Specialty Insurance Blog

Accountant Claims Rising

Public D&O (directors & officers) insurance claims are on the rise, but the impact on other professional liability insurance lines is not clear.  We can speculate about the rise in frequency and the impact of claim costs until we have concrete data.  In our real estate professional practice, which includes professional liability for real estate agents, title & escrow agents, mortgage brokers, appraisers, etc, we have not seen the increase in claims activity that one might have expected at the start of the financial crisis.  But claims against accountants are on the rise, according to an article on WebCPA (see here).

We've seen an increase in frequency of potential claims and requests for subpoena assistance, revealed Jeff Day, assistant vice president of underwriting for CNA, the underwriter for the American Institute of CPAs' Professional Liability Insurance Program. We do expect some carriers to make changes to their programs and possibly even leave the marketplace.

Expansion into areas where the professional has limited experience is a source of claims.  Two areas in which CPAs are expanding, and may not have the requisite experience, are valuations and litigation support.

Risk management is important to any professional, and accountants are no different.  One risk management tactic being advised for CPAs is client selection, and this approach is applicable to many professional classes.

There is a tendency when times are good to get aggressive in bringing in new clients, while client retention comes to the forefront in bad times…  Accountants have a tendency of being very loyal… There's a fine line between loyalty to the client and going down with the ship.

There are plaintiffs attorneys actively soliciting clients, including this website dedicated to assisting clients sue CPAs in Florida(see here and here):

The Florida Accounting Malpractice Web Site is intended to assist consumers and lawyers who need more information about suing a CPA/accountant in Florida.

All professionals should be watchful for situations where client expectations may not be met, which can be a trigger for professional liability claims.

Brought to you by Tennant Risk Services.

 

Agents Want Quality Claim Service

A new survey of independent insurance agents by Channel Harvest places quality claims service as the most important factor (see here):

The survey — "How Independent Agents View Carriers: The Super-Regionals" — polled nearly 1,100 agents in all 50 states, and asked 100 questions about various aspects of their relationships with the carriers they represent, and ranked those responses in 24 categories.

Claims services topped the list of qualities agents look for, just as it did in last year's survey — underscoring the importance agents place in carriers that resolve claims efficiently. Nearly two out of three agents called claims service a critical factor they look for in carriers.

This is not entirely consistent with our own observations about how agents place business.  We have found that agents and brokers expect certain basic standards be met, such as response time, expertise and compensation, in order for a carrier to be in the mix.  Then coverage and price dominate the actual placement decision.  Claims service would seem to be one of these basic standards that agents expect to be handled with a high level of quality.  A problem in our business is that insurers do not consistently provide quality service in these basic areas.

An example recently occurred with one of our specialty accounts.  Without going into all the details, the insured had a claim and was also up for renewal.  The insured's initial conversation with the claim adjuster had not gone well, and we had to work through the problem with senior executives of the insurer for resolution.  Agents and brokers expect quality service on claims, but know they sometimes have to address disruptions.

Interestingly, a prior survey by Greenwich Associates (see our prior post here) conducted late last year concluded that clients were de-emphasizing broker service and focusing more on value.  This is not necessarily inconsistent with the more recent survey, but it is a bit of a disconnect.

One interesting point is where agents prefer to place their coverage, and why.  In a prior post (see here), we commented on a survey of agents that concluded that regional insurers were easier to do business with.  The more recent survey was consistent:

The survey also found that agents tend to favor super-regionals over larger and smaller carriers in nearly every measured attribute, including pricing, customer and agent service, compensation and even marketing support. This appears to reflect a preference for companies that are big enough to meet their needs for coverage, technology and so forth, while not being perceived as uncaring or bureaucratic as some national carriers. This preference is reflected in their placement: Agents on average place more of their business with super-regionals than with either nationals or small carriers.

Marita Zuraitis, President of The Hanover Insurance Group’s Property and Casualty companies commented on value and agency-carrier partnerships (see here):

Growth-oriented independent agents must do what they do best – deliver value. A clear majority of customers place a premium on value-added services. In one recent survey, for instance, nearly three-quarters of customers indicated that they appreciate value added services, with the most important drivers of customer satisfaction being responsiveness, relationship, and coverage advice.  But, even the best agents can’t go it alone. They need companies they can count on — companies that are built to last, committed to their markets, offer high-quality products and underwriting capabilities, and are easy to do business with. In addition, independent agents need to look to companies that are 100 percent invested in them and, as a result, are making investments to help grow and develop the independent agency channel.

While we are on the subject of surveys, we also referenced a survey by CR Ekern on why agents market accounts (see our prior post here), which concluded agents market accounts for the wrong reason - competition.

Channel conflict does not typically get much coverage, but this issue could become more of an issue as some of the large mult-line insurers try different marketing strategies.

Several large carriers with strong brands have angered agents with indiscriminate agency appointments and direct sales. These agents generally praise the strengths of these carriers, but adamantly oppose the carriers' competing with them or undercutting their sales efforts.

This survey was conducted by Channel Harvest — a partnership between Aartrijk and Campbell Communications — and sponsored by Insurance Journal.

Brought to you by Tennant Risk Services.

Signing Insurance Applications

Virtually all specialty insurance applications, such as Professional liability (including D&O and EPL) insurance applications, are designed to be signed by the insured because the information in an application is a representation about the risk and the information is material to the underwriter.  Every once in a while we come across a situation where an agent or broker has signed an application as the insured.  This is surprising because this is completely inappropriate - it is neither legal nor ethical.

We have all been subject to the pressures of binding coverage at the last minute, and this is the opportune time for a costly error in judgment.  There are many reasons for communications breakdowns, and unfortunately the pressure is usually on the agent or broker.  Whether an impending effective date or binder expiration date, underwriters will often not finalize an order without specific information, such as a completed and signed application.  If the insured has been difficult to pin down, it is easy to take care of the problem with a signature.  Unfortunately, we have seen the most wily clients put pressure on their insurance reps to resolve the situation themselves, with the result that the agent or broker signs the app.  This can prove very costly for the agent. 

In a recent situation a producer could not reach the client, and the insurer would not extend the binder date without the signed and dated application.  The agent signed the app without instructions from the client, and, you guessed it, a claim ensued shortly thereafter.  The insurer discovered that a series of prior claims that had not been disclosed on the application, but the insured pointed out that he had not made any false representations since he did not sign the application.  While the case is still pending, the agent has both an insurance agents E&O claim and regulatory issues to deal with.

A recent Amercian Agent & Broker article (see here) points out the importance of proper application documentation, and notes two cases relating to this issue. 

Agents and brokers should attempt, as a matter of self-preservation, to have each insured sign the application or authorize the agent or broker—in writing—to sign the application on the insured’s behalf, with a statement by the proposed insured that the application has been reviewed and the facts stated in the application are true and correct.

Good advice.

Brought to you by Tennant Risk Services.

A New Life/Health Broker on the Way

A group of private equity firms are forming a new life and health insurance broker.  According to a press release (see here and here), the broker, called Insphere Insurance Solutions, will be formed by The Blackstone Group, Goldman Sachs and Credit Suisse.  The plan:

This new company expects to be the nation’s largest independent career agent distribution group offering life, health, long-term care and retirement products for small businesses and the middle-income market. Long-time insurance industry executive Phillip J. Hildebrand has been named as chief executive officer for the new company. Insphere Insurance Solutions will be exclusively focused on the under-served small business and the middle income market, said Hildebrand. This market has been largely ignored by major insurance carriers and agents who have migrated to serve more affluent consumers. This has resulted in a scarcity of distribution in this market.

Insphere Insurance Solutions expects to be the largest independent career agent insurance distribution group in America, with a force of 3,500 agents and offices in over 40 states expected when the company commences services in 2010.

Why start small!

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Buffett Shareholder Letter

Berkshire Hathaway is well known in our industry as the owner of insurance standouts National Indemnity, General Reinsurance, GEICO and USLI (our favorite).  Berkshire's 1Q 2009 earnings were down, but the Chairman was cautiously optimistic about Berkshire's insurance opportunities (see here & here). 

After Berkshire's worst year ever, Warren Buffett, well known investor and Chairman of Berkshire Hathaway, published his highly anticipated annual shareholder letter (see here), and it is worth taking a closer look at a number of interesting and valuable observations on the insurance industry contained in the letter.  Here are a few:

Our insurance operation, the core business of Berkshire, is an economic powerhouse.  Price is what you pay; value is what you get.

GEICO grows because it saves money for motorists......drivers look for the lowest-cost insurance consistent with first-class service.  Efficiency is the key to low cost...Americans are focused on saving money as never before

A promise is no better than the person or institution making it.  That’s where General Re excels: It is the only reinsurer that is backed by an AAA corporation. Ben Franklin once said, “It’s difficult for an empty sack to stand upright.” That’s no worry for General Re clients.

Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.

We commented on the challenges of effectively using modeling in the insurance business in a prior post on The Black Swan (see here).  And The D&O Diary points out (see here) that the annual shareholders letter omits any mention of the criminal trial that arose concerning reinsurance arrangements between Berkshire sub General Re and AIG (see here & here).

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