Although they have both recently set up shops in the United States to write small-to-midsized professional liability accounts, two London-based organizations say they've brought a bit of home to their new underwriting operations here.

“I think there's a different emphasis sometimes on underwriting in London versus the United States,” said Johnny Rowell, head of specialty operations for Beazley Group in London, who spoke with National Underwriter in Chicago last month at the international conference of the Professional Liability Underwriting Society.

“In the risk-taking environment at Lloyd's, you go from broking to underwriting, whereas here [in the U.S.] often you go from broking to underwriting to management,” he said. “There's much more of a culture and ethos about underwriting,” he added–noting that in London, most underwriters embrace the idea of spending their entire careers as senior underwriters, rather than moving on to supervise scores of lower-level underwriting associates.

Mr. Rowell and Ed Donnelly, who heads the U.S. operation of Hiscox in Armonk, N.Y., each highlighted a bent toward “technical underwriting” as a cultural tie to the roots of their operations in the Lloyd's market. They believe this is also a prime factor distinguishing their recently established U.S. specialty operations from competitors based in the United States.

“The distinct advantage of being part of a London-based organization is that you have this entrepreneurial spirit that's pretty much endemic to Lloyd's,” Mr. Donnelly said. In the states, he added, the attitude of most insurance underwriters is “if it fits in the box, they will do it; if it's outside the box, they won't.”

He added that underwriters with a Lloyd's background “learn to be creative–to think, 'How can I do this risk?,' rather than 'How can I decline it?'”–giving an example of a $5 million limit policy for a health club that Hiscox bound the day of the interview, covering on-staff physical therapists and personal trainers.

“Most U.S. professional liability carriers would have declined that because they're not familiar with this type of exposure. We felt it made sense to us. This particular risk had the right controls in place,” he said.

The key, he said, is “learning the difference between calculating the adverse risk and knowing to charge the correct premium when you are taking calculated risk.” As an underwriter, “you don't want to take on adverse risk. Instead, you're looking for calculated risk,” he added.

At Beazley, David Marock, the specialty lines claims leader based in London, said that both a love of the technical rigor and a desire to dig out from under hierarchical management structures separates Beazley employees–both underwriters and claims professionals–from other U.S. competitors.

“What stands out for me at Beazley is that the [people] who work here love being technicians. They love the technical side,” said Mr. Marock. When new hires join the firm in the claims area, he reported, they are “just ecstatic” to get back to doing what they like–managing claims–instead of being bogged down with the chore of managing 40 or so “unimpressive individuals.”

“I think the U.S. model has always been to stack them, stack them up higher–so there are five layers of [management] hierarchy in both underwriting and claims divisions,” he said, adding that “very junior folks” get information in “and then must refer up and refer up.”

By the time all the information flows up to someone with decision-making authority, that individual actually has had no contact with the insured. “They don't know the situation. They make decisions in a rarified sort of way,” he said.

“The natural thing to do, then, is to either take the extreme risk-averse” approach– declining to write anything they don't understand–or “unfortunately, [where] a lot of [issues] with domestic carriers” have developed is when they decided to take on the risks and “it all goes horribly wrong,” he added.

Beazley has broken the U.S. model by introducing a London mindset and a flat management structure to the U.S. specialty team–recruiting and hiring very senior underwriters and experienced claims professionals and empowering them to make decisions, Mr. Rowell and Mr. Marock said.

At Hiscox, Mr. Donnelly said attracting experienced underwriters has been part of the plan in building a U.S. platform, adding that paperless offices not only create a bridge between the continents, but help the firm “recruit, attract and hire high-quality underwriters.”

First and foremost as a recruiting tool is “the Hiscox name,” he said, noting that Hiscox has had a “pristine reputation” for more than over 100 years.

“What's very interesting to a lot of quality underwriters is the ability to get involved in a start-up operation that's not really so start-up. They're not joining us on a wing and a prayer,” he said, noting that underwriters from the likes of Chubb, Shand Morahan and HCC have been brought on board in the six months since Hiscox USA started up.

Adding that Hiscox has offices in Armonk, midtown Manhattan and San Francisco, he said that even underwriters who work at home for a day can conduct business by simply logging on to a proprietary software system.

“I sit here now with two computer screens on my desk like all the other underwriters. I have very little paper in my office,” he said, explaining that if he receives an e-mail on one computer, he can review an underwriting file on the other to respond to the e-mail inquiry.

Mr. Donnelly also cited high service standards and competitive policy forms as hallmarks of Hiscox USA. Giving examples of uncommon policy features, he said spousal liability coverage is included in most policy forms, and that Hiscox also typically provides personal injury coverage–covering libel and slander allegations–at no additional cost to insureds.

In addition, he said Hiscox uses “final adjudication wording” in its professional liability policies, providing for coverage of defense costs unless and until someone actually is found to be criminally negligent.

So far, in the first six months since opening the doors of its U.S. operations in March, Hiscox USA has launched nine products, he reported. (See “At A Glance.”)

Although initial announcements said the plan was to offer professional liability coverage for small and midsized businesses outside the Fortune 1000, two specialty products–terrorism and fine arts coverage–actually fall outside that scope but build on expertise of Hiscox in London. (See NU, Sept 25, page 24 for more on the terrorism product, which targets insureds of all sizes.)

In the United States, Hiscox is targeting small-to-medium accounts that it didn't normally see from London, Mr. Donnelly said, defining these as businesses with less than 300 employees paying premiums less than a few hundred thousand dollars.

While Hiscox currently writes only on nonadmitted paper, doing business exclusively through surplus lines brokers, Mr. Donnelly said the firm will be able to issue admitted paper shortly–most likely in first-quarter 2007, when it enters into “a relationship with an admitted carrier here.”

For Mr. Rowell, setting up an admitted carrier was central to the process of doing business in the United States.

“What we were very aware of is that every time you go through a market cycle, more business goes into the admitted market and never comes out,” he said, adding that much more directors and officers business is being written in the admitted market than ever, as well as a lot of small technology and miscellaneous errors and omissions accounts that Beazley finds attractive.

Mr. Rowell said U.S specialty business written from Beazley in London is E&O-led and focused on large accounts. “It wasn't planned that way, but as we hit the last hard market, everyone moved back to midsized and small accounts. So there was a vacuum in large accounts,” he said.

This allowed Beazley to become the lead carrier for 29 of the top 50 U.S. law firms, half of the top 50 architectural firms, and five of the top 10 management consultancies, he added.

As was the case at Hiscox, Beazley's U.S. platform was built to give it better access to smaller-scale middle-market risks that don't normally come to Lloyd's, Mr. Rowell said.

But instead of defining the middle market by size characteristics, he distinguishes it in terms of the way the business is written, explaining that the business model for the middle market fits squarely between a template-underwriting model that works for small accounts and an individual-risk model for larger ones.

The middle market, he added, requires some degree of customization on wording and relatively experienced underwriters.

Using the example of architects and engineers E&O, he said Beazley USA has introduced innovative policy wording that covers technology-related risks that A&E firms now run into, adding that policy wording for these firms had been substantially the same for 40 years.

Risk management offerings, like BeazleySource–a Web-based set of information and training tools for employment practices liability and private company D&O clients, including customizable employment policies and procedures–are also recent innovations.

Like Mr. Donnelly, Mr. Rowell said the basic “MO is hiring quality people. Most insurers tend to manage expenses. We believe if we get the best people and deploy them effectively, then our loss ratios will be lower. That may add one point to our expense ratio, but save five or 10 [points] on our loss ratio.”

Mr. Marock pointed out that dominant positions with large firms allow Beazley to see all the liability issues arising for a particular profession–making the firm a logical choice for smaller U.S. firms focused on running their businesses better. Setting up the claims department in a nontraditional way has reinforced this stature, he added.

Most insurance organizations “let claims folks tag onto underwriting,” while Beazley will take actions simply because they're important for claims–like setting up an office in New York. “Now underwriters are coming in to join the office,” he reported.

As with underwriting, Beazley recruits experienced claims talent. Seventy percent of its claims professionals are litigators from top law firms with experience relevant to specific areas of malpractice, he said.

“The goal is to actually help clients get claim costs down,” Mr. Rowell said. Mr. Marock supplied a specific example in which experienced legal malpractice lawyers working with Beazley pushed to take a claim to court, rather than accepting a $20 million settlement offer–a move that ultimately led to $6 million settlement.

Central to the Beazley model is allowing underwriters and claims handlers to make decisions without multiple levels of referral.

“You've got to let people make mistakes, but you've got to make sure those mistakes aren't terminal,” Mr. Rowell said, noting that Beazley Group has its own portfolio management safety net–a group risk management division–and that within the ranks of the specialty division, a treaty reinsurance team also acts as an “intelligence network.”

This team, complete with a legal forecaster and two actuaries, reports what is on the radar screen in terms of future liability challenges.

Something they're keeping a close eye on is hedge funds, Mr. Rowell reported, adding that while Beazley does not write coverage for the funds, insured lawyers and accountants have hedge funds as clients.

Special Reports /

Beazley, Hiscox Bring London Roots To U.S. Professional Liability Businesses

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