8 New Markets in Response to Current Trends

Insurance Companies Generate New Programs to Bring in Additional Premium

The last few years of the soft market have forced many carriers and agencies to get creative when it comes to bringing in additional premium. This has included launching new products for specialized risks. At first glance, it would appear some companies have gone the traditional route with their products such as construction (Lexington), earthquake (Abacus Insurance), insurance agents errors and omissions (E&O) coverage (Lee & Mason), or kidnap and ransom (Hiscox), but a closer look at many of these products or programs shows that they actually target very specialized risks or provide options that are not available from other markets. In the case of Allied World, a new hiring meant an entirely new environmental division for the company at the end of last year, which included several new products and more in the pipeline. Some of the new products in the insurance industry cover all segments and include:

• Lex FollowUP – Lexington
• New Environmental Unit – Allied World
• Tech E&O – OneBeacon
• EPL Endorsement for Wage & Hour Claims – Monitor Liability Managers
• Increased limits for insurance agents – Lee & Mason Financial Services
• House of Worship K&R Product – Hiscox
• Allied Health Product – WKF&C
• Earthquake Deductible Buyback – Abacus Insurance

Construction: Lexington

In February, Lexington designed a new policy for the construction industry to assume the financial risk associated with general liability self-insured retentions (SIR). The reverse follow form policy provides coverage for an insured’s SIR for incurred but not reported claims that could arise under certain scheduled insurance policies.

“The new coverage principally came out of several discussions we had with clients and prospects that were expressing an interest in such a product,” said Tom Grandmaison, senior vice president at Lexington. “They felt like they had policies from past years that had high SIR’s and that they would be interested in trying to monetize out those SIRs to help smooth out the balance sheet.”

Lex FollowUP includes a six or seven page policy form that allows Lexington to step in and take on the liability for an insured’s exposure up to the SIR limits for scheduled policies. It can be done for one or multiple policies. Every insured’s policy will be manuscripted to the size and scope of the risk.

“We will look at the company’s experience and loss experience of a given risk as well as determine the latency terms in the future that we would take on,” said Grandmaison.

Because it is not a typical policy form, there is no standardized policy limit but Lexington expects the average limits will be under $25 million. There is no minimum premium or SIR and in most cases, there will be no SIR because Lexington will be buying it out.

The product is available on a nonadmitted basis in all states. Lex FollowUP is targeted towards commercial and residential risks, including homebuilders, general contractors and owner developers. Eventually, the product may not just be limited to the construction industry.

“While this was a product we developed in the construction practice within Lexington, there is nothing that says we couldn’t do it for other casualty product lines, like products liability, or energy practice as the theories, applicability and strategy could still come into play,” Grandmaison said.

Environmental: Allied World Assurance Co.

Allied World brought on Ken Cornell as senior vice president of the Environmental division last fall to launch its environmental unit in the United States. Since then, Cornell has created environmental products for Allied World that were in line with where the carrier already had a presence in the marketplace, such as health care, construction, public entity and real estate.

Some of these products include an occurrence-based contractors pollution policy; two versions of a pollution legal liability policy – one blanket and one scheduled location policy; and most recently its environmental casualty suite of products, including a primary and general liability/pollution liability combination policy with umbrella, as well as auto.

The carrier also has the ability to provide insurance for companies that are in green industries like alternative energy and green buildings that are Leadership in Energy and Environmental Design (LEED) certified, although it does not have a specific green product.

Cornell said the soft market has been a challenge for many agents but there is plenty of room for growth in this sector. He said Allied World is committed to helping agents reach out to that business.

“The important part about the environmental industry is there is a lot of untapped market potential,” Cornell said. “What we focused on was being very strategic about areas we offer products and communicating the value of them. If you do those things, you have the ability to continue to grow your base of buyers of environmental insurance.”

Tech E&O: OneBeacon

This month, OneBeacon began a new E&O program for tech firms that includes professional and professional services liability, technology products liability, media liability, network security and privacy liability, and breach event coverage. The coverage is available to application service providers, archiving/backup services, custom software developers, database management, and many others. OneBeacon’s capacity is $10 million on a primary and excess basis and the minimum premium is $2,000 with a minimum deductible of $2,500. The coverage is available on a surplus lines basis in all 50 states. OneBeacon finds this area to be one that requires a lot of information and education, and will continue to hold webinars for insureds and brokers to discuss industry issues and how it can help them address those issues.

“From a carrier perspective, it is a continual growing and learning process,” said David Molitano, OneBeacon Professional Insurance’s vice president of technology E&O. “As we all know, technology is changing constantly and as a carrier we need to make sure we are up-to-date with the latest trends and providing a viable product to our customers.”

Employment Practices Liability: Monitor Liability Managers

Monitor Liability Managers, a W.R. Berkley Co., added an endorsement to its employment practices liability (EPL) policies in February called prior and pending litigation exclusion with unemployment benefits carve-out. The endorsement was based on the recent Supreme Court decision National Waste Associates LLC vs. Travelers Casualty & Surety Inc. that clarifies that filing for unemployment benefits is not considered an administrative proceeding. The endorsement provides for the carve-out in the prior and pending litigation exclusion. It is also applicable to Monitor’s management liability insurance policies.

The carve-out is in place so that there is no gray area for insureds. For purposes of determining coverage under the policy, the endorsement makes it clear that Monitor will not consider an employee’s filing for unemployment benefits before the prior and pending litigation date as an “administrative proceeding.”

EPL claims and lawsuits have significantly increased recently, according to Lynette Lyngaas, assistant vice president of underwriting for Employment Practices Liability at Monitor. The Equal Employment Opportunity Commission (EEOC) recorded 93,277 charges in 2009 alone. With this increase, insureds need to be aware of their exposure.

“In our experience, the biggest mistake we see agents make is to not cross-sell stand-alone employment practices liability insurance to their existing customers,” Lyngaas said. “Another issue is not educating potential buyers about the inherent risks and the importance of purchasing EPL coverage that is commensurate with their exposures.”

Monitor’s EPL coverage has limits up to $5 million on primary or excess. There is no minimum premium but the average premium is just over $7,000 for a limit of $1 million. Monitor’s new endorsement is available in all states on a nonadmitted basis. For states where Monitor is admitted, the company can use manuscript endorsement wording when available until the time when the filing of the endorsement is approved by that state.

Insurance Agents E&O: Lee & Mason Financial Services

Lee & Mason Financial Services has increased the available limits on its insurance agents E&O policy from $5 million to $10 million. The company, which writes insurance agents E&O on Scottsdale paper, wanted to take advantage of opportunities to write accounts that it wouldn’t have otherwise been able to write.

Lee & Mason also finds many agents prefer to use fewer markets on the excess side and the larger insurance agencies need higher limits.

The insurance agents E&O coverage includes extra limits for defense, coverage for claims handling and claims adjusting, loss control and risk management, premium finance activities, extra coverage for disciplinary proceedings, and no retention. Lee & Mason also has a toll free risk management hotline for a law firm that an insured can call for 30 free minutes of risk management advice. The minimum premium in all states is $4,000, except California and Texas where it is $7,500.

Kidnap & Ransom: Hiscox

Hiscox has extended its kidnap and ransom offerings with its new Houses of Worship Special Protection Solution. The coverage includes, but is not limited to, expenses incurred in responding to kidnaps for ransom (reimbursement), acts of violence, extortion threats, disappearances, express kidnaps, travel evacuations and loss of earnings as a result of an insured event. The program covers directors, officers, employees, volunteers, mission attendees, students, chaperones, consultants and independent contractors.

Jeremy Lang, manager of Hiscox’s U.S. kidnap and ransom coverage, said the carrier and its brokers identified a special need for this type of coverage in the marketplace because houses of worship need their own tailored coverage.

“We have been talking to brokers about houses of worship risks for some time,” said Lang. “While policies that address issues for houses of worship do exist, a comprehensive solution that addressed international as well as domestic risks was lacking.”

The Houses of Worship product is available in all 50 states and coverage extends to cover travel in every country. Hiscox requires that brokers submit an application for their insured with some basic data points such as physical location of the House of Worship, nature/reason for any travel, any scheduled travel (domestic and overseas) and the approximate number of people to be covered.

Another feature of the coverage is that Hiscox allows a portion of the premium paid by the insured to be used directly toward risk management. The insured can use a percentage of the premium to work with Control Risks, an independent, specialist risk consultancy Hiscox partners with, on items such as creating a crisis management plan, helping to put together an incident management team or consult with Control Risks about places the insured is thinking of traveling to.

Medical Risks: WKF&C Agency

WKF&C Agency is planning to release product enhancements, such as property, to the class codes in its Allied Health program, which it launched last year. Within the Allied Health program, which is written on Lloyd’s paper, WKF&C targets home health agencies, medical personnel, nurse/nurse practitioners, alcohol and drug rehab centers, diagnostic imaging and X-ray, medical clinics, physical therapy clinics and mental health clinics, to name a few. The maximum available limits are $2 million/$4 million and the minimum premium is $2,500. The minimum deductible is $1,000. WKF&C can write the coverage in all states.

Earthquake: Abacus Insurance Brokers

Abacus Insurance Brokers launched an earthquake deductible buyback program for homeowners in California last month. The program is available online and provides an option for a policyholder to reduce their deductible down to 5 percent on an existing earthquake policy. It is available to single family residences, duplexes, triplexes, and fourplexes. The coverage is available through Allianz Global Corporate & Specialty. Premiums start at $150.

Topics Trends Carriers Agencies Claims Excess Surplus Tech Market Pollution Construction Risk Management Earthquake Church Professional Liability