Professional Liability insurance has expanded well beyond the "learned professions," such as lawyers, doctors, accountants, engineers and architects.
Now, anyone who provides a specialized service for a fee — think event planners, for example — needs professional liability coverage, explains Dan Kumpf, global head of professional liability at XL Catlin.
Rates in this line remain steady, with some declines in certain classes. David Lewison, senior vice president and national practice leader of professional lines for AmWINS Group in New York, says markets are consolidating; however, loss experience in certain industries may result in a rise in rates. "Companies have gotten better at raising rates reasonably because the availability of big data allows insurers to target companies and industries with micro-increases when they make sense, for example, in hospitality, tech and entertainment," he notes.
"It's difficult to seek a rate increase unless there's been a material change in risk with the client's operations, a claim or a licensing issue," says Leah Taylor, RPLU, ASLI, vice president and head of the professional liability practice for Admiral Insurance in Seattle.
For accountants, over the past 12 months, it's been a soft but competitive market. Meanwhile, the market is less competitive but rates are up for attorneys, says Chris Gomprecht, national practice leader for lawyers and accountants professional liability in the New York City office of Allianz Global Corporate & Specialty.
Claim trends: frequency down, severity up
Alex Blanco, head of design and commercial errors and omissions for XL Catlin's design professional insurance business in Exton, Pa., finds that the frequency of claims is flat but severity is up. The cost of living has increased, making claims more expensive, and client tolerance for error has grown lower, he says. Gomprecht agrees, and he also ascribes the increase in severity partly to the increased cost of defending claims.
Reina Gregorio, divisional president of Great American Insurance Group's professional liability division in New York City, says that the biggest trend she's watching is social engineering/wire fraud because it potentially could affect multiple classes of Professional Liability insurance. "These types of claims are now being reported under a multitude of policies including professional liability, cyber, crime and general liability and they are becoming more frequent," she explains.
"A trend that I'm concerned with is P&C insurance agents," says Taylor, noting an increase in the frequency of claims, particularly in California and Florida in relation to contractors. "This may be due to the complexity of covering contractors, who need workers' comp and construction defects coverage as well as general liability, and smaller [insurance] agents may not think of everything."
Karl Olson, vice president and professional liability regional practice leader at Burns & Wilcox in San Francisco, says he believes there are more transactions across the board because the economy is doing better. In many lawsuits, he finds that allegations are more likely to be based on a breach of contract and to include more numerous allegations. "Companies now have broader insurance coverage, therefore, the claims are broader too," he explains.
The frequency of claims is flat, but severity is up in professional liability, especially in areas like social engineering and wire fraud. (Photo: Shutterstock)
New classes of professionals
In Admiral's lines of business, the types of claims haven't changed, but there are some emerging classes of businesses Taylor says no one in the industry has a real understanding of yet — for example, health care consultants after the Affordable Care Act.
Most recently, as a result of the legalization of marijuana in some states, Gregorio is seeing submissions for companies involved in the licensing, marketing and distribution of such products. Blanco also sees the evolution of cannabis dispensaries and their need for Professional Liability coverage as a trend.
"Everything emanates from the Internet of Things and technology," in terms of adding classes of professionals and claims, Kumpf says, including architects and engineers who are using drone technology to provide services to their clients. Proper handling of the drone is likely to become a basis of Professional Liability claims. He also is seeing an extension of Professional Liability to digital currency, such as Bitcoin, and nanotechnology, but coverage for these classes is generally custom.
Olson is seeing an increase in financial and insurance technology companies adding coverage, especially as they add mobile apps that access and process highly critical and sensitive individual data, for example, budgeting apps.
Some insurers in, some out
Gregorio says that, generally speaking, the professional liability market has experienced positive trends since rebounding from the financial crisis, which has attracted more entrants and expanded capacity to the market. There have been a few new market entrants this past year, both traditional and specialty insurers who are looking to expand their product mix.
Blanco sees some commoditization, in part as a function of capacity. There may be 30 to 50 companies in a single product line, he says, but in some specialized areas there may only be five or six real competitors. He is seeing existing markets exit some classes of business, "where they've lost their appetite for complex risk."
Carriers are starting to push for rate, Gomprecht says, while some companies are retreating. He hasn't seen any new entrants in the attorney market — yet. Trade associations, such as the American Bar Association or the American Institute of Certified Public Accountants, are some competition, he adds, but they primarily target small firms and solo practitioners. Larger firms need more customized coverage.
"When you look at the top 10 carriers today — outside of Personal Lines — versus five years ago, the list is largely different," Olson points out. "Additional capital is available, and the managing general agent business model has proliferated. There is more success in having MGAs that can underwrite to product quickly and address market needs in a way that's sustainable." He sees a large amount of premium growth into managing general agents from the perspective of underwriting and building a business.
"Traditional admitted carriers are now starting E&S [excess and surplus] divisions for the same lines of insurance that they currently write on an admitted basis," adds Taylor. Those are the competitors that she's seeing that are new to the market.
Every business holds personal data on its customers, and therefore, every business has a cyber liability exposure. (Photo: Thinkstock)
Cyber coverage in play
Many professional services firms are beginning to understand that they have a professional responsibility to keep client data confidential, but the costs of remediating a breach aren't covered by their Errors & Omissions policy, Lewison says. He recommends that professional services firms maintain separate cyber policies with limits appropriate to their risk.
"Every business has exposure for cyber liability because every business holds some personal data of customers," Taylor says. She believes cyber cover should be part of every organization's complete insurance package, although she agrees that coverage and limits have to be suitable for the risk.
Matt Anderson, senior vice president for medical professional liability at RT Specialty in Chicago, is seeing cyber liability cases in medical professional liability cases, noting that stolen medical records are more valuable than credit card numbers. He sees a growing need for health care provider liability coverage to include cyber. "Electronic medical records are driving this risk," he explains.
There is also an uptick in submissions for telemedicine, Anderson notes. However, the issue is that healthcare providers must be licensed in the state in which they practice as well as the state in which the patient is located before carriers will write coverage. This would require healthcare providers to be licensed in multiple states, and not all states offer reciprocity.
National legislation has been proposed that would allow for reciprocity for telemedicine providers. "When that legislation is passed, it will open a boom in telemedicine," Anderson predicts.
"There are industries in which the lines are blurring between professional liability and cyber liability," Lewison points out. "For example, credit card processors are a tough class of business. Some insurers believe that it's E&O exposure because they're just moving money from one place to another as a professional service. But the processors understand that they have access to confidential, personally identifiable information, and are asking whether this is also a Cyber risk."
In these situations, Lewison is selling blended policies. "Let's not argue about what we call it," he says. "Let's just make sure the client has the right coverage."
Raising the bar
The standard for expertise keeps ratcheting up, Taylor says, and there is a perception on the part of the public that they should be protected from all risks and all harm from anyone who is giving professional advice for a fee. But many small- or mid-size business clients don't understand that public perception — or that exposure. She says that there is a need to educate agents and insureds that the public expects them to be experts, whether they believe they are or not.
Taylor notes that "We used to require special training and certification to be considered a professional, but no longer. Any time your business has a customer satisfaction component, you have a Professional Liability exposure because at least one customer will be unhappy with how you did the job."
Stolen medical records are more valuable on the black market than credit cards.
Medical professional liability
Anderson of RT Specialty finds the medical professional liability market to be aggressive with lots of competition and soft rates relative to historical premiums. Medical professional liability classes include physicians and surgeons; long-term care; home health care; allied health care professionals and facilities; miscellaneous health care providers (such as chiropractors, for example); and hospitals.
The Affordable Care Act, he notes, has had the unintended consequence of creating consolidation in the health care sector. "Hospitals and health systems are buying physician practices and surgical centers to increase reimbursement," Anderson explains. There are more carriers willing to insure healthcare professionals, but there's less opportunity because doctors are now employees of hospitals, and they are buying the coverage.
Anderson sees professional liability in health care facilities and home health care growing in the next few years as baby boomers age and require more health care but don't want to be in nursing homes.
As for medical malpractice claims, he finds that frequency is down but severity continues to increase, as it has over the past eight to 10 years. "Plaintiffs' attorneys are becoming more selective in accepting cases," says Anderson, and the costs of continual care keep climbing.
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