23 Jan Is E&O Claim Frequency Going Up?
For the last few years, it appears that E&O claims frequency has been in pretty good shape. It is difficult to cite exact numbers as the various Agents E&O carriers seem to measure this key statistic differently. Using a measurement of “# of claims per 100 policies” is fairly common, provided the staff (or revenue) size of the accounts is consistent from year to year.
Many in the industry (including myself) have been predicting a rise in E&O frequency in 2024. Several factors give this prediction some credibility. They include (but are not limited to):
- Many agencies seem to be struggling to be fully staffed, and of those agencies reporting being fully staffed, they use an asterisk “on paper.”
- The “quality” of staffing, with many agencies hiring staff with virtually no insurance background. Is this a downside? Maybe…maybe not. There has been a push over the last number of years to hire staff with a solid skillset with the direction to teach them the insurance business. A number of agencies have reported solid results on this approach. More on this issue in a minute.
- The insurance marketplace. As I enter my 50th year in this great industry, I can honestly state that I don’t think I have ever seen a marketplace like this one, and that includes the liability crisis during 1985 / 1986 when the cost of liability coverage for businesses, municipalities, non-profits, and various personal lines coverages rose significantly. On a side note, this was the impetus for developing the PAR program (now known as E&O Plus) for agencies such as yours. The E&S marketplace and various state residual markets are seeing huge increases in applications and accounts and have done a great job addressing the issues. Still, they have their limits and capabilities as well. E&S is almost an industry all its own with so many differences as compared to the admitted markets.
- A more litigious court system. While much of the impact has been on severity (the size of the E&O claims being awarded), it seems to be driving some clients who suffered an uninsured loss to pursue the legal system faster than before.
However, there are very positive signs for our industry:
- Business Insurance published an article by Andy Toh in December that provided some very interesting statistics. It used to be a standard joke in the industry that “no one goes to school for insurance.” Well, that is no longer the case. The BI survey results referenced the top 20 largest undergraduate programs ranked by the number of 2022-2023 undergraduates majoring in risk management/insurance programs. The top 5 include the University of Georgia, the University of Wisconsin-Madison, Temple, Florida State, and the University of South Carolina. The article mentioned that over the past five years, the percentage of millennials entering the insurance industry who have attended or graduated from a risk management and insurance-specific program has more than doubled. This strongly suggests that these millennials are entering our industry better trained and more prepared than in previous years.
- There is a much greater focus on training (technical and soft skills) with several agencies developing a dedicated training division.
- Awareness of the issues attributable to the E&S markets, such as:
- There is a need to get applications in the marketplace as early as possible. The E&S wholesalers are probably swamped. Give them time.
- Coverages are different with more exclusions and limitations. A GL policy in the E&S market is probably not as broad as a GL policy in the standard market.
- There is a need to review E&S proposals (compared to what coverage you asked for). I can almost guarantee coverages are missing because the E&S market does not want certain exposures.
- There is no binding authority and, typically, no back-dating after the effective date.
So, hopefully, with an influx of solid “newbies” and an awareness of the issues and what procedures are needed to address them, the E&O Plus agencies will not see the increase in E&O frequency. At the end of the day, it is up to each of you, and we all know you are up to the challenge.