PROFESSIONAL LIABILITY

Rough Notes, Oct 2004 by France, Larry G

The hard market persists, as well as the need for coverage

Did you hear the one about the attorney who went into the doctor's office?

You may never either. As reported in USA Today, June 14, 2004, some doctors are refusing to treat attorneys. Doctors say that their ethical oath applies only to emergency situations. A respected nurse in Texas was dismissed because her husband was an attorney with a firm that accepts medical malpractice litigation. That is how serious the medical malpractice situation is becoming.

Not all classes of professional liability are that bad, but attorneys, accountants and physicians would seem to top the list.

Michelle Duffett of Insight Insurance Services, Inc., says that the hard market is persisting for professional lines, although rate increases are not as high as they have been in the past. "As is typical in any market environment, the newer entrants are under-pricing their product in comparison to established programs with seasoned underwriters," states Duffett.

"Accountants professional liability changes are widely different depending on the firm's practice. Accountants who perform services for publicly held companies are hardest hit. CPA firms providing this service are subject to the toughest underwriting guidelines, as well as the largest rate and deductible increases. Accounting firms that are also selling investments are likely to feel hard market influences. Small and mediumsized accounting firms with standard accounting practices are subject to modest increases," she says.

According to Duffett, the architects and engineers market continues to be hard. Premiums are expected to increase again in 2005. In addition to a continuing correction from inadequate pricing during the soft market, inflationary pressures on construction costs are impacting rates. Projects that were designed during the construction boom are starting to have an impact on claims frequency as well. Hard-to-place classes include structural engineers and firms providing services on multi-family housing projects, such as condominiums.

Insurance agents E&O should experience modest rate increases in 2005 compared to the significant ones of the past several years.

Everyone's favorite-lawyers professional liability-has been a very hard market.

"You may have noticed that lawsuits ebb and flow with the economy," observes Pat Moore, of Pat Moore Insurance. "The insurance industry has come to attention and gone back to the underwriting basics and is coming to terms with adequate pricing, which is continuing to rise on more complex risks and in the more risk-prone geographical areas. We have shed, or are shedding, the 'short timers' (companies entering briefly with low rates and exiting when the claims begin to emerge). Increased competition is stabilizing the options for smaller firms. We are preparing to run the marathon."

Do your homework! That is the advice Pat gives to agents when trying to place LPL (lawyers professional liability).

* Ask your prospect about the firm, areas of practice, number of attorneys, and claims history and request a copy of the last application completed by the firm.

* Check the completed application to be sure it is complete, accurate, and signed.

* Is claims information concise and loss information provided? Don't send suit papers. Do send loss runs from prior carrier. Insured must request in writing from the former carrier.

Seems like good advice for most submissions regardless of the class of business.

Unfortunately the short timers Moore mentioned do exist and accelerate the soft market.

"We are at the tail end of the hard market, returning into the beginning of a soft market where LPL carriers are willing to quote below their expiring premium under competitive pressures," says Danielle Hardiman of Brown & Brown, The Lawyers Protective Plan. "However, some LPL carriers still appear to be taking action and becoming more conservative in their underwriting approach."

"Efforts have been made to assist agents in utilizing this product as a door opener for new business, and as a means of closing the door on existing business to competitors," says Joseph Schneider, RPLU, of Jimcor Agencies. "Training agents and educating our agency partners is important to Jimcor, and through CE and other marketing tips we hope to assist our clients in growing their own business successfully and profitably."

Schneider says that in today's market, professional liability insurance is needed more than ever. The challenge agents seem to face is convincing clients who in the past never had a loss to see the need. As discrimination, harassment, and other associated claims flood the courts, Jimcor expects professional liability to rise dramatically.

There are some positive attitudes towards the future of the professional liability market. Bill Reese, National Insurance Professional Corporation/a division of Risk Placement Services, advises that as much as 25% of their total professional liability book will be new business if the current trend continues this year. "NIPC feels the market is fairly stable at the moment, but is showing definite signs of softening as underwriting trends in the areas of child care agencies, adoption, foster care and residential care facilities have gone from brutal to semi-strict," says Reese. "We are able to offer $2 million/$4 million primary with umbrella and excess available." Reese indicates that the pricing trends are easing now at about 25% higher at NIPC than they were at the onset of the hard market.