February 9, 2015 by Ronan O'Beirne and Jeff Pearce
Hey, we can’t say it any plainer. A couple of issues ago, we even had a guy in a dinosaur head on the phone, didn’t we? The spectres of direct writers, consolidation and toofast technological revolution still loom large. This business is evolving, and you better figure out how to do more with your opposable thumbs if calls get fewer and far between. But instead of just barking like a mean personal trainer at you, telling you to run over that course, we looked into a few vehicles that maybe you’ll want to test drive.
So here you go! Interesting areas where brokers can specialize. These are by no means low-hanging fruit; they require a certain level of expertise. And that’s what makes them perfect for brokers.
Doctors and lawyers have two things in common: being the butts of countless jokes, and needing to purchase professional liability insurance.
But brokers and insurers are finding that the appeal of Errors & Omissions insurance now reaches far beyond those traditional professions, along with engineers, architects and their ilk.
Joanna Reid, a senior vice-president with Marsh Canada, rattles of a list of classes now requesting coverage: “firms like IT consulting, HR consulting, a lot of management consultants… staffing agencies and companies, research companies. Of late, we’ve had an influx in home inspection service firms as well.”
This is thanks in part to the changing employment landscape, says Michael Mallett, the Guarantee Company of North America’s national product manager for errors and omissions. More people are becoming independent consultants. “The day is gone, certainly I’ve seen it in the insurance business, [where] you start with an employer, and 30 years later, you retire. I think you’re seeing a lot of people hanging out their own shingles.”
Glenn Woodard, GCNA’s national vice-president, corporate insurance, adds that this not only creates exposure for these new, small consultancies, but also for the large companies losing employees: “Because people aren’t staying in their jobs as much, a lot of companies don’t have the necessary expertise they would have had, thus kind of creating a potential for an error, an omission, because they don’t have the bench strength that they once had.”
For some of these new professional classes, E&O is just common sense, but for many, there’s also a regulatory burden. Mallett says that in the past few years, Ontario had started requiring court reporters and HVAC contractors (among others) to carry professional liability insurance. Reid adds that even where there isn’t a government requirement, some professional associations require their members to buy coverage.
But the regulatory burden isn’t the only reason to sell E&O. Reid says there’s a common misconception that the coverage only applies when someone makes an actual error or omission. But no matter the profession, everybody seems to be suing everybody else. Woodard says, “Essentially we’re just becoming more American… you’re seeing much more litigation than you would have had in the past. And yeah, it’s a horrible trend, being an insurance company, but it’s just a fact of life as well.”
Reid adds that many people mistakenly think E&O only covers an actual error or omission. “We are seeing more and more frivolous suits. The unfortunate reality for these firms or these individuals or these advisors is that those claims still require a defense. And without an E&O policy, those can add up to some fairly significant dollars, especially for a small business owner.”
She says some clients also don’t realize that E&O and commercial general liability policies are complementary; some think they only need CGL. “For professionals, especially if they have a designation in that traditional field, like a lawyer [or] a doctor… the law holds them to a greater level of care, which increases their liability exposure. And they’re generally not covered by a general liability policy; you need a specific professional liability policy in order to provide protection for those services.”
Woodard says brokers also need to consider more than price when they’re seeking out E&O for a client. “If the E&O is written with one carrier and the CGL’s written with another carrier, there’s that potential grey area [of] is this a true professional liability type of claim, or if this a CGL claim? Both carriers might say, ‘Well, this is the other person.’ They’ll be pointing at each other. And what is best for the insured might not be what’s going to happen.”
Mallett adds that this could also create more exposure for the brokers themselves. He sat on a jury once in an insurance-related case, where “the broker wasn’t on trial, but let me put it this way: he ended up on trial.”
The surety market is nothing if not dynamic.
“There’s been new entrants over the last five or six years in the marketplace, but there’s also been people exiting the marketplace because surety companies end up buying them up. So I can say, it never stays static,” says Warren Griffiths, vice-president, construction and surety at FCA Insurance Brokers. Despite that flux, he says it’s a soft market and has been for a few years.
“So from a broker’s perspective, I think it means you just have to work that much harder. Ideally, I’d love a harder market, because it would be a bit easier for me,” he jokes. “Anybody who specializes in it definitely would benefit, I think, from a harder market.”
Despite that soft market, surety—a bond that guarantees an infrastructure or construction project will be finished, for example, in case a contractor defaults—holds some promise. At the Top Broker Summit in November, Trisura CEO Mike George said that the country’s infrastructure deficit and booming population means our cities will be construction hotbeds in the near future.
“There’s a huge requirement for increased capacity: more complicated projects, bigger dollar amounts… [so] contractors and developers are going to need good, knowledgeable insurance brokers to help them along that way.”
The key word there is “knowledgeable.” Surety is the kind of product line that demands expertise. The bonds are complex packages, and the broker is the point person on securing the best terms for their clients. “It would be kind of like you going to the bank for your first mortgage and they lay it out and say, ‘OK, you’re pre-approved for half a million.’ Well, our terms and conditions letter is kind of like that, too: it says, ‘OK you’re approved up to this single contract limit, here’s your aggregate limit, and here’s the conditions of this…’ But also work with the client to try to make them more appealing to the bond company.”
So there’s no such thing as a casual broker- client relationship. It requires a high level of trust, because the broker needs to know the business upside-down and inside-out. “You’re going to be intimately knowledgeable of all the clients’ particulars, how he’s done financially… I know as much as his accountant’s going to know about him,” Griffiths says. “You know all his details, [and] there has to be a certain level of trust for him to give that to you, and once you do have it, then I think that builds. So that’s why I believe surety is such a great bit of the insurance industry to work in, because… people don’t change their accounts very often, and they shouldn’t be changing their surety brokers either if you’re doing a good job.”
Another space where brokers can theoretically wiggle their way in is the next level of the surety market: surety bond insurance: basically reinsurance for surety companies. But Derek Austin, director of contract insurance and bonding at Export Development Canada, says fewer companies are coming to EDC for that reinsurance because there’s healthy capacity in the primary market. “But we are always there for the various scenarios… [like] if a company can’t find a surety company in the market and they’re looking to bid on a contract, we’re able to help our surety companies with the reinsurance product, help them get more comfortable in their credit.”
If you’re thinking of going into what some call “allied health” and others “soft med mal,” be warned that this is not touchy-feely stuff. Sure, you’ll cover massage therapists, physiotherapists, podiatrists, speech language pathologists and other practitioners. But Derek Grieve, account manager of programs at HUB Sinclair Cockburn in Markham, Ont., says, “The first thing you have to look at is we deal a lot with regulators.” Still, “a lot of times the market will dictate what type of coverages we have.”
Cue the catch-all reminder that brokers should stay on top of emerging trends in their industry, and anything medical is sure to have changes always on the horizon. “For example,” says Grieve, “if an individual is working for a clinic that’s funded by the government, all of a sudden that government no longer wants to fund that clinic, that individual then becomes a self-employed practitioner for all intents and purposes, and then they have a completely new set of exposures… It becomes more than just providing them with professional liability insurance, but all of a sudden they may have their own commercial general liability exposure. They may need their own separate AD&D [accidental death and dismemberment] policy, because they’re now self employed…”
When it comes to coverage, Grieve says the E&O portion can be pretty general for say, a speech language pathologist, but what you have to look at are the policy’s sub-limits. “If they have a college that they have to report to, there is a chance that an individual could feel wronged by the speech language pathologist and report a claim to the college. So it’s important when you’re selling the policy to ensure that they have a sublimit for disciplinary review expenses.”
Bodily injury, of course, is still the biggest exposure in the health care segment. Derrick Leue, president of LMS Pro Link, points out the regulatory framework can vary quite a bit across the provinces, “but they don’t often have a requirement for general liability. And, so you’ve got to figure out: do you include that as part of your policy package? Do you make it optional, so when you’re offering the product to regulated healthcare professionals you’ve got to take that into account?”
And quite often, he says, you’ve got “a high limit of insurance at a fairly low price point, and the low price point is because you have, usually, hundreds if not sometimes thousands of people being insured in these programs. So that can make it very difficult to serve this segment if you’re trying to do it with stand-alone policies.”
Grieve points out that for brokers who want to get into this line of business from the ground up, “you’re often going to run into situations where every broker’s got a program… Not only do you have to know that field, but you’ve got to have a market in place that’s going to write on a program basis.” Trying to write practitioners on a one-off basis means you could be priced out of the market, “simply because there’s probably an existing program. So someone who’s just kind of getting into it really has to have either a commitment from a particular industry segment, maybe a provincial association, anything like that, to be able to get a true program together.”
‘‘So Mister Anderson, you’ve decided to go into cyber coverage. Do you hear that sound? That is the sound of inevitab”—okay, enough of that. If you’re new to cyber, it can be both cooler and more frustrating than you imagined. But it’s definitely growing. While once upon a time, cyber was for the tech, financial and health care companies, Elizabeth Diotte, who handles broker relations and broker contract negotiations at Travelers Canada, says more manufacturers and retailers—small and mid-market firms—are buying the coverage now.
Diotte suggests probably the main misconception with cyber is price, and she thinks people “all believe that this could be very expensive, and they would be pleasantly surprised at how affordable this insurance is versus what it’s going to cost if there is a breach.” She concedes that it has to be an evolving product, “and we have a lot of people with a lot of expertise that are working on this constantly.”
Months ago, a source told Top Broker that certain cyber policies out there are supposedly crap (not their words) because the wording can’t keep up with the tech. Neil Moloney, vice-president at Smith, Petrie, Carr & Scott, “respectfully disagrees,” and argues that as it stands today, “I think it’s a fantastic product. It’s affordable, it’s fairly broad coverage, it addresses a lot of different uninsured exposures that exist right now. So I think it’s a great product as it stands now, but yes, it will evolve.”
For Moloney, the key areas to consider are liability over theft of confidential information, “but I also look at privacy notification costs, so if you do have a breach, notifying all your clients that you’ve had a breach.”
Then you have to keep in mind costs related to any kind of extortion threats. “And the big component that I think a lot of people miss,” says Moloney, “is the firstparty- type coverage.” As we go to press, the headlines are full of the breach at Sony Pictures, and he pointed out the major business interruption cost. “I see that as potentially more significant than the liability issues relating to the clients that have been affected. Your own firstparty business interruption exposure can be significant.”
But Dina Godinho of Jones Deslauriers warns that many insurers and brokers are “catching this fad, or this wave” of cyber coverage. “I think the news and the media are playing so much on cyber risks and hacking and everything else, I think some less educated brokers, or perhaps brokers who aren’t as accustomed to dealing with this line are also catching the wave and just trying to sell their clients what’s called a cyber policy, when in fact it might not cover them for much of what they need at all.”
Godinho says that in the case of a customer leaving you or lost revenues because of a breach, there are many cyber policies that will cover you for the financial damages— but many that don’t. Because of all the fear-mongering out there, “all of a sudden you need a cyber policy. I also think that a lot of insurance companies are throwing them in as kind of extras or for a nominal fee, or what have you, which is really scary, because if you’re reading it and you think, ‘Oh great, so-and-so’s offering cyber liability,’ and you don’t necessarily know what that means, and you’re not able to expand on that to your client, there can be a big disconnect to what the client thinks that they’re getting, versus what the insurance company is actually offering.”
She suggests that in case of a breach, a good cyber policy “may elect a PR firm to help you through that process, to try to mitigate as many losses as possible and kind of control the message.”
Once again, it comes down to homework. Godinho urges that “you do need to be diligent about doing your research and finding out which companies have been doing this before, how long…what their claims are like, how have they been handled. And then on the flip side as with any new insurance coverage that we see, many of those insurance companies that will, so to speak, dip their toe, often times they’ll get burned in a claim.”
This story was originally published by Canadian Insurance Top Broker.