Wholesalers Urged To Take Initiative On Professional Liability

Wholesale agents are missing a huge opportunity by failing to properly market a wide range of professional liability coverages via their retail agent network, one leading insurer contends.

The comments came during a seminar on professional liability here 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.–a member of Berkshire Hathaway–shared some of his insights into marketing and judging the adequacy of coverage for professional liability prospects.

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

Some wholesalers try to tag professional liability onto a general liability policy, but too often if the retail agent asks what the coverage is or why it is needed, the wholesaler does not have a satisfactory answer, according to Mr. Charlton.

“The retailer does not understand what this [coverage] 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, but are not marketing it. It is not enough to just put it on a policy and hope it is purchased.”

Wholesale brokers need to overcome the anxiety agents may feel not to “look dumb in front of their clients,” and educate them on their clients' needs and how professional liability fills a void in coverage.

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

The fact that there is a void in coverage, according to Mr. Charlton, is often not being communicated to retailers–and, ultimately, to policyholders.

At one time, the coverage was prohibitively expensive, making it unaffordable for many 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 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 businesses and nonprofit organizations have purchased EPLI, directors and officers, or errors and omissions coverage.

Increased litigation over discrimination for age or sex, or sexual harassment increases the need for EPL coverage, said Mr. Charlton. He also cautioned about the potential exposure of an individual's personal 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 coverage and faces defense costs should a client feel the consultant has not lived up to what was marketed. He cited other examples where small and midsized accounts lacking risk management skills on such exposures need risk transfer.

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

Another growth area for brokers he cited is real estate risks–specifically E&O and property manager professional liability. The growth of condo and homeowner associations also presents a great opportunity for brokers, he added.

To ultimately be successful with this product, wholesale brokers need to present themselves to retail agents as specialists in the 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, he said.

“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.