The Mass. liquor JUA serves up misleading market information
As a managing general agent for liquor liability insurance for over 20 years, I took great interest in a recent article in Insurance Journal titled, “Raising the bar on liquor liability training.” (See Insurance Journal, July 3, 2006). The article included certain valid points, and offered insight into some of the logic used in liquor liability underwriting and rating. It was unfortunate, however, that the article was somewhat misleading with respect to the current state of the liquor liability marketplace, not only in Massachusetts (the only state where the author’s program offers coverage), but in the nation as a whole.
By example, the article states that soon after the tragic accident in 2003 that killed 100 people in a Rhode Island nightclub, many carriers “abandoned the market.” The fact is, that terrible occurrence caused general liability underwriters to look closer at similar risks, paying more attention to the type of entertainment offered and making sure that fire codes are up to par, including multiple means of egress. However, the now infamous loss, unrelated to typical causes of loss for liquor liability claims, had no negative impact on the availability of liquor liability insurance. The reality is that in the past two to three years, more “A” rated carriers have entered the marketplace than in any time since the Massachusetts Liquor Liability Joint Underwriting Authority (LLJUA) was formed 20 years ago.
Competition on rates
Furthermore, the article states that “overall [liquor liability] rates are somewhat higher than they used to be.” While it does not state what two periods of time are being used to make such a comparison, readers might be lead to believe that rates are on the rise, in that the statement was coupled with the reference to the 2003 loss.
Once again, this is, at best misleading, and at worst, simply untrue. With the influx of new carriers into this line of insurance, free market competition has forced rates lower than they have been for almost 10 years. The author may be confusing general market rates with recent rate increases taken by the Mass. LLJUA, presumably because its prior rates were artificially low.
There is also a generalization within the article which I found to be misleading. The statement that the “industry” has determined that premiums need to be higher for establishments that include pool tables, live music, etc., suggests that insureds with these characteristics can expect to pay more than similar establishments absent of these forms of entertainment. The author states that the Mass. LLJUA takes a different approach by discontinuing their surcharge for risks with entertainment. In fact, while “some” carriers may debit rates for certain entertainment, the majority of the voluntary carriers simply underwrite the specific entertainment and do not typically insist on a premium debit.
Additionally, while recommending that policies include assault and battery coverage is good advice, agents should not assume that they always need to add the coverage. This generalization, in my opinion, mistakenly leads readers to believe that they should seek protection from the Mass. LLJUA, since it offers certain discounts when purchasing A&B as an add-on. In an examination of the voluntary marketplace, agents will find that many carriers offer A&B coverage to most types of risks, and some do not exclude it all from their insuring agreements. This seems to be a relatively important omission.
Confusing existence
Personally, the continued existence of a joint underwriting authority for liquor liability coverage in Massachusetts confuses me on at least a couple different levels.
As we all know JUAs are formed when the voluntary marketplace is unwilling or unable to offer an important line of coverage. By their nature, a JUA is set up as a temporary stop-gap measure, until the marketplace corrects itself, as it has always historically done.
Last resort?
The Mass. LLJUA was formed in 1985. This would suggest that, unlike insurance consumers in any other state or commonwealth in this union, a preponderance of business owners in Massachusetts have been unable to secure liquor liability coverage in the voluntary marketplace for the past 21 years. The author would not argue with this statement as he reiterates in his piece the Mass. LLJUA tagline, “the market of last resort.” However, if this JUA were, in fact, the market of last resort, it would be writing only a small fraction of the existing business. The truth is, there are at least seven “A” rated mono-line liquor liability markets (admitted and non-admitted) offering coverage in Massachusetts. Although some have only recently entered the marketplace, a majority of these carriers have offered this coverage for 10 years or more.
Contradiction
Will every carrier write every risk in the state? The answer is “no.” But considering the discrepancy of underwriting rules among all of the carriers, the only risks going into a JUA should be the most distressed (those with claim frequency or severity, or with very unfavorable risk characteristics), but that is clearly not the case.
In fact the Mass. LLJUA requires applicants to state that they have sought coverage in the voluntary market, but were unsuccessful. Yet they state on their Web site that they pay a different commission on policies sold to businesses that previously had liquor liability coverage. Am I the only one who sees a contradiction here?
Furthermore, the Mass. LLJUA has taken a very aggressive marketing approach to boost sales for a number of years now, including regular full page insertions in industry trade journals. If there truly were an absolute absence of voluntary markets and the Mass. LLJUA were simply the market of last resort, why would there be a need to advertise at all?
Agents’ belief
I believe what I think most agents believe. That is that any JUA should be “the market of last resort.” However, based upon the way it acts, the Mass. LLJUA should stop characterizing itself this way, and instead call itself what it is: “An alternative market, competing in the voluntary marketplace.”
Brian Courcy, CIC, is senior vice president, of Chittenden Insurance Group LLC (www.chittendeninsurance.com), based in Burlington, Vt. He can be reached at 802-863-2841.
I believe what I think most agents believe. That is that any JUA should be “the market of last resort.” However, based upon the way it acts, the Mass. LLJUA should stop characterizing itself this way, and instead call itself what it is: “An alternative market, competing in the voluntary marketplace.”