For even the riskiest lines of business, insurance availabilitycan be difficult but seldom impossible, according to the experts.Carriers are leaving no stone unturned in their search for newgrowth, and part of that approach involves crafting specializedcoverages for niche industries in high-risk areas. As a result,agents and brokers with a solid understanding of their customers'businesses can usually find creative ways to protect their assetsand generate profits in the process.

We spoke with experts who specialize in six tough lines—privateand non-profit D&O, management liability, cyber liability,medical malpractice, coastal property, and educationalinstitutions—about market conditions and what agents and brokerscan expect in the future. Click on the following pages to learnmore.

Private and nonprofit D&O

Steve Hunziker, executive vice president, RTProExec

The D&O marketplace for private companies andnon-profits is in a period of transition. The long-time,long-term players have seen their profits eroded by increased claimactivity. As they look to increase premiums and retentions, thenext generation of players is stepping in to fill the void, sothere is still an abundance of capital. Typical renewal premiumshave risen from 10 percent to 30 percent, depending on the risk,with retentions increasing as well. However, for clean accounts,there still are plenty of carriers willing to jump in at terms andconditions on par with expiring levels, he said.

“This coverage has evolved into such broad insurance contractsthat claims can emerge from a very broad spectrum of possibleplaintiffs and scenarios,” Hunziker said. It is safe to say thatD&O carriers have been confronted by types of claims that theynever envisioned. D&O exposures have always beenfinancially oriented exposures, and the ripple effect of therecession is still being felt in D&O claim departments.

Carriers are actively reevaluating their intended scope ofcoverage and how to properly price for the risk. This includesrefinement of underwriting guidelines, coverage wordings, andrates. For example, some carriers have exited certain industrysectors such as car dealerships, hospitalityand other service industries. Many have attempted topare back or eliminate coverage for wage-and-hourclaims. Underwriters have refocused on the financial health oftheir insureds, leading to more declinations and non-renewals, orthe impositions of bankruptcy exclusions. “One thing iscertain: There will continue to be a divergence of approaches takenby underwriters in trying to tame the always-dynamic nature ofthe D&O exposures,” he said.

Management liability

Glenn Clark, CPCU, president, RockwoodPrograms

Coverages under the management liability umbrella includeerrors & omissions (E&O), directors & officers(D&O), and employment practices liability (EPL), with EPL beingespecially big for severity, frequency and litigiousness, Clarksaid. In general, EPL is a hot coverage now because of increasinglitigation connected to the poor economy and people losing theirjobs.

For EPL, the level of risk varies widely, depending on thelitigiousness of the state in which a company is doing business(for example, California is high, Utah low); high urbanpopulations, and whether there are a lot of plaintiffs' attorneysoperating in the region.

The type of liability also influences state differentiators, hesaid. For example, although California can be a tough market forgeneral E&O, it isn't bad for medical malpractice, as state lawcaps pain and suffering awards at $250,000, he said.

EPLI pricing and availability depends on type of business andclaim frequency. Restaurants, which have high employee turnover andalcohol exposure, face a tougher market. Core exposures covered arewrongful termination, sexual harassment and discrimination. A hugepotential exposure is coming as businesses concerned aboutObamacare transition workers from full time to part time to avoidpaying benefits.

The highest E&O risks typically involve fiduciaryresponsibility. For example, although a title agent's job may seemstraightforward, they can be considered higher risk if they manageescrow account and are holding other people's money, he said.

As far as pricing, “we're in the beginning stages of a firmingmarket; in management liability, we're seeing rate increases forthe first time in 10 years,” Clark said. He is also seeingsignificant growth in captives to share the risk among multiplerisk-takers.

“For agents, this means high-risk clients will need you morethan ever,” he said. “Our company has been specializing in EPLIsince the first policy came out in the early 1990s. When companieshave a problem placing risk, they know they can come to us. It's anopportunity to demonstrate your expertise because a standard agentcan't place that coverage on the tougher accounts.”

In the future, “I don't think the U. S. is going tobecome less litigious, so the need for these coverages willcontinue to grow,” with whole classes of business needing educationon the exposures involved. For example, there are about 18,000 bailbond agents in the U.S., but few carry professional liabilityinsurance. “It's a potential target market that we've been workingon for several years, yet the prospect base has to be made aware oftheir liability exposure. We spend a lot of time researchingunderserved niches that need to be educated on the fact that theyhave significant liability risk.”

Cyber liability

Michael Lamprecht, president, Big DataInsure

Cyber liability protection is especially important forbusinesses that collect a lot of confidential corporate informationor personally identifiable data: financial institutions, healthcarecompanies, technology companies that do credit card processing, andlaw firms.

Although the perception is that most scammers steal thisinformation for identity theft, corporate information isincreasingly targeted for other crime, Lamprecht said. For example,law firms are at risk because of the information they collect onpotential mergers and acquistions can be used for insider tradingor other unfair practices.

Although retail cyber breaches get the most publicity, financialinstitutions are at the greatest risk. If a large broker dealer hasa site crash, trades are lost and the losses could be in themillions of dollars. One of Lamprecht's clients predicted a 72-hourtimeline to financial failure.

Many carriers are reluctant to write cyber liability coveragefor businesses that already have professional liability coverage,mostly because of the need for extensive customization to ageneralized policy. In general, about 35 markets are using onecyber liability policy for every sort of business. Customizing apolicy for each business type is time consuming and can actuallyincrease risk exposure for the buyer, he said.

However, because of the glut of insurers marketing cyberliability insurance, with new players jumping in all the time,“just about anything can be placed in this market today.”

In the early years, cyber liability policies were pricedextremely high, mainly because underwriters feared lossaggregation, but prices have declined over the past 5 years; annualrenewal rates are down between 7 percent and 12 percent,Lamprecht said.

As the market matures, cyber policies will become specialized byindustry type, paralleling the evolution of the professional liability market. Insurers are beginning to add more endorsementsto generic cyber policies to address the specific needs offinancial institutions, healthcare and law firms. Like professionalliability, policy evolution “starts with endorsements and ends as astand-alone policy.”

Agents and brokers must overcome the one-size-fits-all attitudetoward cyber liability and become experts on their clients' uniqueexposures, Lamprecht said. “The cyber exposure of financialinstitutions is very different than for a law firm, so agents mustbe very aware of the gaps that exist between those policies, and besure the clients get the coverage they pay for.”

Medical malpractice

Philip Reischman, executive vice president and managingdirector, Alliant InsuranceServices

In its current state, the medical professional liabilitymarket is still very profitable for insurers. The combined ratiofor the industry has been under 100 since 2006, Reischman said.It's a good market for buyers, too: Most healthcare organizationshave multiple options on renewal, with both rate and premiumreductions.

The key drivers of this competitive environment are:

· Favorable frequency andseverity trends: Claims frequency is flat, due in part tosuccessful patient safety and quality initiatives. Severity istrending upward, but at a lower and predictable rate, which allowsinsurers to fine-tune rate models that lower rates for manybuyers.

· Consolidation ofhealthcare organizations: Driven by healthcare reform,hospitals are merging and acquiring physicianpractices, medical groups are combining to bulk up in size,and the growth of accountable care organizations (ACOs—groups ofdoctors, hospitals and healthcare providers) allows risk sharing.The result is fewer potential clients with higher levels ofself-insurance, leaving fewer opportunities for the commercialinsurance market.

This combination of profitability and a shrinking client basehas attracted new entrants and caused long-time players to expandtheir underwriting appetite, in spite of concerns about the impactof healthcare reform, Reischman said. These trends are also evidentin the reinsurance market for medical professional liabilityinsurers, which are also consolidating and taking higherretentions.

“In short, it remains a buyer's market for medical malpracticecoverage and the cost pressures faced by healthcare organizationswill tempt most insureds to consider alternatives, despite a desireto remain loyal to long-term risk-financing partners,” he said.

Coastal property

Michael Ray, CPCU, CLU, chief executive officer,OrchidInsurance

Capacity drives demand—and ever since Superstorm Sandy,the market for excess flood coverage has become a major concern forcoastal property owners.

It's a tough market for both buyers and insurers. Admittedcompanies that set rates, establish reinsurance arrangements andmaintain surplus levels to support “A-“ or higher A.M. Best ratingsfind it increasingly challenging to obtain regulatory approval toachieve the needed rate levels and provide stockholders withacceptable returns of equity. When admitted companies decline, thenonadmitted market–Orchid Underwriter's specialty–fills the void.But even that coverage is increasingly scarce in regionalareas heavily exposed to hurricane perils, such as in theSoutheastern states and the Gulf Coast states.

Current market conditions make it especially ticklish for agentsand brokers to navigate relationships between customers andcarriers. “They hear it from both sides: Consumers don't know whythey have to pay higher premiums for their insurance with noclaims, and they also have to deal with carriers to place businesswithin underwriting guidelines and absorb nonrenewals,” he said.“It's a challenging situation representing interest for bothsides.”

Over the past 3 years, pricing in general for both admitted andnonadmitted coverage has increased to reflect the higher cost ofreinsurance. Rates have stabilized somewhat this year as reinsurershave moderated what they charge for cat prices. Although trackingpricing trends year-over-year can be misleading because pricingvaries depending on the type of property, in general prices haverisen in the double digits compared with 5 years ago, Ray said.

Risk mitigation makes a dramatic difference in pricing andavailability. For example, although homes with shutters orwind-impact glass combined with newer roofs are more likely to beconsidered eligible by admitted carriers, the closer a property isto the coast, the greater the likelihood of a major loss followinga wind event, and the more difficult it is to obtain coverage inthe admitted market, Ray said.

And the market upheaval isn't over yet. “I'm not convinced thatthe full effects of Sandy have been felt in the marketplace;admitted companies are still trying to find out what levels ofrates they need or are acceptable to regulators,” he said. “Wemight see continued tightening over the next 2 years in areasaffected by Sandy and other geographical areas close to thecoast.”

A trend with a significant impact on the market is riskmitigation and stronger building codes. As these expand, marketswill be more willing to provide coverage in hurricane-prone areas.More cat events could cause some realignment of weaker companies,and another major event could shift capacity away from smallercompanies.

Cat modeling is also playing a major role in the market. A.M.Best and other rating authorities rely on it for rate analysis andrisk management. Property insurers also use it for internalmanagement of their property insurance programs. As modelingscenarios become more accurate, underwriting quality will improve,giving investors more confidence.

Educational institutions

Bryan Elie, vice president of underwriting, United EducatorsInsurance

Educational institutions of all sizes and types face awide range of exposures: everything from simple slip-and-falls togeneral liability and EPL claims, Elie said. United Educators, arisk retention group, sees “a lot of volatility” to lossexperiences. “We realize that there is the potential forcatastrophic claims–sometimes they can be huge. That makes itharder to predict where losses might be coming from and putseducation into a high-risk category,” he said.

In general, coverage forms and the market have been stable overthe last several years. The market went from soft to firmingover the last 2 years as carriers began tightening underwritingstandards and increasing premiums and deductibles. However, therehave been few coverage changes and plenty of capacity. “Thefeedback we're getting from our brokers is that most of ourcompetitors are seeking rate increases on renewal business, acrossall lines, but are aggressive about new business,” Elie said.

Although pricing increases can result from lossexperience, educational institution claims can take as long as 6years to develop, so it could be 5 years before a carrier begins tofeel the need to adjust premiums, Elie said.

Typical general liability claims arise out of athleticincidents, auto accidents, assault (sexual or physical), and slipsand falls, which can be costly (for example, a grandparent fallingat commencement). From an educational legal liability standpoint,claims arise as educational institutions adapt to budget pressures,forcing changes such as program closures. There are alsointellectual property claims at research institutions andIT-related claims. Allegations of discrimination, sexualharassment, and date rape on college campuses are increasinglygaining high-profile status, meaning that what would have beensolely a general liability claim triggers both EPL and GLpolicies.

Educational institutions also deal with issues surrounding TitleIX, which mandates gender equality in education. The federal fundsthat many educational institutions rely on are contingent oncompliance with this and other legislation, some of which hinges onrequired training. United Educators provides Title IX advisoriesand online training to assist its clients.

As a risk retention group, United Educators primarily providesgeneral liability, umbrella and educators' legal liability, withthe latter coverage generating the most frequent claims, driven byEPL. “Our risk management resources, across all segments ofeducation, focus on training to prevent discrimination andharassment. We have been investing in online learning, providingresources to get at the deepest level on campus, so staff, faculty,everyone can be educated,” Elie said. This includes onlinetraining, resource guides and webinars to allow educationalinstitutions to dig into specific issues, such as sexualharassment.

United Educators' most successful brokers are those who investthe time to understand the inner workings of educationalinstitutions and recommend the right mix of carrier resources andinsurance, and really focus on selling value, he said. “Wetypically have long-term relationships with insureds as well astheir brokers. Educational institutions are loyal customers andvalue buyers that look for the right mix of price and value; theyrespect carrier stability, knowledge, and efficient claimshandling. Brokers who understand that mentality will be mostsuccessful.”