Middle market challenges

Rough Notes, Oct 2003 by Zinkewicz, Phil

Panel explores professional liability problems unique to this market

Although the property and casualty insurance industry is currently in a hard market cycle where insurers are able to institute rates increases in certain lines with more restrictive coverages, many analysts say that insurers still have not rebounded as expected from the prolonged soft market that preceded this one. For one thing, insurers have had to plunk down significant sums of money into their reserves to prepare for expected liability claims, particularly in the area of asbestos. For another, many insurers are seriously in need of attracting new capital, something not easily done when the economy is in the doldrums.

And, although insurers can benefit from the hard market, there is still additional capacity coming into the business, particularly in offshore areas, as new players are intent upon taking advantage of the upward trend in pricing without the long tail that other insurers face. This means more competition, and insurers are having to face the age-old dilemma of whether to hold the line on rates and risk losing market share or go back to competing aggressively, which is what put them into difficulty in the first place. A troubled stock market almost precludes this last possibility.

Another alternative, however, is for insurers to hold the line on rates but offer buyers different options in terms of packaged products that might be more attractive to them given the rate hikes on an individual line-by-line basis. And, one market where that option might be a viable one is the commercial lines "middle market."

One panel that is scheduled for next month's annual PLUS conference is titled "The Middle Market: Emerging Exposures and Comprehensive Solutions," and will be moderated by Carrie Brodzinski, vice president, Travelers. Panelists will include: Laurie Lopes, senior vice president/chief financial officer, Axis Financial Insurance Solutions; Mary Anne Mullin, director, CNA; Hal Smullen, executive vice president/ chief operating officer, R.C. Knox; and Hank Stickley, vice president of marketing, Hilb, Rogal & Hamilton.

"We will be focusing on exposures that middle market companies face-employment practices liability, directors and officers, fiduciary liability and fidelity crime," says Brodzinski. "A great part of next month's PLUS annual will be dedicated to discussing these topics, but as they relate to the larger risks-companies the size of Enron and WorldCom. These promise to be excellent sessions, and we're all looking forward to them. But the middle market faces these issues as well. We define middle market as entities with employees of between 500 and 1,000. Our panel will explore overlapping coverage, claim handling issues, and package policy solutions. Particular emphasis will be placed on the often understated fiduciary liability coverage and how it often crosses over employment and directors and officers claims and issues," says Brodzinski.

The middle market, according to Brodzinski, is particularly interested in "blended liability" products. "Combining all of a middle market's liability exposures under one policy offers a number of advantages," she says.

Brodzinski says that an integrated professional liability and crime policy, such as Travelers offers, should provide maximum flexibility to meet the unique needs of each customer. Coverage options might include: directors and officers liability, employment practices liability, fiduciary liability, crime/fidelity with an ERISA inflation guard, and kidnap and ransom insurance.

"These blended products should be flexible enough to offer policy limits and coverage options that are tailored to the needs of each client," Brodzinski says. "The policy should allow two or more liability and/or crime coverages to share an aggregate limit, or coverage may be purchased with separate, individual limits. A comprehensive choice of coverage eliminates gaps or even overlaps in coverage that might otherwise exist. There is one application, one issuing company, one policy, one effective date and one company to make it simple. Our target market at Travelers is companies with assets of $100 million or less, companies with 1,000 employers or fewer, and companies who are first-time buyers of these coverages. Our target industries are manufacturers, wholesalers and distributors, select business services and select retail services.

"At our panel discussion during the PLUS annual meeting, we will be looking at blended insurance products-their advantages as well as disadvantages. We will also be looking at fiduciary liability, which has not really been a hot topic in the insurance industry until recently. There is a basic misunderstanding in the business world that all a company needs is an ERISA bond, but Enron and 401(k) performance has changed all that. We will also be looking at HIPPA and new privacy rules and how that will affect middle market risks."

Brodzinski says that PLUS is planning a series of educational seminars on some of these topics and how they affect the middle market. In the meantime, this panel will be a precursor to a renewed interest in this middle market.