Public Entities: A Specialized Niche

November 29, 2002

Take the hard market, combine it with the Sept. 11 tragedy, and mix those two ingredients into the already intricate and compound underwriting process and you've got yourself the public entities marketplace. Ask any of the handful of carriers who are still writing the coverage, and they'll tell you it's a specialized niche. Carriers and underwriters are paying their dues along with many others caught up in the hard market.

"Things have been pretty volatile for the last year," Mark Dillard said. Dillard, vice president of Texas-based U.S. Risk, summed up the performance of the marketplace over the last couple of years.

"The market has definitely narrowed over the last couple of years," he said. "It's been a tough sector, and I think it was the flavor of the decade. I think a lot of players got into it through the mid and late-'90s, and discovered it was tougher class than they expected and I think that their experience started catching up with them. A lot of folks were beginning to understand that their underwriting was not necessarily up to snuff and started seeing the results come in and realized that they were losing their shirts in certain areas of it. That, I think was compounded by a general constriction of the reinsurance market in the late 2000 and through 2001 and then 9/11 certainly pushed it sort of over the cliff in terms of reinsurance capacity and interest. I think all of those things coming together made 2002 pretty challenging for just about everybody in the sector."

While many of the problems that are facing the public entities market are derived from the similar problems facing the industry as a whole, it's the uniqueness and the complexity of the underwriting process that makes public entities such a specialized coverage. "They really run the gamut from the standpoint of that they have a multitude of exposures," Bob Battaglia said. "You really need to know and be able to control those exposures that take place. [It's] a lot different from an underwriting perspective than if somebody is doing something that is pretty straightforward." Battaglia is the vice president of underwriting at Penn.-based Professional Underwriters, who write public entities coverage through their Community Works Program.

"They're unique in the sense that they're much more visible," Michael Chaney, Public Entity program consultant for Wash.-based National Insurance Professionals Corp. (NIPC), explained. Schools and city-owned buildings (including recreation and senior citizen centers) will see most likely see more activity than a private building might.

"From the standpoint of visibility, a public entity is a lot more visible target if you're a third party claimant than some of the private organizations," he added.

"Terrorism is definitely an issue with municipalities and insurance companies because they're looking at the possibility, however, remote, at a terrorist attack happening at a convention center or at a municipal building or something of that nature," Marc McCrary, vice president of marketing at Professional Underwriters, said.

"Carriers are profiling their business to determine and control their exposure to terrorism. High-profile areas, major cities, landmark locations and the like are receiving a lot more scrutiny today than they were over a year ago," Battaglia said.

"The existence hazard of say a landmark type building or one that would be susceptible to a terrorist strike, if they're involved in water supply, those types of things, that's something that is a concern today," he added.

Dillard, who writes professional liability for public entities, said employment practices liability (EPL), is the hot issue affecting pricing today.

Editor's Note: To see the full story, please see the Nov. 25 issue of Insurance Journal West and Insurance Journal Texas/South Central.