Regarding their own careers, professionals in the COVID-19 era generally have responded to the pandemic in one of two ways:
- Adapting to the evolving landscape by shaping or following their business’ new policies and procedures; or
- Striking out on their own to work as a consultant or to form a new practice.
Which group they belong to should dictate how their business handles Professional Liability Insurance and practices for Errors and Omissions (E&O) risk management.
Professional practices established before the pandemic can use this time as an opportunity to tighten up the ship – to become leaner and more efficient in a manner that will mitigate the effects of the ongoing hard market for Property and Casualty Insurance. Professionals have it especially hard, as the pandemic has decreased business activity in many cases, and they find themselves working from home.
Individuals who have by necessity or through entrepreneurial endeavor charted a new course must see to it that the same kind of Professional Liability protections they had with their former employer are in place for their practice. Given Professional Liability insurers’ current preference for middle-market practices, this will be a challenge.
In either case, whether you’re an accountant, an attorney, a doctor, an architect or anyone else delivering professional services, the nature of your profession makes it essential that you work with an insurance agent or broker who understands your business and knows your industry – especially amid a hard and ever-changing market.
(In addition to working members of each of the aforementioned professions, Alera Group has a Healthcare Professional Liability (HPL) division. We’ll revisit Medical Malpractice Insurance in an upcoming article.)
Professional Liability Insurance is designed to protect you against claims of negligence or malpractice. A good agent or broker will make sure you have the right coverage in place in the event of a claim. A great agent or broker will help you reduce the risk of having a claim filed in the first place. And, if you do have a claim help you to answer questions and advocate on your behalf during a claim.
The Outlook Entering 2021
Here’s the outlook on Professional Liability Insurance as outlined in Alera Group’s Property & Casualty 2021 Market Outlook whitepaper, released in December 2020:
► The outlook varies based on sectors, account size and individual risks. For the most part, insurers are interested in avoiding large and small organizations and are focusing on the middle market.
► Large law firms will be more closely scrutinized than midsize firms due to increasing losses. Price increases and requirements for higher retentions will be disproportionately higher for this segment than for smaller law firms.
► Due to COVID-related supply chain challenges, underwriters are tightening their underwriting for businesses offering just-in time or guaranteed output time, including large technology companies.
► CPAs, consultants and what the industry traditionally defines as “miscellaneous professionals” will not experience dramatic shifts in availability, coverages or pricing.
► Cyber coverage providers are increasingly including E&O as part of their coverage forms, thereby reducing the potential for gaps or overlaps between E&O and Cyber coverage parts while simultaneously expanding some E&O capacity. Cyber coverage has been evolving since its inception, and adding Professional Liability coverages is a major shift.
The outlook showed unfavorable conditions for buyers across the board – in terms of rates, availability, capacity and underwriting selectivity.
To obtain the entire Property & Casualty 2021 Market Outlook whitepaper, click the link below.
What’s new: Architects, engineers, tech manufacturers especially hard-hit
For some professionals, the P&C market outlook has worsened in 2021. In February, Insurance Journal reported on a recent survey in which nearly half of companies writing Professional Liability Insurance for U.S. architects and engineers said their claims experience worsened in 2020. As a result, nearly all were planning to raise rates.
PropertyCasualty360 followed with a March article anticipating claims against architects and engineers in cases involving construction delays:
“While architects and engineers may not be directly responsible for delays in construction projects, we will continue to see a significant number of claims in this area. Whether it was stay-at-home orders that kept the labor away or issues with logistics that meant materials didn’t arrive in time, residential and commercial project interruptions will trigger a lot of finger-pointing. Fortunately for design professionals, in addition to having little responsibility for the timing of project delivery, they also have the defenses of force majeure, Act of God and impossibility to assert as defenses.”
Businesses faced with supply chain issues may not be as fortunate. Insurance carriers recognize that high-tech manufacturers such as makers of semiconductors have been unable to keep up with demand – hence Alera Group’s forecast of more restrictive underwriting “for businesses offering just-in-time or guaranteed output time and for large technology companies.” Manufacturers who can’t deliver are going to face lawsuits, and many are not going to have insurance to cover those claims.
Knowledge, experience matter
No sentence is more comforting to someone facing a potential Professional Liability lawsuit than a simple “You’re covered.” And only a knowledgeable, experienced insurance professional — one who knows your business and your policy — can credibly issue such assurance. It is so important to know what you are covered for and what you are not covered for, and your broker needs to be aware of your business to assure you of coverage.
Consider one of the most important protections for an insurer: An “additional insured” endorsement can solve a lot of potential problems. Knowing when such an endorsement is necessary and what is required by insurance companies requires an in-depth knowledge of the policy holder’s operations and contracts. When a related claim arises, that’s what makes telling an anxious client “You’re covered” possible.
Just remember: Review all your contracts, and change language wherever applicable!
In addition, working with a specialized agent or broker may open a market that might be closed to someone lacking in established relationships with carriers and underwriters — an invaluable advantage at a time of heightened underwriter selectivity. An experienced broker may also be able to leverage industry relationships to determine when carriers are motivated to write coverage out of a desire for revenue, or when they’re denying coverage out of fear of taking on losses.
Obtaining coverage and containing costs require some work by the insurance buyer, too. Here are five steps you can take:
- Re-market your business every year, providing detailed specifics on your application. Do more than simply renew your policy, and chances are someone will offer you a better deal. Doing the work can wind up saving you $10,000 to $20,000 — as much as 5-10% in many cases.
- Consider raising your deductibles to save on premium.
- If you’re really cash-strapped, consider reducing coverage limits – but only as a last resort. Even if your business’ activity has decreased, you still need some level of limits. Never drop below $1 million in limits; doing so would be a big mistake.
- Start the application process early — a couple of months before renewal. Providing all pertinent information takes time. Marketing to multiple carriers takes time. Submitting an application three days out from renewal isn’t going to get you the options in coverage you desire.
- Register for Alera Group’s cyber security webinar. Join World Synergy to see where cyber and E&O exposures merge and diverge. Learn how to protect your business before a breach and how to respond in the event a breach occurs.
About the Author
Alera Group Las Vegas
Joel Jarvis specializes in Property and Casualty Insurance including Professional Liability, Errors and Omissions Insurance, and Directors and Officers coverage for Boards of Directors and Executives. He has extensive experience developing programs for attorneys and for clients in the transportation, hospitality, nonprofit and construction industries. He has sixteen years of experience in the insurance industry in addition to seven years as an internal accountant, and has an extensive resume of service on boards of nonprofit organizations.
- (702) 304-7839