E&O Prevention

E&O Communique - A publication of the Utica National Insurance Group It's Definitely Time to Make a
Stronger Commitment to E&O Prevention

by Curtis M. Pearsall, CPCU, CPIA
Special Consultant to the Utica National E&O Program

In many parts of our great nation, the market had begun to harden before September 11th. Pricing was going up, and carriers were either non-renewing blocks of business due to their unprofitability or adding new exclusions. Mold, an issue that had barely found its way into insurance policies, was becoming a significant concern. Carriers were trying to determine what their coverage position was on e-commerce and cyberspace, with many filing exclusions due to the uncertainty of this new exposure.

Then came September 11th, a day that Americans will never forget. How has this changed our industry? There was the realization that the insurance industry had become complacent with expectations that the future would look like the past. Reinsurance, a critical component of our industry, is now being reviewed in light of the new definition of "the worst that could happen." In my 27 years in the industry, I cannot remember the market being as hard as it is today. What does this mean for today's agent? In my opinion, it means that they must make a much stronger commitment to E&O loss prevention to survive.

There are a number of reasons why this issue is more important today than it was yesterday.

History has shown that the harder the market, the higher the exposure to E&O claims.
This is because agents need to find new homes for business that is non-renewed because of the restriction in the market. When you move an account from one carrier to another, do you or your staff do a side-by-side comparison to ensure that the new coverage is at least equal to the former? If it is not, do you communicate to your customer the difference between the old and new coverage? If not, you are asking for trouble.

September 11th made carriers realize that their level of underwriting was not high enough.
Also, many carriers found out on that day that they had more aggregate exposures than they financially could afford. This one event brought out claims involving personal auto, general liability, property, workers compensation, inland marine, life insurance, etc. As a result, carriers are now underwriting to a greater degree. Do you ever remember carriers asking how many employees work in a common location or how many stories a building is? Because of this, the marketplace has become more restrictive, and agents will have a harder time finding a market for certain risks.

The E&S industry will become a bigger part of an agent's marketing efforts.
Due to the freedom of form and lack of guaranty fund issues, agents will need to be very careful when using this segment of the industry. An issue that further complicates this marketplace is that for many years E&S was the safety net for the overall industry. This has changed, and they now have become more restrictive on various coverages - most notably in the property arena.

Some carriers are becoming very aggressive in pursuing action against their agents for various violations. If you see some of your carriers coming out with some tough new agency agreements, this agreement is what they are going to hold you to if there is a problem. Believe me, some carriers are real tough!

So, you have increased underwriting, a more restrictive marketplace, new exclusions involving mold, terrorism, and cyberspace that you are going to have to explain, and carriers that won't hesitate to hold you to a tough agency agreement. It is definitely time to make a stronger commitment to E&O loss prevention.

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