LET’S FACE IT – nobody’s perfect. Even the most experienced professionals make mistakes from time to time. And in our litigious society, even when your service delivery is flawless, a client could still seek legal action against you. That’s where professional liability insurance comes into play. Also known as errors & omissions insurance (or malpractice insurance in the medical sector), professional liability is a mature yet ever-evolving sector of the insurance industry that offers specialized coverage to protect a professional or business from liability caused by ‘wrongful acts’ — including any actual or alleged breach of duty, neglect, error, misstatement, malpractice or omission. When professionals err (and even when they don’t), PL coverage can help protect them from paying the high cost of a lawsuit. “As our economy continues to shift to a service orientation, the market for professional liability coverage continues to grow,” says Greg Leffard, president of Hanover Professional E&O at The Hanover Insurance Group. “Professionals and service providers are seeing increased activity in lawsuits when their service or advice doesn’t meet their client’s expectations. The defense costs of lawsuits alone can be quite substantial. In fact, it can force many smaller professionals out of business. So having a professional liability policy that will pay for defense costs is crucial, even if facing frivolous suits.”
Who needs it? As its name suggests, the PL sector is most generally associated with traditional licensed non-medical professionals – lawyers and accountants, architects and engineers, Realtors and insurance agents. But PL/E&O coverage is also available (and highly recommended) for any and all miscellaneous providers of business and personal services – from arborists to zookeepers – and the thousands of classes in-between. Simply put, “If you are transacting business on behalf of someone else where there could be a financial remedy for the failure to deliver those services, then you need professional liability coverage,” says Jill Tellez, senior vice president and professional liability leader at
“The defense costs of lawsuits alone can be quite substantial. In fact, it can force many smaller professionals out of business” Greg Leffard, The Hanover Insurance Group Victor O. Schinnerer & Co. And yet, “The biggest challenge is that many professionals are ‘non-buyers’ – they don’t think they need this coverage, or may actually think they have it when they in fact do not,” Leffard adds. “They may believe that they have coverage for their services under a general liability policy when they do not. For such businesses, they actually may have the most loss exposure coming from their professional services.”
An evolving, diversified sector To ensure the best protection possible, the traditional advice has always been that every business should have both professional liability and general liability policies in place, because GL policies do not cover PL exposures. But Reza Khan, executive vice president at ThinkRisk (an MGA owned by Ryan Specialty Group), says that it’s not always that clear-cut anymore. “Twenty-plus years ago, traditional E&O and PL policies were typically offered as a monoline product by a handful of specialty insurers such as AIG,” he explains. “That approach has morphed over time. Many insurers now offer E&O as a component of a package including GL.” Additionally, Khan observes that more and more E&O carriers are now expanding their definition of professional services to affirmatively address claims that professionals didn’t face as recently as 10 years ago, such as media, cyber and privacy liability exposures. “In fact, E&O policies are no longer triggered just by third-party liability issues,” he says. “It has become increasingly common to see E&O policies covering the cost of privacy notification and credit monitoring, as required in 47 states following a data breach
3 TRENDS IN THE PL/E&O SECTOR
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Premiums As the economy recovers, more small businesses and consultants are entering the marketplace, increasing demand for professional liability insurance. This demand has sparked more interest in the space among insurance providers, resulting in a great supply of insurance capacity and a marketplace in which the price of professional liability coverage has decreased, says Dana Ross-Paige of V3. Meanwhile, Marsh’s US Insurance Market Report 2015 predicts that significant volatility in cyber pricing seen during 2014 is likely to continue in 2015.
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Renewal rates Marsh reports that average commercial E&O renewal rates in the fourth quarter of 2014 ranged from no change to an increase of 3%, compared to a range of a 3% decrease to a 7% increase during the same quarter in 2013. This trend is likely to continue into 2015.
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Risks – Cloud computing, social media and privacy exposures top the list of Marsh’s risk trends in the commercial E&O space in 2015. Business interruption was an area of particular concern for third-party vendors in 2014, as more businesses rely on the vagaries of their cloud provider for mission-critical systems.
– although typically, those coverage grants are sub-limited.” There has also been an explosion in the number of carriers offering E&O in the last couple of decades. “Looking back at the ‘70s and ‘80s, there were probably fewer than 10 national insurers offering E&O coverage,” Khan says. “Today there are over a hundred that target one or more class segments of the
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