Campus Issues Swing Into Play for Public Entity Underwriters

Writing public entities coverage these days does not come without its challenges.

After talking with several industry experts, the conclusion may be to tread carefully when writing this coverage.

According to Kim Wells, vice president of Victor O. Schinnerer & Co. Inc., “The public entity arena continues to experience change, carriers continue to evaluate their underwriting appetite by jurisdiction, exiting some and entering others. Public schools remain an underserved sector as underwriters remain concerned about campus safety issues and EPL claims.” Wells said that selective underwriting continues as players “focus on accounts with good risk management practices and loss histories. In most cases we find underwriters are not willing to provide any quote for distressed accounts.”

Joel Hirsch, president, Public Risk Division of Arrowhead General Insurance Agency Inc. remarked, “We don’t write nationwide, so I wouldn’t comment on conditions that broadly, but while we are clearly past the peak of hard market pricing, we continue to believe that the public sector business is still ‘under priced’ considering the exposures, the cost of risk, and erosion of immunities. This appears especially true for general liability and E&O exposures, whose past pricing has been predicated on protections afforded by state tort caps and immunities, which are increasingly challenged by legislative acts and adverse court decisions. We are concerned that the more those immunities erode, the more under priced those risks become.”

Hirsch continued, “We expect selectivity to continue for the foreseeable future. Four carriers with public entity portfolios relaxed standards and were burned by development in the recent past. All had large public entity portfolios, and appear to have significantly under-priced their product considering the ultimate cost of claims. Beginning in the mid-1990s it was not uncommon for public entity risks to expect to see their insurance costs fall, sometimes significantly, year to year. In our view it is not clear that the price gap that was created has been closed; while prices are not increasing as much as they had been, they are still rising and more restrictive terms are being placed. This places increased importance on underwriting selection and the creativity of underwriters’ solutions to the panoply of issues raised in covering public entities. We also see some carriers becoming less active in certain geographic areas where the legal climate is deteriorating. Professional agents are increasingly concerned and seeking the comfort of conservative market approaches.”

Ruth Unks, current president for the Public Risk Management Association (PRIMA), reported: “Overall, renewal indications for public entities for 2004 show that while the casualty insurance market is improving, public entities are still experiencing an average 10 percent premium increase. Property insurance premiums are staying flat or in some cases, decreasing. Even in this improving market, public risk managers must still submit a very comprehensive underwriting package and still allow at least 90 to 120 days for the underwriters to review their submissions.”

Areas of challenge
Mark Dillard, vice president of Dallas-based U.S. Risk Underwriters, noted public officials liability presents a scenario where “pricing appears to remain firm based on continued development of EPLI claims. EPLI is driving the experience on this product and is increasingly the loss leader both in terms of frequency and severity. Actuaries are still struggling to ascertain the proper trend and development factors to apply to employment related claims. As long as this is the case, I suspect the reinsurers will err on the side of caution and keep rates firm.”

Dillard said that a few markets have opted to address the issue by restricting coverage. “The buyer should be aware of new forms that limit or eliminate coverage for future and back wages, non-monetary defense, and/or emotional distress,” Dillard continued. “At least one market has actually excluded employment related claims arising from specific departments of the entity. Agents and brokers should be aware of sacrificing coverage for a lesser premium, and take nothing for granted.”

On the law enforcement liability front, Dillard said, “This line has also remained fairly firm, but should be flattening out. The experience on this line has been more consistent and predictable. It is still subject to the occasional catastrophic loss such as a wrongful death or severe physical injury from excessive use of force or vehicle pursuit. It is my impression that at least some markets are doing a more thorough job of underwriting each risk based on various loss-control standards for hiring, training and procedures. It is interesting to witness the disparity from one department to the next. It seems always to depend on the seriousness with which the administration takes their responsibility. One good chief or sheriff can turn around an entire department. One bad one can contaminate the environment to the point of medieval conditions. International events will focus more attention on detention facilities and the treatment of inmates.”

Schools don’t make the grade
If one area seems to be taking it on the chin in the public entities market, industry experts say it is educational institutions.

According to PRIMA’s Unks, “Educational institutions, with their diverse exposures such as athletic risks, study abroad/international risks, and transportation risks, continue to be a challenge for underwriters. It is very important for all public risk managers to continue to add value to their organizations by showing that they can assist in the management of all risks—not just those traditional insurable risks.”

U.S. Risk’s Dillard echoed the challenges faced in school coverage noting, “This sector seems to be the hardest. Even fewer markets remain to write this coverage on a stand-alone basis. The package carriers seem to be reconsidering their strategy. Aside from the same employment issues faced by municipalities, educational institutions have a wide array of professional exposures, not the least of which involves their handling of special education and compliance with the Individuals with Disabilities Education Act.

“One of the most important issues confronting educational institutions is security,” Dillard continued. “Many schools have established their own law enforcement departments. The police officers are employees of the district. In other cases the district contracts with local agencies that provide officers for a fee. In either case, the schools will almost certainly be named in a lawsuit involving wrongful searches, wrongful arrest, excessive force, or even a failure to protect. The school’s educators legal (or school board) liability policy will not likely respond. There are typically exclusions for bodily injury, personal injury, property damage, and law enforcement activities specifically. The schools need to make sure that there is a law enforcement liability policy that will respond on their behalf. They either need to buy their own, or they need assurance that the local agency has coverage in place that will respond on their behalf.

“I for one hold the district police departments to the same hiring, training and procedural standards as the municipal and county agencies. The crux of defending any claim is documenting that the insured has applied all of the best practices relevant to their profession in executing their responsibilities. The plaintiff attorneys are quite adept at pinpointing any deficiency or negligence, and literally making a federal case out of it.”

Options offered to stay afloat
As for the remainder of 2004, Victor O. Schinnerer’s Wells noted, “Casualty rates are stabilizing in most regions while property continues to soften. Professional lines premiums, including EPL, continue to increase due to claim activity. Police professional liability claims are increasing in both frequency and severity. Claims arising from auto accidents due to high-speed pursuits and prisoner allegations of abuse are common. In some jurisdictions, we have noticed carriers reducing the limits they are willing to offer for police professional coverage. While the hard market pricing of the past few years forced many entities to increase their retentions, many risk managers are requesting lower retentions for their 2004 renewals.”

For Dillard, looking at the remainder of 2004, “The public entity sector has lost favor over the last several years with some of the companies and reinsurers that were formally involved. I expect the market to remain solid through the end of the year as the underwriters and actuaries assess the adequacy or insufficiency of those changes.”