Claims from the real estate and financial meltdown of 2008 are finally catching up to carriers in the lawyers professional liability marketplace, pushing rates up and eventually forcing out the short-term players.
Professional liability rates overall were up 4 percent in November and December of 2012, according to MarketScout. But those who specialize in the lawyers class say that’s not enough to impact competition, which is still extremely tight.
“For every one market that has pulled out, another has jumped in,” said Bill Gordon, executive vice president and chief underwriting officer for JLT Facilities in Latham, N.Y.
Gordon said there are at least 50 different insurance markets writing lawyers professional liability coverage, and they all have different and constantly changing appetites. Newer carriers can have a false sense of security because they see the lawyers class to be a reliable and profitable one.
“Lawyers professional liability is a very active marketplace because there are a large number of attorneys in the country, and attorneys have always seen and recognize the need for professional liability coverage,” Gordon said.
The main targets of claims have been lawyers who focus on real estate transactions because of lawsuits related to the housing bust. Chris DePuy, senior vice president at Liberty International Underwriters, said plaintiff’s attorneys dealing with real estate are seeing a spike in claims frequency.
“A lot of claims are coming out of real estate developments that have gone bad, and houses that have been foreclosed on and so forth,” he said. “From the company side, I think there is an issue of developing claims now in a soft market where rates are still depressed, so it makes profitability quite a challenge. We’ve seen losses increase in the last 12 to 24 months, and yet again, we’re in a soft market generally so our loss ratios are starting to increase.”
DePuy said that unfortunately the increase in claims is not convincing lawyers to buy more coverage. The tough economy has led to lower revenues in law firms, and some have completely gone out of business. Another function of the bad economy, DePuy said, is that smaller firms have also gone into areas of practice where they don’t have expertise just to survive, which also leads to claims.
The hope, DePuy said, is that this year some stability will return to this market as the newer players realize they cannot keep charging such low rates and their loss history catches up.
Gordon said JLT Facilities began preparing for that scenario last August when it launched a nonstandard lawyers E&O program. He said his company wanted to complement its existing standard lines program for those small- to mid-size law firms that had claims in the past and have been non-renewed or cancelled.
“Some carriers, even if they haven’t had claims, are getting more restrictive with underwriting and decreasing limits, increasing deductibles or non-renewing, and that is creating a need for some of the work we are seeing,” Gordon said.
For law firms that have had claims problems, JLT looks at what has happened and works with the broker to remediate the situation so the account can hopefully go back to the standard market down the road.
Gordon said JLT Facilities also has had several inquiries about cyber liability coverage for lawyers. It is considering offering an option sometime in 2013, but that is just in preliminary talks at this point.
LIU’s DePuy said his company also has seen an increased interest in cyber liability products because attorneys have begun to realize their vulnerability to a privacy breach.
“Particularly in litigation, if some opposing attorney gets the right information, it can turn the case against the rivals,” he said.
LIU came out with a trio of cyber liability products in February 2012 that give policyholders access to pre- and post-loss support services.
DePuy said with so much choice and competition in this marketplace, agents may have to go through 15 to 20 carriers to do their job completely for their client, but they need to be careful they are utilizing the right ones.
“Some of those carriers are fairly new and won’t necessarily be around in four or five years’ time, when their losses start hitting them and they have to get out of the business,” he said.