2009 Professional Risk 2009 Professional Risk Symposium: EPL, E&OSymposium: EPL, E&O

and Fiduciaryand Fiduciary

San Diego, CA ~ April 29 & 30, 2009

Insurance ProfessionalsInsurance Professionals

How is the current market affecting your E&O

exposures and coverage?

INSURANCE PROFESSIONALS: HOW IS THE INSURANCE PROFESSIONALS: HOW IS THE CURRENT INSURANCE MARKET AFFECTING CURRENT INSURANCE MARKET AFFECTING

YOUR E&O COVERAGE?YOUR E&O COVERAGE?

MODERATOR:

Curtis Pearsall, CPCU, AU, AIAF, ARM, Vice President and Director of E&O, Utica Mutual Insurance Company

PANELISTS:

Robert Eilers, ACS, AIAA, AIRC, President and Owner,

The Eilers Group

Joseph Labieniec, Assistant Vice President,

Darwin - E&O Underwriting

Alex Wayne, CPCU, ASLI, RPLU, Vice President,

A.J. Wayne & Associates

Paul S. White, Partner,

Tressler, Soderstrom, Maloney & Priess, LLP

How Is the Current Market Affecting your E&O Exposure and Coverage?

The Wholesale Broker’s The Wholesale Broker’s PerspectivePerspective

More people are interested in becoming insurance agents in this economy

• A lot of qualified people are looking for work

• People from the industry have traditionally been able to find coverage

• People from outside of the industry – used to be difficult to place – coverage is now readily available

• Financing issues and cancellation for non-pay are common with new agents

The Wholesale Broker’s The Wholesale Broker’s PerspectivePerspective

Payment issues - The non-standard marketplace will get submissions for accounts cancelled for non-pay:

• Vast majority are very small agencies

• The insured must provide an explanation for non-pay cancellations – health issues are the main reason

• We recommend that no financing be offered to agencies cancelled for non-pay…some will finance anyway

The Wholesale Broker’s The Wholesale Broker’s PerspectivePerspective

Saving premium• Limits reduction – not recommended sometimes

necessary

• Increase deductible – is the savings worth it?

• Stay claims-free to get a loss free credit!

• Avoid areas that are considered more hazardous▪Brokerage exposure▪Surety, Med Mal, Professional, Aviation, Marine▪Lower rated carriers and non-standard carriers▪Tougher services – TPA, reinsurance, captive management

• Have good loss control procedures in place

The Wholesale Broker’s The Wholesale Broker’s PerspectivePerspective

How to present your renewal after you’ve had a claim

• Provide a legible, professional application

• Explain your claims and steps taken to avoid a similar incident in the future

• Take a proactive, remedial approach – have an audit performed, even if one is not required

• If there is an element of fraud or dishonesty, address it and explain it

The Wholesale Broker’s The Wholesale Broker’s PerspectivePerspective

Market conditions

Market is still soft

We expect changes this year

Timing for a hard market is not good

TheTheUnderwriter’s PerspectiveUnderwriter’s Perspective

Implications for the agency in response to the economic downturn – what measures are being undertaken that have potential impact

• Reductions in staff / not filling positions

• Failure to implement or a discontinuation of various risk management tools

• Steer business to carriers paying more commission to make up for decreased agency revenues

• Moving away from lines of business & professional services an agency knows best to increase revenue

TheTheUnderwriter’s PerspectiveUnderwriter’s Perspective

Agencies will have to deal with ramifications that the economy is having on their clients

To save money, some clients may:Reduce limitsRestrict coverageFail to purchase or drop “discretionary” coverage

Move coverage to a weaker carrier, lower premium

Insurance agencies will need to consider:How will they handle requests for the aboveWhether or not they need to amend their controls & procedures – particularly in the area of

documentation

TheTheUnderwriter’s PerspectiveUnderwriter’s Perspective

The Hard Market is coming…eventuallyAgencies will need to be aware that:

• Incumbent carriers will restrict terms / conditions and increase premiums

• More business will need to be moved at renewal• Carriers will be less likely to make

accommodations in the event of a claim• Because of the above – claims frequency will

increase• Bottom line – an agency’s clients will be paying

more and getting less – and unhappy clients bring claims

TheTheUnderwriter’s PerspectiveUnderwriter’s Perspective

Now is NOT the time to reduce staff, discontinue risk management, etc.

The economic downturn combined with the hard market will only make things more difficult for an agency

Now IS the time to spend money and invest time – wisely – on the things that will help an agency avoid E&O claims in a down economy and a hard market

Mr. E&O Mr. E&O Claims PreventionClaims Prevention

E&O External Audits• Not as scary as the IRS• Overpromise of abilities or services• Previous examples where agency have under-

delivered

What is an E&O Audit Process• Evaluating of agency E&O loss control measures

and their current effectiveness• Agency Management Issues (i.e. electronic

management system)

Mr. E&O Mr. E&O Claims PreventionClaims Prevention

The E&O Claims Rule Underwriting Reasons

Claim problems

Voluntary Audits Election of the agency

Desire to improve operations

Agency Mgt. Issues PracticeProcedures

Mr. E&O Mr. E&O Claims PreventionClaims Prevention

Building Agency E&O Claims Prevention Program

• Identify / appoint agency’s E&O Claims Prevention Point Person

• How to identify that person within your agency

Develop internal procedures

• Utilizing development teams• Keeping it practical and efficient• Development of each department’s internal file

audit form

Mr. E&O Mr. E&O Claims PreventionClaims Prevention

Implement agency procedures

• Train staff• Monitor use of procedures and workflows

Conduct internal client audits

• Internal Audits quantify by staff member• Internal Audits quantify by department

The Legal PerspectiveThe Legal Perspective

Two Risk-Enhancing Factors are at work simultaneously

The economy causes insureds to seek lower costs by sacrificing all but what are perceived as “essential” coverages

Certain types of liability claims are seeing increased frequency and will not decrease:

Internet/Cyber LiabilityIntellectual PropertyPrivacy tortsConsumer protection-related class actions

The Legal PerspectiveThe Legal Perspective

These claims are insurable under specialty

forms from major carriers and some niche

players – however these coverages are

considered non-essential by agents and

insureds (until there is a loss)

The Legal PerspectiveThe Legal Perspective

Agencies relying heavily on construction industry and auto industry will suffer tremendously

Will cause agents to search for business in other sectors with which they have less client knowledge and less coverage knowledge

The Legal PerspectiveThe Legal Perspective

These factors / issues will cause E&O claims to surface in a variety of areas:

A. Infrequent but “high dollar” E&O for construction industry insurance failures – both first and third party coverage being inadequate, And some surety bond related E&O

B. E&O for failing to provide infringement insurance and intellectual property protection to businesses that rely heavily on IP assets or which face uninsured infringement claims

The Attorney SpeaksThe Attorney Speaks

Factors causing E&O claims (cont’d)

C. E&O caused by construction and auto industry agents seeking new business with which they have little experience

D. E&O caused by inadequate first party coverage upon which insureds will rely as tort defendants become insolvent (more pressure on underinsured motorist coverage as a simple example)

• Questions for the panelists??

Please identify who you are directing the question to

Thank you