Canadian Underwriter

Hot Lines

August 10, 2020   by Greg Meckbach, Associate Editor

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Cyber, directors and officers liability and hospitality are among the hottest topics right now in specialty lines, according to brokers and insurers.

Until last year, there was a prolonged soft market in management liability, a category that includes D&O liability, crime, employment practices liability and fiduciary, said Denis Panariti, assistant vice president of management liability and financial institutions at commercial insurer CNA Canada.

“But over the past 12-18 months, there has been an increase in claims activity, especially in D&O liability for publicly-traded companies,” he said. “As a result, some insurers are no longer writing in this space.”

Financial lines (including D&O and E&O) is one of the five biggest specialty lines right now in Canada, said Bernard McNulty, head of claims in Canada for Munich-based insurer Allianz Global Corporate & Specialty. The other four are aviation, energy (due to Canada’s resource-rich economy), engineered risks (such as high-value construction projects) and cyber. The definition of specialty is constantly evolving, reports McNulty.

He put cyber in the top five because of the increasingly complex threats and challenges in that area.

Cyber is also high on the radar for Zensurance, a Canadian online brokerage focusing on small and mid-size commercial clients.

“Cyber continues to be a big focus for most markets, domestics and foreign players alike. It has thus far been profitable overall, and demand is rising quickly in the wake of high-profile attacks,” Zensurance CEO Danish Yusuf said.

The ongoing pandemic is another reason cyber is trending, Panariti noted. “COVID-19 has forced certain industries to adopt remote working for their workforce in record time. Some were more prepared than others, and bad actors in cyberspace were quick to try and take advantage of the new way of working,” said Panariti.

In management liability, underwriters seem to be taking a good hard look at corporate clients with a head office and incorporated in Canada, if those clients are also listed on American stock exchanges such as the New York Stock Exchange or NASDAQ.

In some cases, after a large drop in share price, plaintiffs are alleging that the management team or directors made misrepresentations to the shareholders, Panariti said.

In a typical securities class action, a lead plaintiff will file a proposed class-action lawsuit alleging that the share price dropped significantly, and that the firm made certain representations or promises to investors before the share price dropped, as Panariti explained. So, plaintiffs allege that people bought stock thinking those representations were true; therefore, management or directors are accused of misleading shareholders into believing the stock was more valuable than it really was.

This is happening both in the U.S. and Canada. However, the claims tend to be less severe in Canada than in the U.S., Panariti observed. “Starting 12-18 months ago, increased claims activity, capacity constraints from London-based insurers, insurer consolidation in Canada, and a couple of insurers exiting D&O altogether finally gave way for a full-blown hard market in certain areas of management liability.”

Hospitality is another hot topic within specialty, said Gary Hirst, CEO of managing general agent CHES Special Risk Inc. Hospitality includes hotels, motels, restaurants and event venues.

“There are several standard market insurers that are not renewing their book of business,” he said, adding the issue is a combination of the high number of claims arising from various categories of loss.

For example, Hirst cited a major fire at a motel in Prince George, B.C. in June. Quoting the Royal Canadian Mounted Police, the Canadian Press reported earlier that the bodies of three people had been found at the scene of the Econo Lodge City Centre Inn in downtown Prince George. The fire engulfed a portion of the building.

Frequently, claims are arising from theft in the hospitality sector, said Hirst. For example, it was reported that someone drove a vehicle through the front window of an establishment in an attempt to steal the ATM machine.

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