As some in the industry see profits and smoother sailing ahead, other markets are having a tougher time. In a look at the non-profits and public entities markets, Insurance Journal spoke with several experts in those related areas to get their take on how 2003 has gone, what are the major concerns for agents, and where things may go in 2004.
Marginal premium increases
In the non-profits market, according to Kirk Denebeim, vice president of California-based ECM Insurance Services Inc., “Almost all classes have experienced at least marginal premium increases and retentions for employment practices-related claims have increased across the board as well.
“Anything medical-related, social and human services, homeowners and tenants associations, as well as insureds with adverse loss histories, are the classes seeing the largest premium increases. The smaller, less innocuous non-profits with few or no employees, and which generally are not targets of plaintiffs, seem to be the least affected by the hard market.”
When it comes to changes in exposures and increases in hazard and claims experience, Denebeim pointed out, “While employment-related loss remains the most prevalent exposure, the stunningly huge failures which have rocked publicly-traded companies, such as the Enron and WorldCom scandals, are reverberating throughout society. Never before has the public been so aware—nor more suspicious—of organizational governance, or the motives of officers and directors who serve such organizations. Non-profits, and the people who run them, cannot escape this new, heightened scrutiny. Therefore the likelihood of loss coming from parties such as donors, beneficiaries or public-interest groups has increased significantly.”
Helen Savaiano, assistant vice president responsible for the non-profit directors’ and officers’ liability product at Monitor Liability Managers, commented, “The non-profit organizations that have experienced the most notable increases in retention and premium include healthcare providers (hospitals in particular), professional associations, standard setting or credentialing organizations, property owners associations, and large non-profits that offer a myriad of services and have many employees. Having said that, the retention and premium increase percentages are still minimal as compared to the for-profit market.”
Smaller non-profit organizations have also seen some changes according to Savaiano, with there being “some firmer pricing on small non-profit organizations. For small non-profits on slim budgets, while the increase may ‘feel’ significant, they are simply more reasonable in many cases.
“In the soft market it was not uncommon to have a $0 retention for a small non-profit and have a premium below $1,000. Now, most carriers require at least a $1,000 retention and premiums have edged upward. To put it in perspective, if a small non-profit can afford a $1,000 premium, it really cannot afford a $30,000 employment practices claim. A D&O policy is still an excellent risk management tool for even small non-profits.” Savaiano remarked that she hasn’t seen much evidence that the terms of coverage have become more restrictive. However, many carriers are re-defining their niche, by not underwriting or excluding certain coverage, while other carriers continue to underwrite them with appropriate pricing. Savaiano added that the present economy, which includes job uncertainty
and significant state budget deficits, is definitely a concern for non-profits.
According to Pamela Davis, CEO and president of Alliance of Nonprofits for Insurance, Risk Retention Group (ANI-RRG) and Nonprofits’ Insurance Alliance of California (NIAC), “We are seeing increases for non-profits from other carriers in all lines of business in virtually all states in which they operate.
“This year we have increased prices on only one type of non-profit, foster family heading agencies, because of claims experience we have had on those accounts. In particular, we are seeing a lot of mid-term business, especially from larger accounts that were surprised by the large price increases from other carriers at renewal or from those whose carriers have been downgraded. Also, we are seeing other carriers offering renewals on some coverages and not others, such as professional liability.”
Davis noted that in California, “We are not seeing any higher increases than in other states. We are probably seeing more mid-term business from outside California.”
Savaiano said California and Texas, “are states that have always been jurisdictions to be prudent about, due to litigation history. Litigation nationwide is on the increase, without question. However, I do not think jurisdictional concerns have changed much in the last 20 years that I have been involved with non-profits. To me, the nature of the organization and the quality of its operations and risk management efforts are more significant to the development of an adverse claims history.”
As for any changes in exposures, increases in hazard and claims
experience, Davis said, “Foster family agencies, group homes and senior assisted living remain among the most challenging in terms of hazards. We (ANI-RRG & NIAC) are committed to writing a reasonable share of this business, but have adjusted our prices to reflect the exposures. In our experience, these organizations are well-managed operations, but the court system allows sometimes irrational outcomes if someone from a vulnerable population is injured no matter how good the standard of care provided.”
On the horizon
As we head into the final quarter of 2003, what is the outlook for non-profits looking to secure sound insurance and reasonable rates?
“Based on pure loss experience across our book of non-profit business, and at the expense of generalizing somewhat, employment-related liability still represents the highest probability of loss to any organization, whether a non-profit or not,” ECM’s Denebeim said. “This prevailing trend has been in a steady, continuous upward spiral since 1992. As the economy continues to sputter, and in the absence of counterbalancing measures produced by court decisions or new legislation, there is no reason to expect this trend to moderate in 2004. Otherwise, non-profits will ride the same market wave for other exposures, more or less in line with other commercial insureds.”
For agents placing this line of business, Denebeim advised, “Perhaps this will sound like an oversimplification and somewhat cliché, but the name of the game in this market is: ‘manage clients’ expectations. In other words, show us an insured that is shocked—and often- angry—by their renewal terms, and we’ll show you a broker who failed at this all-important task.
“With the marketplace being hard for this long, at this point no insured should be surprised at their renewal terms. If a broker proactively and consistently communicates with clients about the state of marketplace, and avoids sugarcoating or understating the severity of the hard market; makes a strong effort to continually educate clients about what’s going on and thereby can minimize or eliminate surprises, then non-profits can incorporate these realities into their planning and budgeting processes. Brokers may not be able to control the circumstances of the hard market, but they can certainly control how these realities are communicated to clients, which, while painful to insureds, will nonetheless serve them better in this difficult market.”
Monitor’s Savaino expects that the market over the next year will “continue to aggressively pursue non-profit business but with more attention to understanding the organization’s services and setting appropriate retentions and pricing. Those non-profit organizations coming off multi-year policies will certainly experience the greatest impact of the increases.”
The Alliance’s Davis asserted that, “Funding for non-profits in 2004 is going to remain extremely difficult. They are experiencing cutbacks in virtually all areas of municipal and federal funding. Nonetheless, non-profits are resilient and play an essential role in our society. Even if there are some consolidations and closures, the non-profit sector will remain strong. As a group, non-profits seem to be becoming more savvy risk managers, aware of their risks and working hard to manage them properly.”
In offering advice for agents and brokers to best serve their non-profit clients in today’s market conditions, Davis commented, “In any market, poor broker service can hurt a submission, but that is particularly true in this type of market. Brokers need to get submissions in early, provide detailed explanations of the account’s claims experience and risk management programs. They also need to provide prompt and thorough responses to questions. We also advise that brokers do their homework and learn about a company’s appetite, before making a submission.
“Our busy underwriters work very hard and successfully to get quotes out on complete submissions in a timely manner, but if they get poor information or get it late, other accounts will take precedent.”
Pooling popular for public entities
On the public entities front, Kim Wells, vice president of Victor O. Schinnerer & Company Inc., pointed out that currently, “Rates are beginning to flatten, especially in the property lines. Underwriters are continuing to be selective with committing additional capacity to the public entity market. There has been a trend to offer lower limits. Pools are showing increasing strength.”
Wells indicated that, “Underwriters remain very conservative in the states of California and Texas. This is not unique to the public entities sector. The overall appetite for risks with severity exposures in these states remains cautious. Due to the increase in premiums, risk managers are favoring higher retentions (either in SIRs or deductibles). We are not seeing a change in the types of claims occurring in the public entity arena.”
Mark Dillard, a vice president of the Governmental Programs Division of U.S. Risk Underwriters Inc. in Dallas, who specializes in professional liability, said, “Generally the market is still seeing moderate increases but things have settled a bit since the first of the year. Most of the dramatic rate increases, and the attrition of certain markets took place through 2002. In 2003, things have stabilized as far as which markets would stay and which would go. The markets that are staying are typically getting modest increases.
“The Educators Legal Liability sector is still a bit unsettled, and markets are still trying to get a handle on their experience and rating strategy for Employment Practices Liability. EPLI is still the most dynamic aspect of writing professional liability for public entities in terms of both frequency and severity. The carriers and reinsurers are a little more stringent with respect to underwriting standards.”
According to Dillard, the issue of terrorism has not had the impact that might have been expected. “Certain classes, such as transportation and airport authorities naturally warrant specific attention, especially larger risks in close proximity to major population centers. Outside of that, it has not been a significant factor in the placement of coverage.”
For the remainder of the year, Dillard expects things to continue firming and rates will increase a bit. “I think the carriers will have to look back to see if their rate increases are producing the results they had anticipated, and if not, there might be further adjustments in 2004.
“The public entity sector needs now as much as ever professionals with a solid grasp of the exposures, the coverages, and the rates necessary to stay in the game for the long haul. Too many producers have found themselves in the unenviable position over the last couple of years of having their primary facility exit the market entirely.”
When it comes to helping their clients, Schinnerer’s Wells advises independent agents that, “It is critical to obtain accurate, complete and updated underwriting information. If terrorism coverage is needed, security and employee concentration information will be required. Underwriters require a 60-day lead-time to provide quality quotes.”
Wells said heading into 2004, “due to the severity nature of public entity business, we expect underwriters to maintain their current moderate approach. A portion of the business will remain in the surplus lines markets in 2004. Pools will continue to be popular.”
To comment on this story, e-mail: firstname.lastname@example.org.