Specialization is key to thriving in the professional and environmental markets, insiders say
Professional liability and environmental liability are two very distinct insurance products with one very important thing in common: specialization and experience are essential to successfully selling them. Here, Chris Leisz, Midwest regional executive and senior vice president, Hiscox USA, provides insight into professional coverage, and Adrien T. Robinson, president, Navigators Commercial, shares his thoughts on the environmental insurance segment.
Q. What forces are influencing your market most nowadays?
Robinson: The biggest impact to the environmental space over the past year has been the favorable interest rate and lending environment. Combined with reasonable real estate prices, this has led to more real estate transactions, M&A activity, and construction development over the past 18 months — not to pre- 2008 levels, but still a nice resurgence in activity. This drives more site pollution and contractors pollution activity, and the environmental industry consistently continues to see new buyers of pollution liability insurance as a result.
Leisz: The continued low interest rate environment, with corresponding low investment returns, is driving more insurance markets to seek underwriting profits. But the significant excess reinsurance capacity entering the market from new capital sources has countered the market hardening normally seen at this point in the cycle. Over the last year, there has been a steady increase in demand from the small business segment of the market — we have seen an increase in consultants, allied healthcare professionals, and other emerging professions in this new economy needing coverage designed for their industries.
Q. Should customers try to include specialized coverage in their general liability (GL) policy?
Leisz: Risk managers need to make sure their organization is getting the correct coverage. In a packaged offering, the breadth of coverage does not usually meet market standards for professional liability. This can lead to claims denials, non-renewals as a result of claims, or forced settlement because claims teams do not have expertise in professional. For example, a typical GL policy does not cover important risks for architects and engineers such as cost overruns, construction delays, or loss of use of property, which is particularly important with renewed construction activity.
Robinson: Historically, if an insured wanted robust environmental coverage, the answer would be to purchase a standalone policy to cover that risk. However, over the past decade, new policies have emerged that integrate GL coverage with a wide range of pollution liability coverages. This integrated approach is likely best suited for insuring an ongoing concern, such as a manufacturing operation, and can be a cost-effective way to manage general and environmental risks simultaneously.
Q. Why should risk managers buy tailored liability products?
Robinson: One reason is that most of the policies in the marketplace are proprietary and the extent of coverage varies widely by carrier. Also, the environmental risk presented by seemingly similar operations can vary widely — a strip mall with only retail sales and restaurants compared to a strip mall with a dry cleaner or a gas station. The higher risk posed by the latter may require significant tailoring and modification to ensure risks are managed appropriately.
Leisz: A professional liability policy that specifically addresses the needs of your unique business is the only way to ensure you are adequately covered in the event of a loss. Still, it’s prudent for professionals to have both a professional and general liability policy in place so that there is no gap in coverage. We’ve also seen a marked rise in cyber exposures over the past few years, particularly with the increase in business transacted via mobile devices. So it’s important that professional policies contain data privacy and cyber security coverage.
Q. Why should risk managers buy coverage when they don’t think they have any exposure?
Leisz: All companies face real risks that are addressed by professional liability policies. For instance, anyone who provides services to a third party runs the risk of someone making an allegation of negligence and incurring defense costs. Businesses risk data privacy and security breaches, with small to medium-sized companies losing nearly $200,000 per breach and two-thirds going out of business within six months of a loss. Employee embezzlement increased 11% from 2011 to 2012, and the average loss almost doubled. A professional liability policy should protect against all those risks.
Robinson: Environmental liabilities are generally characterized by low frequency but high severity. Pollution related bodily injury cases can be the most expensive to resolve because of the many experts that need to be involved to prove or refute complicated causation and damages. For instance, it’s not uncommon for a mold loss in a commercial office building to cost hundreds of thousands of dollars to assess, remediate and monitor post remediation. Any claims for bodily injury for exposure of the building inhabitants to the mold would only add to the loss.
Q. What are some of the recent changes you’ve made to products or programs to target the needs of risk managers?
Robinson: Over the past few years, we have modified policies to insure emerging risks such as mold, silt runoff from contractors’ job sites, e-waste and carbon sequestration. We’ve also created special coverage for managers of real estate that is designed to cover their professional liability exposure to environmental risks, thereby closing a potential gap in their real estate managers’ E&O program. Risks that we’re looking at on the horizon that may need coverage modifications by the industry to address include nanotechnology, clean energy, supply chain interruption and climate change.
Leisz: Earlier this year we introduced the Hiscox Professional Liability Portfolio with targeted industry specific forms for the allied health care, architects & engineers, and miscellaneous professional liability lines in response to marketplace demands. We recently added crime, data breach and privacy coverages as simple add-ons to these industry-specific professional liability forms. We recognized a demand in the marketplace for easy-to-understand forms that address the specific risks organizations — particularly emerging professional organizations — face. Our new forms make it easy for these organizations to get the coverage they need to protect themselves.