The litigiousness of Americans toward businesses and their owners is often a punchline, but there’s definitely truth behind the typecast. In fact, Americans spent roughly $251 billion on civil litigation in 2012, resulting in an average $80,000 payout to plaintiffs, according to data from think tank Pacific Research.
So, when it comes to errors and omissions (E&O) insurance, it pays to be well covered. Unfortunately, agents selling this coverage have had some difficulty beyond the typical struggle to get clients to recognize their risk.
Significant court action and claims activity following the 2008 financial crisis led to a compressed marketplace with rate increases of up to 25% for some sectors. That led to fewer options for many agencies working in E&O, said John Torvi, vice president of marketing and sales for Landy Insurance Agency.
“The insurers who were working in this space definitely responded in different ways,” said Torvi, a 25-year industry veteran and former agency owner. “There were a lot of price increases. There were also carriers and agencies that dropped out of the market because they didn’t feel it would be profitable for them.”
Indeed, in its 2013 “US Insurance Market Report,”
Marsh estimated that commercial E&O rates climbed 5% across the board the previous year, with rates expected to continue rising. This is especially true in the real estate and mortgage sectors, with whom Landy, a 65-year-old program administrator, works specifically.
And yet, Torvi still sees great opportunity in the E&O space for agents looking to increase their books of business. Some carriers are starting to come back into the market as the economy continues to improve, a trend Torvi doesn’t think will change.
And the changing landscape of business management means plenty of prospects in the future.
Specifically, Torvi is bullish about the frontier of cyber risk management and how that will influence E&O markets.
“I think the biggest challenge and the biggest area of potential growth [in E&O] is helping business owners understand their privacy and data risk,” he said. “If you look back five years, only large, private companies had access to cyber insurance, which had high premiums and high deductibles. It was irrelevant to the small and medium-sized business.
“That has definitely changed. There are policies out there now for well under $1,000 with small deductibles that provide good coverage for a small business.”
Those products may well be needed. After an April court decision declared the FTC can sue companies on charges related to data breaches, E&O liability for businesses and their owners skyrocketed.
“The key point is that now that clients know the FTC has this authority, [policyholders] will be even more concerned about having the proper coverage in place to respond and absorb this loss, and they will need their broker to walk them through that,” said Gregory Podolark, a partner with insurance law firm Saxe, Doernberger and Vita.
These increased liabilities and growing market appetite open up the door for committed and knowledgeable E&O insurance professionals, Torvi stressed, now more than ever.
“There is still a lot of capacity and growth opportunity for us,” he concluded.
