Changing Risks Shape the Future of Agency E&O: Webinar
While today’s insurance agency errors and omissions (E&O) market remains mostly stable, emerging exposures, cyber risk, natural disasters and more could shape its course ahead. That’s according to experts who shared their perspectives on the market’s latest developments and outlook in a webinar hosted by Insurance Journal’s Andrea Wells.
Changing Exposures
Elizabeth Whitney, head of U.S. agents at Swiss Re Corporate Solutions, has seen an increase in hired and non-owned auto claims. The suspected reason? During the pandemic, businesses that may not have normally offered delivery services pivoted.
“And so, they can be a pitfall if agencies aren’t asking questions around that, and they’re not advising their client that they need to make sure they have that coverage in place,” she said. “And then another place, kind of related to that, where we’ve seen a rise of claims is around excess insurance.”
Brad Schreck, national claims manager at PCF Insurance Services, said his company has seen exposures arise from wholesalers placing coverage for its clients. Due to the hard market, coverage placement has become more difficult, which naturally leads to wholesalers and MGAs. When independent brokers assume that wholesalers are quoting them on the same coverage as admitted carriers, it can lead to exposures.
Brent Winans, vice president of Clear Advantage Risk Management, echoed this point. Switching to an excess and surplus market and failing to check if something like hired and non-owned auto is on the policy, for example, “that’s just the kind of exposure that you end up with,” he said.
Artificial Intelligence
As intriguing as generative artificial intelligence platforms like Chat GPT are, they do present pitfalls. Agency owners who don’t think anyone in their agencies is using it are probably wrong, Whitney said, and she urged owners to have discussions with their staff about proper use. “A lot of the tools out there are open source, so if you type in a client’s name and information … it’s out there now,” Whitney said. “You really need to be very careful with client confidential information.”
Schreck later added that “it’s pretty clear that carriers haven’t wrapped their arms around this yet, either.” So, if an insurance agency is using artificial intelligence to market, complete policy checks or fill out applications and an error results from that, “we haven’t seen what the carriers are going to do with their forms,” he said.
“And … I don’t think you want to be the first agency to set that precedent and open that exposure,” Schreck said.
Underinsured Properties
As claims costs increase, appraisals that were completed even as recently as 18 months ago may no longer be accurate, Whitney said. And Schreck noted that even when agents extend and document proper coverage, there can still be the expectation from clients, especially following a catastrophe and loss on a large scale, that the agent “should have known that I need higher coverages, even though I signed off on the lower coverage.”
When a large catastrophe claim occurs, it becomes a question of survival for policyholders, and they look for any available resource to go after. That’s where exposure risk arises for agency partners, Schreck said: trying to stay ahead of that curve and anticipate needs — even if it’s something that the client doesn’t know they need.
“If you offer it and they don’t take it, you make sure you get it in writing,” Whitney said.
Buying Coverage
Whitney encouraged agents to review their coverage limits annually. She explained how taking on bigger clients that have bigger exposures factors into decision-making, and she emphasized the importance of examining the insolvency portion of coverage.
Winans used a rhetorical scenario to highlight that a million dollars 20 years ago is not the same as a million dollars today. He asked how many million-dollar homes an agency insured two decades ago and how many million-dollar homes they insure today. If many of those homes were hit by the same flood tomorrow and the insureds were never offered excess flood insurance, what limits would they need? “It’s just a different magnitude that we’re dealing with now in insurance limits, as with everything else,” he said.
Schreck agreed: “More coverage is always recommended.”
Carrier Assistance
“E&O carriers really can be an enormous help to the agent in being able to resolve situations where the primary carrier is denying coverage,” Winans said.
“And they can assist a great deal, sometimes, too, with communication with the insureds about what’s going on and get the agent out of the middle.”