Wholesale Agents Missing A Market: Expert

LAHAINA, HAWAII--Wholesale agents are missing a huge opportunity by failing to properly market professional liability coverage to retail agents, a knowledgeable executive advised an industry conference here.

The comments came during a seminar on professional liability held Sunday during the 80th annual meeting of the American Association of Managing General Agents.

David S. Charlton, executive vice president for United States Liability Insurance Group, in Wayne, Pa., and a member of the Berkshire Hathaway Company, shared some of his insights into marketing and judging the adequacy of coverage for professional liability policyholders.

Mr. Charlton's main message to the wholesale brokers and MGAs assembled was that they are overlooking a major new market because they are not actively promoting the need for such coverage to small and midsized policyholders.

Too often, he said, a wholesaler may place professional liability onto the policy and hope the client purchases it. More often than not, the retail agent asks what the coverage is, and the wholesaler does not have a satisfactory answer.

"The retailer does not understand what this is for, and it would be helpful for the wholesaler to load their lips," said Mr. Charlton. "Too often wholesalers are trying to sell professional liability and are not marketing it. It is not enough to just put it on a policy and hope it is purchased."

What wholesale brokers need to do is overcome the anxiety retail agents may feel not to "look dumb in front of their clients," and educate these agents on the need and how it fills a void in coverage.

Up until the 1990s, he explained, a standard commercial policy covered professional liability claims. However, the development of exclusions eliminated the coverage, making it necessary by 1992 for insurers to develop a separate line of coverage to fill the void.

The fact that there is a void in coverage, Mr. Charlton explained, is not being communicated to retailers and, ultimately, the policyholder.

At one time, the coverage was prohibitively expensive, making it unaffordable for small and midsized risks. But technology and better underwriting have lowered the cost, he said.

Mr. Charlton said lowered rates and the potential for defense costs running into the tens of thousands or more if an insured is hit with an employment practices liability (EPL) suit, for instance, make the need for such coverage not only affordable but necessary.

As for the size of the market, he reviewed a number of statistics from different studies that indicate few small and midsized risk businesses and nonprofit organizations have purchased EPL, directors and officers (D&O), or errors and omissions (E&O) coverage.

Increased litigation over discrimination for age or sex, or sexual harassment increases the need for EPL cover, said Mr. Charlton.

He also cautioned about the potential exposure of an individual's assets if there is no D&O coverage for board members in a private company.

Mr. Charlton mentioned the exposure of a consultant who lacks E&O and faces defense costs should a client feel the consultant has not lived up to what was marketed. Such examples, he said, are situations where small and midsized accounts lacking the risk management skills need risk transfer.

Technology risks are one area where there is booming potential for professional liability coverage, noted Mr. Charlton. Exposures here could include such things as copyright infringement, inadvertent transmission of a virus, or mishandling of personal information.

Another growth area for brokers he pointed to is real estate risks, specifically E&O, and property managers professional liability.

Real estate brokers are getting out of the business of writing this risk, he noted, and insurers are beginning to step back in. The growth of condo and homeowners associations, apartments, and the like, he described as a great opportunity for brokers, in an area where very few managers are known to have the coverage.

To ultimately become successful with this product, wholesale brokers need to present themselves to retail agents as specialists in this market, willing to review a policyholder's coverage, find the gaps and provide the solution. The wholesale broker should also seek to cross sell with other liability writings.

"Be able to say to your retail agents: 'Let me be your outsource for this, don't just rely upon me when you need it,'" Mr. Charlton said.