Overall errors and omissions (E&O) liability insurance rates crept up in the second quarter of 2012, with more programs seeing increases than decreases at renewal, according to analysis of Marsh’s benchmarking data. It is too soon to say, however, if the increases mark the beginning of a trend for the various E&O coverage lines, which had been stable over the past 12 months.
Cyber Claims Pressure Rates?Underlying the increases was a rise in both the frequency and severity of E&O claims, particularly cyber claims. As claims and the potential for losses have mounted, insurers have put upward pressure on rates; however, sufficient competition was available in the second quarter to moderate the increases.
Across all E&O lines, capacity remained stable and was sufficient to meet insureds’ demands.
Rate changes for E&O program renewals in the second quarter typically averaged between plus and minus 5%. Despite this slight firming, pricing for most E&O liability insurance remained relatively stable over the past 12 months. ??When looked at by price per million dollars (PPM) of limits for companies of all sizes in the 12 months between August 1, 2011, and July 31, 2012:
• Practice architects and engineers (A&E) liability insurance had the highest PPM, averaging US$29,838 PPM of limits purchased.
• Miscellaneous professional liability (MPL) was the next highest, at an average of US$23,543 PPM.
• Technology and telecom liability at US$16,714 PPM and media liability at US$15,356 PPM had the lowest PPM of the E&O lines.
Practice A&E and MPL policies also had the highest PPM among organizations with annual revenues greater than US$1 billion, averaging US$23,381 PPM and US$23,202 PPM, respectively.
Media, Tech and Telecom are Top E&O Limits Purchased
Other than lawyers professional liability (LPL), which is purchased exclusively by law firms, companies purchased higher media liability and technology and telecom liability insurance limits than for any other E&O line, securing an average of US$19.9 million in limits in each. Companies with more than US$1 billion in revenue purchased even higher technology and telecom liability limits, averaging US$37.2 million per program. Generally speaking, limits purchased in the second quarter remained consistent with prior year purchases.
Many insureds—notably technology providers and those handling sensitive data—face more stringent insurance requirements from their clients regarding security and privacy. Although these requirements typically fall within existing program limits, some companies may consider purchasing higher limits in response.
At the other end of the spectrum, limits purchased were lowest for practice A&E—averaging US$7.9 million in limits for companies overall and US$10.7 million in limits for those with revenue above US$1 billion. A competitive environment, decreasing revenue exposures, tight municipal budgets, and a lack of federal infrastructure projects combined to mitigate firms’ exposures and thus the limits required.
In the excess lawyers professional liability (LPL) market, law firms with 50 or more attorneys purchased an average of US$45.1 million in limits over the past 12 months, while firms with 250 or more attorneys purchased an average of US$70.1 million.
Industry Trends in E&O Programs
Risks can differ vastly according to industry sector, requiring insurance programs that are designed to meet a company’s specific needs In E&O insurance, the purchase of various coverage lines is typically dominated by certain industries. Among Marsh clients in the past 12 months:
• Cyber policy purchases were made 69% of the time by communications, media, and technology (CMT); financial institutions; health care; and retail/wholesale companies—all of which typically handle large amounts of data and personal information.
• Practice A&E policies were most likely to be purchased by construction and manufacturing firms.
• MPL policies were purchased most frequently by services organizations.
• Media liability policies tended to be purchased by CMT and sports, entertainment, and events companies.
• Technology and telecom coverage policies were dominated by CMT companies, which bought 86% of these programs.
Ultimately, an insured’s loss history, exposure changes, and the way it presents its risks to insurers are the prime determinants of the premiums it will pay. By following and analyzing benchmarking data on E&O insurance in the coming quarters, companies can be prepared for potential changes in underlying trends for their industries in these critical coverage lines.