04 Feb Does a Hardening Market Cause More E&O Issues?
From time to time, our industry goes through a hardening of the marketplace. The degree of hardening will most likely vary from one region to another, and also by various lines and classes of business. In my travels around the country working with E&O Plus agencies, agents are experiencing a hardening of the insurance marketplace. While the hard markets don’t occur very often and don’t seem to last very long, the E&O impact can be heightened.
Typically, a hardening market involves increases in the premiums with some significant increases based on the line / class of business. Commercial auto seems to be heavily impacted. Property is also vulnerable depending on the location of the risk to the impacts of Mother Nature. And lastly, there is the distinct possibility that the liability limits you were able to secure in the past are no longer available especially on excess coverage and also various segments of management liability. Some agents have commented that non-renewal of books of business are occurring as carriers evaluating their 2019 results.
Most agents, especially those that have been around for a number of years, have had to deal with the impact of a hardening market. However, since it has been awhile since the last hardening of the market, every agency probably has some staff that have never been this type of market before and should be educated as to what it means and how to manage it.
As clients experience rate increases of various magnitudes, they may be looking for their agents to get them a better price. While most agents make a serious attempt to keep the client with the same carrier, remarketing of the account may be a necessity at least to see the appetite of the market. For some lines / classes of business, exploring the use of the surplus lines marketplace will be necessary.
For a variety of reasons, a harder insurance market can significantly impact the potential for E&O claims. Here are some of the issues:
- In the admitted marketplace, carriers will need to issue conditional renewal notices if they are increasing the premium over a specific amount or if they are changing the terms such as reducing the limits or adding exclusions. This will give the agents time to react. However, in the marketplace of surplus lines, conditional renewal notices are not required – so there is a possibility that agents may find a significant difference when they get the renewal proposal. Agents would be wise to review their surplus lines accounts 90-120 days in advance to determine what changes they may see on a renewal proposal.
- If the account needs to be remarketed, make sure the application reflects today’s exposures. Don’t use last year’s app to market this year’s coverage. Providing the carriers with applications that accurately represent the risk is extremely important.
- Follow-up periodically with the carriers / wholesalers on the apps you send in. It may take longer for them to generate a proposal and you don’t want to find out the account renews in two days, and you don’t have a quote yet.
- When the proposals are received, compare the coverages quoted to the coverages requested. This is the agent’s responsibility. Just because you requested the coverage does not mean the carrier was willing to quote it. This is going to be especially important when quoting an account through the surplus lines marketplace as they typically don’t provide as broad of coverage.
- The biggest issue that E&O carriers are experiencing in claims activity is when an account is moved from one carrier to another especially if the coverage with replacement carrier is not at the same level as the expiring carrier. Agents should have a process to compare the coverage and note any differences, especially the reductions. These differences should be confirmed in writing. Failure to advise the client of the differences would lead the client to believe the coverages were at least the same.
While a hardening of the marketplace presents some additional E&O challenges, having procedures in place to address these challenges will prove beneficial.