Vanner Insurance Agency has grown steadilyas a result of specialization. The agency's principals–Ralph VannerSr., Ralph Vanner Jr., Thomas Vanner, Bradley Hall and WilliamQuinn–sell perhaps 75% of the agency's business, and eachspecializes in arranging coverage for a particular niche, such asconstruction, property leasing and social services.

Recently, however, we've also started to grow by focusing oncertain lines of coverage–specifically, directors and officersliability insurance and employment practices liability insurance.Getting into these lines took some effort, since the agencypreviously had not placed much emphasis on any form of professionalliability insurance. But we've been well rewarded, not only withincreased business but also improved client relationships and alower E&O exposure.

We started this initiative about a year ago, after comparing ourproduct portfolio to the coverages our commercial-lines clientswere talking about. We quickly realized we needed to put moreemphasis on D&O and EPLI. It was not surprising that businesseswere interested in these coverages. Erie and Niagara counties–theheart of our marketing area–are among the most litigious in thecountry. As business owners drive to work each day, they seebillboard after billboard advertising the services of plaintiffattorneys.

While we were eager to sell more D&O and EPLI coverage, werealized that we couldn't expect all our producers to becomeexperts in these products. As previously mentioned, our principalsand some other producers already were specialists in their ownareas, and we wanted them to continue to focus tightly on their ownniches.

Fortunately, we had one producer who had quite a bit ofexperience with D&O and EPLI, and he agreed to become the“point person” for the other producers, our marketing people andour clients. So while all the producers have a basic understandingof these coverages, they consult with this producer regardingproduct particulars. This producer also assists with presentationsand plays a role in preparing submissions.

Of course, we also needed good professional liability markets.While we would love to approach five or six different insurers forquotes, we don't have anyone on staff who can take the time todissect a half-dozen quotes and determine which is best for aparticular client. Therefore, while we place some business directlywith such carriers as Chubb and Hartford, we also rely on awholesaler–Russell Bond & Co., which, like us, is located inthe Buffalo area–to do the lion's share of placements for us.

As we made plans, we did not go so far as to set formalproduction goals. I think results are difficult to project when anagency first starts marketing a new product in earnest. So ratherthan forecast a certain number of policies we'd sell or pick avolume target to hit, our initial goal was simply to ensure that wediscussed these coverages with all clients and prospects. As thingsturned out, we wrote about $200,000 (volume) in D&O, EPLI andmanagement liability business in our first year. While thatincluded some large premiums, many were in $3,000 to $10,000 range.Although premiums, in some instances, were almost nominal, theywere for coverages that needed to be added.

There were other benefits as well. By increasing our involvementin D&O and EPLI, we became more versatile and improved ourability to serve midsize and larger accounts. We've also receivedreferrals and spin-off business.

Our typical clients for D&O and EPLI are businesses with 25to 100 employees. They have small boards of directors or ownershipgroups, e.g., two or three partners and no outside directors. It'seasier to deal with a smaller group than with a 12-person board.Certainly, our closing ratio is much higher with smaller groups ofdecision-makers.

Such clients, in my 20 years of experience, have never been moreconcerned about their management liability exposures. Employmentpractic- es liability, in particular, really rings a bell withthese businesses. When I've been on new-business calls, I'veactually had business owners bring up the topic themselves. Thatnever happened in the past. Ninety-percent of the policies we sellto these clients are management liability policies, which combineD&O with EPLI and sometimes add fiduciary liability as well.Essentially, you get two coverages for the price of one, or threefor the price of two.

D&O and EPLI are now integral parts of every renewalproposal that goes out of the agency. In the past, we'd insert apage in the proposals that outlined management liability exposuresand invited clients to contact us if they wished to discuss theissue. Now we go a step further and include premium indications formanagement liability insurance. With the market softening, more ofour clients are responding to such indications and asking us todevelop actual quotes. If we can save a $50,000 account 12% to 15%on its standard P&C coverages, we often can add D&O andEPLI without increasing the total cost of their program. Meanwhile,we're maintaining our margins and reducing our E&Oexposure.

Prospecting
At the beginning of the year, we target anywhere from 12 to 20large accounts that we feel that it would take us least two yearsto obtain. During this period, we use social interaction andintroductions from CPAs or other centers of influence to beginbuilding relationships. With these large accounts, we sometimesfind there is a line of coverage that no one is addressing. Allagents are happy to take care of the easy part of such an account:the property, general liability and workers comp. But ironically,when we get an opportunity to talk with a large account, wesometimes find no one really has spent time on the D&O orEPLI.

One way we are just starting to market ourselves to these largeaccounts is by conducting D&O and EPLI seminars for them. Theseare luncheon seminars at which a professional liability underwriterfrom our wholesaler discusses exposures and explains the nuances ofcoverage.

We usually approach small accounts, on the other hand, by directmail. Typically, we work with prospect lists our carriers give us.Several provide us with lists for the agency's specialties, butthey and other carriers also send us lists of other businessesthey've unsuccessfully attempted to quote. One of our youngerproducers follows up on these leads. By soliciting something otherthan the standard P&C coverages, whether by addressing aprospect's management liability or workers compensation exposures,he may gain a foothold in the account. While the carrier that gaveus the lead may not write D&O or workers comp, it stillbenefits if we eventually obtain the whole account.

With our wholesaler's help, we prepared a pamphlet thatdiscusses management liability issues. We distribute in severalways, including via e-mail to our current clients. At the top oftheir concerns are claims arising from discrimination, wrongfultermination and sexual harassment. I think what really catches theeye today is that just the defense costs associated with suchclaims can run into six figures. For $5,000 a year, we can takecare of that risk.

Our producers use checklists to gather information for D&Oand EPLI submissions. Among other things we need are financialstatements or at least basic financial data, resumes of the ownersand the number of employees. We also need to know whether aprospect has an employee manual, as well as formal procedures forhandling employment practices complaints. Whether the business hasa full-time human-resources manager, or at least someone who hasbeen assigned such responsibilities, is another importantunderwriting consideration. We also need information about anyprior litigation–including Equal Employment Opportunity Commissionproceedings and labor litigation–in which directors, officers oremployees have been involved. Carriers also want information aboutany prior or planned layoffs or staff reductions.

Insurers might not offer quotes to businesses that have nottaken basic steps to address their management liability exposures.For instance, businesses with fewer than 25 employees may not haveeven thought about spending the time and money to develop formalpolicies and procedures for handling harassment complaints. Whilewe certainly don't offer legal advice, we can help such prospectscraft procedures they can take to their attorneys for review. Thatservice puts us in great shape to write the coverage, once theaccount is ready to take to the market.

To sum things up, I'd say that now is a great time for anyagency to become more involved in D&O, EPLI and managementliability insurance. In the press, there continues to be a steadydrumbeat of “nightmare” D&O and EPLI claims, fueling insureds'interest in and demand for these coverages. Meanwhile, rates formany insurance products have been coming down, making it possibleto add these coverages to clients' portfolios while staying withintheir budgets. Certainly, these coverages have been a “win-win” forVanner Insurance Agency and its clients.