Making public entity No. 1

Employee layoffs, doing more with less, feeling the pinch of federal cutbacks: More than ever before, public entities need to protect themselves against liability arising from the current uncertain economic climate. AA&B spoke with Paul Fuller, president of wholesale specialty program operations, Glatfelter Insurance Group, about market conditions and the ways in which agents and brokers can act as knowledgeable advisors to their public entity customers.

AA&B: How would you characterize market conditions for public entity coverage from last year at this time?

Fuller: Frenetic and a bit schizophrenic. Last year there was more focus on market share and market penetration with less emphasis on underwriting results. Now, redundancies in reserves are gone, and carriers are realizing they're underwriting at a loss. Plus, investment income has disappeared and there are other pressures by rating agencies on reserves and surplus, so carriers are now forced to be very conservative in what they're underwriting. Right now, the marketplace is waiting for that first carrier to take the lead and announce they will have substantive rate increases, but that hasn't happened yet. Well-financed insurers with good reputations that have made a commitment to the public entity sector will be able to present their case for higher terms, and they will be in a better position than new entrants to the field. Some of the more aggressive carriers will take an accounting of losses and reevaluate their commitment to this niche, and the newer entries will likely take an exit strategy.

AA&B: Please describe Glatfelter's involvement with public entity.

Fuller: We have a 40-year tradition with public entities, and are the largest public entity program manager in country, with more than $350 million in program premium in the sector. What distinguishes us is that we're not all things to all people; we specialize in emergency services organizations, special districts, select municipalities and school districts. Our spacing historically has been on smaller public entities, focusing on municipalities under 25,000 in population or special districts with customer service territories of under 25,000.

Our recent acquisition of Professional Underwriters has increased that spacing, so now we can offer brokers a viable, sustainable market for larger public entities, with population bands exceeding 25,000. We're focusing on offering competitive pricing, but our real value is that we also offer full risk control and other value added services. Our biggest value is our ownership of mistakes. We are experts in what we do: our programs are an inch wide and a mile deep.

AA&B: What types of coverages are typically required for public entities?

Fuller: Property and liability, including general liability, professional liability, management liability (wrongful acts, EPL and EB liability), boiler and machinery and equipment, and auto coverages.

Public entity exposures are basically in two categories: operational exposures, including first and third party, and management liability exposures. The latter is especially important because if a nonprofit board is volunteering, their personal assets are at risk.

AA&B: What sorts of challenges are specific to this coverage in the way of servicing, claims handling, prospecting, etc.?

Fuller: For insureds, the biggest challenge now is economic uncertainty. They're under pressure to reduce costs and sometimes have no choice except to look at insurance as a commodity. Brokers must be able to talk to their customers about this. From our end, if coverage is a budget issue, we can offer variations on coverage and terms that won't adversely impact the portfolio, such as alterations to deductibles.

AA&B: Are you involved in organizations such as PRIMA or other trade associations representing the public entity industries? How does this help in marketing and retentions?

Fuller: Yes, and since we've historically been involved in small to medium public entities, we've also spent a lot of time with regional and state associations, specifically those geared to our niche markets: state rural water associations, state school board associations, regional and countywide municipal associations. On the national level, we've done webcasts with groups like the American Waterworks Assn.

AA&B: Are there any court cases, legislation or economic trends affecting this coverage?

Fuller: Although public entities are institutions that have many of the same exposures as anyone else, they also have a form of liability caps, immunity defenses or early reporting requirements that specifically protect them against lawsuits. Public entities frequently see a lot of employment claims because as a public organization, federal civil rights laws are more directly germane to them.

We monitor state immunities, which are always being challenged. We're seeing a trend of class action litigation. There is a heightened level of responsibility for public entities to meet an even higher standard. Court cases vary by state, but immunities are being challenged by increasingly sophisticated litigation. We track trends through our relationships with premier law firms who specialize in specific public entity niches such as inverse condemnations, employment practices and religious land use.

AA&B: What are the challenges involved in working with requests for proposals (RFPs)?

Fuller: The biggest challenge is separation between the customer and the broker, usually through a consultant, which makes the job more challenging. Consultants are very savvy and they understand what the customer needs; however, they have a tendency to focus on premium savings. The best approach is a request for proposal where the broker is selected to represent the marketplace and the insured. I'm not an advocate of RFP where you send out to multiple brokers. That's not the approach we recommend.

AA&B: What do agents need to know to be successful at marketing public entity coverage?

Fuller: Specialization starts with a commitment and the knowledge that success comes not as a sprint but as a marathon. You need a high level of technical skill, the ability to understand both insurance and the mechanism of a public entity. It requires a time investment in state associations, too. My recommendation is, don't be a public entity specialist: Instead, be a specialist within a subset of public entity coverage, such as water districts or schools, that will separate you and create value. Inevitably you will understand the true exposures and can articulate what you're seeing through your portfolio and network.