Has the insurance industry learned from past professional challenges? | Insurance business America
Liberty Mutual’s experts can advise you on what to look out for in the market
Occupational risks
By David Saric
The insurance industry may not have learned lessons from previous professional challenges, particularly in the areas of directors and officers (D&O), employment practices liability insurance (EPLI), errors and omissions (E&O) and management liability, a financial specialist has warned.
“From my perspective, for some reason the insurance industry never seems to learn from the mistakes of the past — and often it is irrational,” said Michael Englert, head of private nonprofit finance at Liberty Mutual Global Risk Solutions. “I think most of it just comes down to capacity and how many competitors there are really dictates the market.”
Both private and public markets have weakened since the hardening that began in 2020, according to Englert, who hopes to see even greater stabilization in 2024.
“We assume that overall there will be blanket renewals, which I think everyone should be happy with,” said Englert. “But you never know – there are a lot of wild cards depending on what happens with the economy, we have a presidential election coming up and there are a lot of political issues.”
Across the market, growth targets could be aggressive this year as “many private D&O providers are not hitting their targets,” predicts Brent Tan, senior director, financial lines underwriting at Liberty Mutual.
“That could put pressure and you see people moving from the public market to the private market, which could put pressure on the interest rate,” Tan said.
During a conversation with Insurance Business, Englert and Tan discussed some of the economic factors currently affecting the professional insurance market and why implementing brokers’ wish lists can help innovate new carrier products or forms.
Economic factors to consider
In the current EPLI, D&O, E&O and management liability landscape, inflation, bankruptcies and over-hiring have exacerbated companies’ difficulties.
“If you look at the last few years, the exposures are significantly different and constantly evolving,” Englert said.
“Some may refer to this as an elevated risk environment, while others may refer to it as a changing risk environment,” Tan added.
Rising interest rates and inflation are forcing companies to refinance their debt at a much greater rate from record lows, which will increase their interest payments and lead to bankruptcy for some.
According to Englert, bankruptcy filings rose nearly 30% for all business sectors through November 2023.
“One of the biggest risk factors we see with claims on the D&O side is the re-bankruptcy of companies due to the amounts owed to creditors and minority shareholders, which can be in the millions of dollars depending on the size of the organization,” he said.
There has also been a steady increase in layoffs, particularly in the technology sector, which may open up more opportunities for EPLI claims.
“I see a lot of layoffs, but I also see companies hiring people. So that’s just a big risk factor when a company has to figure out if they’ve hired too much or the wrong people when they go through these layoffs,” Englert said.
Liberty introduces ProShield product
Liberty Mutual recently released its ProShield product, a modular form of insurance designed to provide private companies and nonprofit organizations faster access to the D&O, EPLI and fiduciary and crime insurance they need to address the complex management liability risks they face are.
“It replaces forms that we developed back in 2007 that are somewhat outdated,” Englert said. “We really focused on readability and ease of use – if you look at these policies over the years, you’ll see that each carrier has different nuances when you read their policies. It can become very difficult for a broker who has to switch back and forth between products to see what is offering better protection.”
The company also wanted to emphasize flexibility, which meant designing the shape to be future-proof but adaptable.
“As new coverages and risk factors emerge that we want to cover, we could add those to the policy,” Englert said. “There is no cyber at the moment, but cyber is a perfect way to expand in the future.”
The policy form update also stemmed from the need for carriers to listen to the wishes and opinions of their broker partners.
“It’s important to gain a lot of insight, whether it’s from the various internal stakeholders we work with or from the brokerage community,” Englert said.
“When brokers review policies, they have a checklist and we as carriers should make sure we check as many of those boxes as possible.”
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2024-02-01 16:44:34
www.insurancebusinessmag.com
