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Professional liability policyholders are enjoying enhanced coverage, and some are seeing significant rate cuts as the soft property/casualty market persists.
In particular, cyber risk coverage is being blended into errors and omissions policies as professionals grow increasingly wary of cyber-related exposures.
The move to blend cyber coverage into E&O policies, for an increased premium, follows increased demand for the coverage by policyholders who often view cyber liability as an intrinsic risk for professionals, said Jill Salmon, New York-based vice president of professional liability at Berkshire Hathaway Specialty Insurance Co.
“The focus has shifted from the ‘vanilla’ management professional liability policies to blended cyber products,” Ms. Salmon said.
Lawyers and accountants were some of the last professions to get on board. “Law firms thought their lawyer’s professional liability policy would cover a cyber breach and they didn’t need additional capacity to address it. That seems to be changing,” she said.
David M. Finz, New York-based senior vice president and senior client adviser for Marsh USA, said it is common to see cyber coverage blended into E&O policies, noting that media companies in particular are interested in the expanded coverage.
“The cyber liability product came out of the media and tech underwriting space,” Mr. Finz said. “Media companies are accustomed to being asked about copyright infringement, defamation or errors in advertising, but cyber security is a whole new arena for them to respond to,” Mr. Finz said.
In addition, the process of buying coverage is changing to reflect the increased cyber risk, he said. E&O policyholders are bringing their chief information security officers or chief technology officers to underwriting meetings to answer questions about cyber risks. “Underwriters … are asking questions that haven’t been part of underwriting discussions in the past,” Mr. Finz said.
Cyber is one of several coverages increasingly being added to E&O policies as insurers seek to stand out from their competition, said Dennis Bissett, professional liability claims director at Sedgwick Claims Management Services Inc. in Chicago.
For example, larger accounting firms “have senior underwriters and brokers interviewing them to determine what exactly their exposures are, and they will tailor that policy to their needs,” he said.
“Now they’re including crime coverage, cyber or reputational risk. Before this you would have to get each policy separately. Now they are combining those policies to fit what the risks are,” Mr. Bissett said.
While coverage is being enhanced, the professional liability insurance is generally soft.
Paul Denny, errors and omissions leader for Marsh L.L.C. in New York, said rates are flat for most professions, despite increases in claims for some professionals, such as law firms, he said.
“Every profession is very different, but the lawyers are seeing an increase in big claims for classic mistakes arising out of human drafting errors; not checking documentation properly has led to some sizable losses in the marketplace,” Mr. Denny said. Excess insurers “are pushing for rate increases more than the primary carriers because they’re being hit by these kinds of sizable losses, but with the competition in the marketplace, they can’t get the increases,” he said.
One segment seeing lower rates is financial institutions, said Phil Norton, Chicago-based vice chairman of the Midwest region for Arthur J. Gallagher & Co.’s retail property/casualty brokerage operations and a managing director of the management liability practice.
“Financial institutions got gypped; they had seven years of increases. We didn’t trust that they would survive in 2008 through 2010, but they did and now we want to give them a larger-than-normal decrease because they missed out on decreases other segments had been seeing in the past,” he said.
Some financial institutions are seeing double-digit reductions, he said.
Directors and officers liability insurers and buyers have taken notice of the U.S. Justice Department's greater emphasis on individual accountability in cases of corporate wrongdoing.