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Errors and omissions risks once characterized as hard to place now are merely challenging due to ongoing soft pricing, many observers say.
With capacity at least adequate, and in some cases still increasing, even relatively problematic E&O lines, such as financial institutions, real estate, attorneys intellectual property business, and certain architects and engineers segments, generally can find coverage (see E&O underwriters find some legal practice areas problematic; Large E&O claims stem from financial crisis; and Insurers seek more detail on specialty E&O).
“Right now, there's a lot more opportunities for lines that, in a hard market, would be considered hard to place,” said Jim Donovan, New York-based senior vp in the professional liability unit at Liberty International Underwriters.
If an account is not being renewed by an insurer, it has to be because of a “pretty horrific claim, because the market is so soft a lot of people are willing to step in as an underwriting market,” Mr. Donovan said.
With the exception of “very esoteric” types of exposures, such as nuclear power plants or offshore drilling, “I would imagine brokers can place most risks in the E&O area,” said Lyle S. Hitt, New York-based executive vp of Arch Insurance Group Inc.'s professional liability practice.
“It's difficult to define what is hard to place in this marketplace, as there is capacity seemingly ready to jump into just about everything,” said James L. Rhyner, Warren, N.J.-based worldwide manager for lawyers professional liability and miscellaneous professional liability at Chubb Group of Insurance Cos.
“If you look at accounts with claims, we've seen accounts that we've paid claims on that other carriers come in and offer proposals that are less than our expiring price, so there's no penalty for claims experience,” Mr. Rhyner said.
However, “That's beginning to change, and I do see there will be more prudence in the underwriting going forward,” he said.
Tracie Grella, New York-based president of professional liability for Chartis Inc., said she would characterize E&O business as “more challenging rather than hard to place.” There are “some markets that are being more cautious about certain areas of the market” but most risks can be placed, she said.
Phil Norton, president of the professional liability division for Arthur J. Gallagher & Co. in Chicago, said, “It's kind of strange.” The market is firming and, at the same time, capacity “is actually increasing a bit.” In a typical renewal, the insurer asks for a 5% to 7% increase, then settles for a flat renewal, he said.
Robert Rogers, assistant vp at Boston-based Lexington Insurance Co., a unit of Chartis Inc., said there are five or six insurers in the architects and engineers sector who are long-term underwriters, but there are about “40 plus” others whose impact has been to continue soft pricing.
“It's still a very soft market,” said Lori Bailey, Boston-based senior vp of professional liability for Zurich North America Commercial, a unit of Zurich Financial Services Group. “There's still a lot of capacity.” While certain professional liability lines “have seen perhaps a little bit of hardening, and that's where you see rates going up a little bit,” she said. “A lot of that is going to be driven by severity events,” such as in the area of security and privacy, she said.
“Everything is, of course, relative,” said Gerard Guterl, New York-based CEO of professional services specialty at Aon Risk Solutions, a unit of Aon Corp. “We continue to see new capacity coming into the market, so the only firms that are finding themselves in a somewhat difficult position are typically those that have both recent frequency and severity of loss.”
But there are certain classes “underwriters are looking at a little more closely, and have more issues than others,” said Mr. Guterl. Regional accounting firms, for instance, “are starting to see a potential tightening of the market,” which also is true for certain classes of architects and engineers. “One of the tougher classes over the past 10 years” has been actuarial consulting firms or actuaries.
Mr. Guterl said another trend he is starting to see is “across-the-board increases in the cost of defense.” Generally, defense costs are included within policy limits. “We're seeing significant increases, particularly in the law firm business” in defense costs, which is “putting pressure on retentions,” he said.
Mr. Norton had a more general view: “I would say, surprisingly, the news in my opinion is quite good, given where the economy is right now. We have seen a little bit of an uptick in claims, but it's not translating into a lot of extra premium.
“Across the book, things loom pretty flat at this year's renewal. Now, that could change” with big claims that ripple into several E&O categories. “But with a lot of claims undetermined, a lot of claims relatively small,” as well as new capacity, “I think this puts us in that holding pattern where we can remain cautious but temporarily comfortable,” he said.
The financial crisis' effect on real estate-related business is being felt in errors and omissions liability coverage.