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Willis Towers Watson veteran Alex Maza joined Risk Strategies in October of 2020 as national account director for management liability. Dan Reynolds, editor-in-chief of Risk & Insurance®, recently caught up with Alex to get his views on the management liability market. What follows is a transcript of that discussion edited for length and clarity.
Risk & Insurance: Thanks for meeting with us, Alex. We’re interested in your views on the management liability market, from a pricing standpoint.
Alex Maza: I would say for management liability, we’re in year four of a hard market. We should have started to see a fair amount of softening. But, we’re not seeing it in that way, and I think COVID had something to do with that.
It presented a new wrinkle to insurance companies in general, that they didn’t account for. And so, their financials are suffering from it. AM Best published an industry report and they were talking about the state of the insurance market and it being very well capitalized. But the financial results aren’t great.
COVID has something to do with that. For management liability, we’re starting to see different segments going through different periods of transition. Cyber, for example, that continues to be a very hard market. Double digit — 50%, 60%, 70% rate increases, maybe even higher — and there doesn’t seem to be any end in sight.
For segments outside of cyber, on a primary basis, I would say, we’re telling our clients to expect a 5% to 15% rate increase. For excess, that market has definitely gotten more competitive with all the new capacity and in some cases we are starting to see rates come flat and sometimes we are even seeing decrease of 5-10%.
When we do see flat to decreased rates, it’s usually for a company that’s still doing well financially, hasn’t had any red flags that would concern an underwriter, has little to no paid claims and is in a preferred industry segment.
So, while the market has definitely started to transition, there are still some unknown factors that could affect how much the market does soften.
If you look at the security class-action report for 2021, it shows that there was a decrease in filings. There was a decrease in the average settlement value. So, one might think that the market’s starting to transition. We’re not sure yet, as during 2020 when COVID was at it’s peak, the court systems were shut down for a long time so cases that were either filed were put on pause.
On average, these cases usually take anywhere between three to five years to get settled. So, if we’re talking about 2020, we’ll start to see now maybe in the next year what that means for the carrier in terms of their profitability for public D&O.
That’s a very severity driven line of business. As it is with most management liability lines of business, it’s not really a frequency play for the most part. If you look at the private nonprofit space, that’s starting to also soften, but we’re still seeing issues with employment practices liability.
All that said, we’re starting to see some deceleration of rates and carriers are starting to put more capacity into the market, and they’re starting to be more aggressive, especially on excess layers.
We’re not there yet, in terms of seeing humongous decreases, or maybe we’ll be flat in that space, but it does vary by industry.
R&I: I was thinking about a comment you made about nonprofits. That litigiousness that we see in our culture, nonprofits aren’t spared; you’re saying, they see as much litigation as anybody else.
AM: Absolutely. You have to remember, if they’re truly a nonprofit, they have to make sure that they act as a nonprofit. They still have employment practices, liability issues that they have to contend with, whether you’re nonprofit or for-profit. If you have an employee base, you’re subject to possible employee suits. With COVID, you have vaccine issues.
You then have companies that got impacted by COVID financially because, their businesses have shut down, or they couldn’t ship their products, or provide their services.
They had to contend with lawsuits from that perspective. That’s a D&O issue as well as an employment practices issue.
With regards to fiduciary liability, we’re still seeing a fair amount of excessive fee litigation. This has been an issue that’s been out there for a while, and it’s not necessarily a hard market issue and we don’t foresee that that’s going to go away.
Crime insurance, for the most part is the one line of business that’s stayed the most competitive because, while yes, we’ve seen an uptake in crime losses, the loss activity has not had the same severity issues as other lines of business, especially public company D&O and cyber.
Companies sometimes don’t have always the best policies, procedures and internal controls in place, or they lack some of them, which makes them more susceptible to claims for employee theft and dishonesty.
So, the industry still got a fair amount of challenges. And, what’ll be interesting to see is how, as we transition into a soft market with the influx of new capacity, with all the financial challenges presented by COVID, rising inflation, and supply chain issues which point to a possible recession, how will that impact claims activity.
Hard markets usually last anywhere between two, three years, and this one has lasted a little longer than prior hard markets due the factors explained above.
But when we do start to get into that soft market, those usually last a lot longer. The last one lasted 15 years. And, we’ve got the signs of the pending soft market due to the influx of new capacity which has budgets to meet and needs to write premium.
The biggest impact from the new capacity has been on the excess layers which in many cases is starting to [see] some material reductions in pricing. We’ve also got a number of MGAs, which write on behalf of carriers. We didn’t see as many MGAs in the last soft market.
We’re seeing more carriers coming [in] now. So, between MGAs and new carriers, that’ll balance out that supply demand equation.
Now the question is, how far will it go down?
Do we have better analytics now that says, maybe we don’t have to chase it because if we do, we know where it’s going to go. We’re going to get to that same result of being unprofitable.
Or, if we do chase it, because we have better analytics, we can become more granular in how we underwrite the business. That could mean that certain industries may fare better than others.
Investment income has been better. But we’re still not at the point where carriers can rely on that too, like they did in the past, to supplement or mask bad underwriting.
Carriers are going to have the same challenges with deciding which accounts they want to retain and at what price to how they go after new business. There’s going to be a lot of competition.
During this current hard market, brokers and carriers saw a large increase in submission activity as in many cases we needed to explore numerous markets to get the best possible terms and conditions. This has definitely led to some carrier fatigue and broker fatigue.
At my former shop, we marketed a third of the business in any given year, in a normal market. In a hard market, depending on the line of business, it might be marketing your entire book. Or, at least half of it. So, are you staffed properly to do that?
Soft markets present different challenges. Maybe, you’re not going to go back to marketing the same amount of submissions, but if insureds start to see, they’re getting better terms, they’re getting premium decreases, they’re getting better coverage.
As brokers this require us to continue to advise on the state of market and, depending on the line of business [of] the company that you are in, understand if our clients are transaction oriented or are they partnership oriented? Because, carriers look at that, too. If you insist on marketing your business every single year, that strains a relationship.
This requires brokers who can build trust between them and their insureds, excellent knowledge of the market landscape, and who are able to build strong relationships with their key carrier partners.
R&I: What does that sound like to you, or look like to you?
AM: So, we try as much as possible to build partnership with our carriers, for the obvious reasons. One, you’re hoping that you can get better terms and conditions for your insureds. Two, the rubber meets the road when there are claims.
So, when you build a partnership with carriers, you’re hoping that goodwill and the premium they’ve collected will be factored in a claim situation where, while the insurance policy is a contract and carriers have to adhere to the contract, there’s a lot of gray areas when claims are being negotiated.
Especially, these kinds of management liability claims, which are very complex. And so, carriers make business decisions versus solely just adhering to the four corners of the insurance contract.
We’ve seen a lot of MGUs and MGAs start up, and they started up with folks that have been in the industry a long time, so we know them all because they worked, have worked at one of the big insurance companies at some point.
You have to show that you’ve got a proven track record that you can actually write the business profitably and you have a specific business plan by line of business and industry because you’re writing on behalf of an insurance company.
So, they have to know you, you have to try to get reinsurance depending if, whether yourself, or you have the carrier whose paper you’re writing on, they have to go to their reinsurance [and] say, I’m going to support this MGU.
R&I: What are insureds needing from you? What are they coming to you for, under the circumstances?
AM: They’re now in the fourth year of a hard market for these lines of business. They’ve gone through year after year of, premium increases, increase in deductibles, reduction of limits, and, in many cases, coverage being restricted.
They look at us to try to get them the best possible coverage — maintain the best possible coverage at the best possible price. It’s hard for them to budget for these types of increases, and coverage changes on a yearly basis.
I mean, I’ve got an insured right now, as an example, they’re looking at possibly a 70% to 100% increase in premium, for their employment practices liability, mainly because they have a workforce with a lot of independent contractors. And I mean, a lot, it’s almost 100,000.
They’ve had some financial challenges, that doesn’t help. And they’re publicly traded, which also doesn’t help.
We work early on in the process and we tell them, here’s how the carriers view your risk and here are the indications that we’re getting. And now, the insured has to make decisions based on their risk management philosophy, risk tolerance and budget.
We as brokers have to be able to quantify the exposure and explain the potential risks. So, that’s the decisions that insureds have had to make and we’ve had to advise them on the different options, the risks and the costs/benefits associated with each option.
Whether it be coverage for a certain price, maybe an increased deductible, or sublimit for certain coverages, we have to be able to walk them through all their options.
R&I: Thinking about return to the office, is that not magnifying the EPLI complexity? Given different individuals reactions are going back say, it’s someone with their child when they were off, out of the office, now they don’t want to go back. They feel like they’re being forced to go back.
AM: There are absolutely companies that had to contend with how will they return to work, and then what’s normal for them? I think they realize that if there’s one thing that COVID proved is that technology for the most part works really well.
So, they’re now thinking, okay, do I still need the same office space? Because there’s a cost associated with it. And then, if I’m going to have my employees come back and mandate that they come back on a hybrid basis, what does that look like? Is it two, three days a week, and if so which days?
They have to make sure that the schedule is not discriminatory and that they provide the same options for all the employees. They also have to contend with providing a safe work environment because the pandemic is not over.
R&I: Is there any other message you wanted to get out, while we’re talking?
AM: In management liability, how will this market continue to evolve, as it transitions into whatever the soft market might be and what does that look like? And then, what changes will they need to make in their business models and workflows to best position them to succeed in this new phase of the market?
We’ve seen a lot of technology come into the mix in the last few years. And that continues to evolve. So, how will carriers and brokers continue to rely on and implement technology solutions so that they don’t have to necessarily staff up, because there’s a cost involved.
Insureds will also have to think about, okay, what kind of buyer am I? Am I one that wants to go out into the market every single year, because I want to get the cheapest pricing or the best terms every single year? Or, do I build a partnership with carriers as long as they’re being fair to me and with the brokers?
It’s a trust business on numerous levels, but from an insured perspective, do they trust their broker? Do they trust that their broker, one, has the expertise to get them the best possible policy terms and conditions, understands their business to help them manage their risk management process, and what they’re trying to accomplish from [a] risk management perspective?
And, do they trust their broker when their broker tells them that, “We’re getting you the best we can get you.” And, trust us when we tell you, we don’t need to go into the market every single year on this line of business.
At Risk Strategies, we’ve implemented something called MLPG360 approach to risk management. And, that’s not for every client. This is more tailored for the upper-middle market to Fortune 500 companies, where we’re engaged with them throughout the lifecycle of their policies.
As part of MLPG360 we set up stewardship meetings which are separate from renewal strategy meetings so we can get an update on their business and any possible challenges they are having which might become an issue as we get close to their renewal, because we try to minimize surprises.
And we partner with our carriers as well. So we keep them in loop on the insured’s business operations and items we will want to discuss as we get closer to the renewal.
We also look to engage the carrier and the insured so they can get to know each other to help build a closer working relationship. This helps to minimize surprises for all parties and ensures we have a smoother placement process.
R&I: Sticker shock for a buyer can harm that broker relationship, right?
AM: The good thing is if the market continues to transition in the way we’ve seen it since early this year, it’ll be a buyer’s market again, at some point.
Now, we don’t know what this next soft market will look like, how long it’ll last, the last two were similar in terms of duration. Maybe, this one will be the same. And if it is, insurance buyers will benefit tremendously.
So, we just tell insureds, make sure you’re connected to your broker. And, make sure that you are also building partnerships with carriers. So, that way, as claims do come, that’s what insurance is all about. That’s our product.
When the rubber hits the road, we have to pay claims. So, build those partnerships, continue to build those partnerships and maintain those as the market transitions. &
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By building trust and partnerships during what is often a very challenging time, case managers are central to guiding injured patients back to health and meaningful work.
Accomplishing this in today’s work and health care environments requires case managers, and case management companies, to be better equipped and trained than ever before.
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Shannon Ford, Senior Vice President, Case Management Solutions for Paradigm
Added Ford, “A one-size-fits-all approach to case management does not work. Person-centric and outcome-focused results require case management solutions that provide expansive options and the highest commitment to quality.”
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Another critical element is the ability to provide nationwide coverage. “Workforces are larger, and more spread out than ever before. Clients need to know that injured workers will receive quality case management and guidance, no matter where they are located,” explained Calia.
Brenda Calia, Vice President, Case Management Delivery for Paradigm
Of course, any set of options in case management must be able to achieve the objective it is designed to accomplish, which is why assuring quality is just as important. “Excellence in case management needs to come from an established track record for achieving unparalleled outcomes on a long-term basis,” said Calia. According to both leaders, quality needs to be measured by time, consistency, and human-centric collaboration in the following ways:
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Paradigm’s case management options include:
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Learn about Paradigm Case Management Solutions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Paradigm. The editorial staff of Risk & Insurance had no role in its preparation.
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