Claims Trends

In terms of agency E&O trends, carriers are closely eyeing an uptick in claims severity.

According to Curtis Pearsall, president of Pearsall Associates Inc., a risk management consulting firm specializing agency E&O, and a special consultant to the Utica National Agents E&O program, agency E&O severity has been ticking upward for some E&O carriers but not all. It’s an issue that’s carrier-sensitive based on their book of business. Even so, the trend has caught the attention of some major industry players, he said.

“I’m hearing more today than I have in the past of million dollar claims cases – not just the $1 million cases but $2 million, $3 million, $4 million cases. I could give you chapter-and-verse of a number of $5 million E&O cases. I don’t remember that happening 20 years ago,” Pearsall said.

According to Pearsall, the average E&O claim is still in the $60,000 range with homeowners-related E&O claims averaging around $30,000 and auto-related E&O claims averaging around $25,000.

Pearsall said he knows of a recent case that was settled for $8.3 million.

Part of the challenge is that agents have a lot more exposure today with newer coverages and larger accounts.

“EPLI [employment practices liability] is an issue that is gaining some traction and agents are offering that more and more. Cyber is an issue that I find a lot of agents not talking with customers about; one of the issues is that a lot agents don’t understand the coverage themselves so they have a hard time explaining it,” Pearsall said.

He said today’s commercial lines generally have much higher limits so that “when there is a problem, the ultimate claim is going to be a lot bigger.”

Sabrena Sally, head of Swiss Re Corporate Solution’s U.S. Agents E&O program, which serves as an underwriting carrier for the Big “I’s” Professional Liability Program, hasn’t observed a noticeable uptick in severity in her carrier’s book of agency E&O business, but has noticed another trend.

“We are seeing some new activity in the area of proprietary systems in the last 12 months,” Sally said. “Carriers are starting to more often use their own proprietary systems that the agency uses to submit applications and bind business. Like all IT systems, they’re not the same from carrier to carrier and it has led to some claims.”

For example, “something doesn’t go through the system. The agent calls the carrier and they end up talking with someone that gives them a workaround, like we all do on IT systems,” Sally said. “Then something ends up not being documented in the system. A claim happens and there’s all of that lack of clarity around what actually happened.”

While proprietary systems are not new in personals lines, Sally said they are now more common in commercial lines, which may be a factor in the claims trend.

“There’s definitely a developing area there and we’re working to learn more from agents, the Big ‘I’ and from carriers as well, so we can put our heads together and come up with some risk management recommendations,” she said.