Accountants Paying More For E&O Coverage
If there was any expectation that the current EnronArthur Andersen fiasco would severely impact accountants professional liability coverage, accountants can find some solace in the fact that the hardening market conditions have already done that for them, producers say.
Premiums are up along with retentions, but coverage is available, they report.
The broker executives note, however, that an accounting firm with a practice devoted to public-reporting companies can expect higher premiums on renewals than the majority of firms that deal primarily with privately-held companies.
"Generally, all personal liability has been hardening and certain sectors are more difficult to underwrite," noted Andy McCloud, senior vice president for Itasca, Ill., headquartered insurance broker Arthur J. Gallagher and Companys Executive First Division Protection Group. "Accountants professional liability is more difficult to write because of the potential magnitude of loss and the complicated nature" of the loss should one occur, he said.
Mr. McCloud observed that the Big Five accounting firms–Arthur Andersen, PricewaterhouseCoopers, Ernst & Young, KPMG, and Deloitte & Touche Tohmatsu–are in a separate league when it comes to risk.
"The reality is that whenever you have big news of any kind, people step back and learn from what is going on," noted Susanne Murray, senior vice president of Willis Global Financial and Executive Risk Practice in New York.
She said there was a reevaluation of accountants professional liability already taking place before EnronArthur Andersen, with carriers sustaining losses for the product at a rate higher than other professional liability products. Regulators have narrowed their focus and begun to look more closely at disclosure and auditing rules to form tighter controls that prevent corporations from running "amuck someplace," she said.
Ms. Murray said capacity is ample, but that carriers are reluctant to utilize all of it, and are making less available. The result, she said, is that it is taking more carriers to cover some programs than it has in the past.
Rates, she said, are up dramatically– less than on property lines, but in some cases 50 percent or more. Retentions are higher as well, she said, noting that in some cases, retentions have doubled.
She also said that coverage options are more limited for small firms, since they are not in a position to look into alternative markets and must find their coverage from primary insurers.
With all accountants liability renewals, the advice for agents is the same as it is for much of the hardening market, Ms. Murray said. They should prepare their clients in advance, giving them a general outline of what to expect from carriers, she said.
She also said that clients need to understand that carriers will be undertaking a lot of "reexamination of amount of risk and breadth of coverage."
"Carriers want more information and documentation than before"–going back a year or more, she said. Where once the insurers asked if the accounting firm was in compliance, now they are asking to see documentation to show that the accounting firm is doing what it should.
"In the past, carriers asked about these things. Now they want to see the reports and see the work," Ms. Murray noted. "They are not going crazy and not asking for anything overreaching, but they want more information," she said.
The market, she said, is not comparable to the 1980s hard market because capacity is available and negotiation over price and terms is still possible.
Whether Enron-Arthur Andersen will have more of an effect on rates is difficult to know at this point, Mr. McCloud observed. "Its too soon to tell what the impact will be," he said.
"The main question remains [whether] this [is] an isolated case or a systematic problem. I suspect it is more isolated," he said.
The global insurance brokers, Marsh headquartered in New York City and Chicago-based Aon, would not comment for this story.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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