Specialty Insurance Blog

Survey: Specialty Program Business

A new report on the specialty program insurance business concludes that the specialty segment is alive and well, with program insurers actively seeking new, profitable programs.  The report (see here & here) by Guy Carpenter is a summary of the results of a survey of program carriers.

Carl Bach is Senior Vice President and head of Guy Carpenter’s Program Manager Solutions Specialty Practice, and a very experienced practitioner in the specialty program segment.  He noted:

Based on this year’s survey results, we expect carrier markets operating in this space to be interested in most program opportunities presented in 2007. However, the key to successful marriages between program administrators and carriers is a clear understanding of carrier requirements, program needs, as well as program administrator experience, expertise and servicing capabilities.

We are seeing a continued flow of new capital into this market segment, resulting in the emergence of new markets as well as ongoing merger and acquisition activity.

Some of the survey’s key findings:

• Carriers continue to look for growth across most commercial lines of business, including general liability, property, auto, professional liability and inland marine.
• Responding carriers seem to prefer regional programs
• Responding carriers are becoming more flexible in their use of third-party administrators (TPAs) to manage claims.
• Many carriers, but not all, have the ability to write programs in most states and utilize both admitted and non-admitted paper.

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Medical Malpractice – Both Sides of the Line

Because obstetricians are sued more often, and because claims against them have higher values than most other medical specialties, medical malpractice insurance premiums for this specialty are significantly higher than most other medical classes.  Physicians testifying as plaintiff’s experts against physicians help drive the cost up, although other physicians do not appreciate the practice.

An article in this mornings Wall Street Journal (see here, $$$) describes the career challenges of a physician, Barry Schifrin, who has advocated proper use of fetal monitors in the medical community and has also been paid to testify as an expert for plaintiffs.

Dr. Schifrin has worked with fetal monitors for his whole career and is something of an expert in the field (see a 1999 article here).  He also believes that improper use of fetal monitors can impact patient care and safety, and has testified in medical malpractice cases against his peers.  As a result, maybe, the American College of Obstetricians (ACOG) and Gynecologists censured him.  According to one report (see here):

Schifrin's censure is the result of an ACOG campaign to quell testimony against its members in medical malpractice cases

The WSJ article estimates that Dr Schifrin has reviewed more than 1,000 cases, given 600-700 depositions, and testified at 150 trials in return for earning of approximately $2.25 million.

Rightly or wrongly, the process has increased the costs of medical malpractice according to the New York Times (see here), and this specialty has one of the highest claim costs.

In New York State, for example, the Medical Liability Mutual Insurance Company has paid out more than $79 million in 75 of the 420 claims filed against obstetrician-gynecologists since 1975.

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More on Certificates of Insurance

The Independent Insurance Agents & Brokers of America (the Big I or IIABA) has now come out with a policy on certificates of insurance (see here, and our prior post on the subject here).  This can be a significant problem for insurers and agents, and is also a challenge for insureds.  A recent article in a construction periodical (see here) notes some of the challenges insureds can face from their clients:

• Undisclosed coverage restrictions
• Overreaching contracts
• Illegal, impossible and impractical requests

Saved from Ourselves

The AG in Connecticut has announced that he is suing Guy Carpenter for price fixing in the reinsurance market, and the AG also has approximately 20 reinsurers in his sights (see here, here & here).  It appears that the basis for the suit is Carpenter’s use of facilities, presumably binding authorities, that he alleges created an illusion of competition while exploiting approximately 170 primary insurers and their customers. 

The whole thing appears ludicrous to those of us in the insurance business.  Facilities are a useful way of creating coverage for groups of insured, and actually lower prices in most cases.  However, does this type of suit indicate that we as an industry need to be more transparent in our marketing efforts?  Interested in your perspective.

What Change is Coming?

Insurance agents and brokers have seen dramatic change in the insurance business over the last few years, including a hard market, a rapidly softening market, and aggressive regulators.  Chris Burand has described his perspective on these changes and what they mean for insurance agents/brokers/producers over the next few years (see here).  For example, he predicts increasing customer expectations, and agents responding by providing a wider variety of solutions and more value-added services.  He also predicts that agents will increasingly use MGAs and E&S markets (wholesalers) as admitted multiline carriers consolidate and restrict direct appointments. 

While the wholesale approach can be a more efficient system for servicing large numbers of retail producers for some insurers, the value of a wholesale distribution model is not solely access to markets.  Expertise and specialization are powerful components of the wholesale distribution system that can end up providing retail producers with better combinations of expertise, coverage, service and price than larger multiline insurers might be able to provide.  Not for all accounts, but certainly for accounts that don’t quite fit the large, multiline insurer mold.

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Soft Market & Multi-Year Policies

In a sign of our time and a repeat of prior soft markets, multi-year insurance policies are making a strong comeback for For-Profit Directors and Officers (D&O) coverage, Non-Profit Directors and Officers coverage, and Employment Practices Liability (EPL) coverage.  Most insurers used multi-year policies a few years ago, but discontinued the practice during the hard market.

Insurers are providing this benefit in different ways.  One insurer is charging the entire premium at policy inception after applying a discount factor, while others are charging annual installment premiums to stabilize cash flows for insureds. 

Some insureds do not see this trend as a benefit.  While it eases the renewal burden, it does not necessarily reduce costs.  One client immediately dismissed the offer as an insurer gambit to stabilize rate levels in a declining market.  In addition, some insureds are concerned with a single aggregate limit applied over the entire policy period. 

Our experience is that most insureds welcome multi-year policies as a method of locking in premiums and smoothing the renewal process.

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