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Fall | 2019

The Risk Factor

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The demand for Cyber Risk insurance coverage continues to escalate among large and small businesses. The media is certainly driving this increased interest, and insurance agents and brokers fielding more questions than ever about coverages that have long been offered in other types of policies. “It happened because of a computer; shouldn’t this be a ‘Cyber’ claim?” “What do you mean my property policy excludes this?” The fact is, more and more traditional coverages are blending their way into the modern “Cyber” policy and nowhere is this more pronounced than in the area of Cybercrime.

Agents and brokers have traditionally known “Crime” to mean things such as the theft of money, employee dishonesty, forgery/alteration, third party theft of property, etc. As the digital age came about, these traditional Crime policies expanded to include “Computer Crime” and “Funds Transfer Fraud,” but these coverage grants have typically been very limiting.

Just as Crime policies have evolved, so too have Cyber Risk policies. This evolution has created a dangerous E&O exposure for agents who are not well-versed in the nuances of how these policies work. Obtaining “Cybercrime” coverages for certain industries on a Cyber Risk policy can be particularly difficult. Financial institutions, investment advisors, title and real estate agents, law firms and others are among the industry

segments that may be better served on the Crime side than in Cyber Risk policies for this reason.

In an effort to bring a bit of clarity, here is a high-level overview of critical Cybercrime coverage elements that can be found in the stronger Cyber Risk insurance policies today.

Social Engineering/Cyber Deception Social engineering is thought to be a coverage, but it is actually a tactic – a method used by thieves to obtain information, assets or money through the art of manipulation and deceit. This can be carried out through email, telephone or other means. When an insured willfully releases money, information or property to a third party based on an instruction they believed to be true (but, was in fact, deceptive), they have fallen victim to a social engineering scam.

When it comes to Cyber Risk insurance policies, there are several important things to look out for when it comes to Social Engineering:

• Is there a dual authentication requirement before coverage applies? In other words, if the insured receives the request via email, do they also have to call the requestor via phone to verify its legitimacy?

• Does the policy cover money and securities only or goods/product as well?

• What is and is not considered “money”?

By Steve RobinsonNational Cyber Practice LeaderRPS

Demystifying Cybercrime Coverage

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• Does the policy only cover loss of the insured’s funds? What about funds held on behalf of others? This can be very important, depending on the insured’s industry.

• Is Social Engineering automatically included in the Cyber policy, or is it available via endorsement?

• If purchasing excess Cyber coverage, will the excess drop down over the Social Engineering? (Typically not)

• Is this already covered in the insured’s Crime policy? If so, ask questions above.

Funds Transfer FraudFunds Transfer Fraud coverage definitions vary from policy to policy, but generally, the coverage involves unauthorized instructions from a third party to a bank without the insured’s knowledge. Like Social Engineering, this can happen via written instruction, via computer, phone or other means. It isn’t Social Engineering because the insured did not willfully give the money away. It isn’t computer fraud because the theft didn’t take place on the insured’s computer system.

Computer Fraud When someone enters the insured’s computer systems and fraudulently manipulates data that results in a loss of money, this is considered computer fraud. It isn’t Social Engineering because the insured did not willfully give the money away. It isn’t Funds Transfer Fraud because it occurred on the insured’s computer system and was not the result of fraudulent impersonation of the insured to a financial institution. To add to the confusion, some policies will blend Computer Fraud and Funds Transfer Fraud into a single insuring agreement. This is fine, but just know where the coverage resides in the policy.

Phishing/Invoice ManipulationWe have seen a rise in these incidents, and, unfortunately, the industry has either been slow to develop coverage, or, certain markets have provided coverage, paid a lot of claims, and have pulled back coverage grants and/or limits for that reason. This coverage goes by many different names, including “Reverse Social Engineering.” Reimbursement coverage is provided to the insured for their inability to collect an account receivable they hold

because they have been impersonated by a third party through electronic means.

Typically, incidents like these occur when someone has hacked into an insured’s computer system, learned their billing practices and patterns, and then sends invoices to the insured’s customers directing funds to their bank instead of the insured’s. This occurs unknowingly to the customer, who pays the invoice, receives their goods or services, but the thief gets paid instead of the insured. This scenario is a first-party loss, since the customer has received what they “paid” for. Instead, it is the insured who now suffers from their inability to collect from their customer.

It is important to note that the reverse of this can be true as well, creating a third party loss that should be contemplated under the Cyber Risk policy’s Security Liability insuring agreement. If the same scenario as explained above occurs, and it is determined that the customer never actually received their goods/services but paid the invoice anyway, then the customer will look for remuneration from the insured for their loss. This is more common in large corporations that receive many invoices.

Beware of Cyber Risk policies that limit this third party loss scenario with a sublimit as the Security Liability insuring agreement should cover this and is typically offered at full policy limits. After all, were it not for the insured’s failure to protect their computer system, their customer would not have suffered a financial loss.

While Cyber Risk insurance policies are broadening coverage in many areas previously contemplated by more traditional policies, it is important to work with a broker who can help you navigate the nuances. Doing so can make the difference between a covered claim for your client and an E&O exposure for your agency.

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The Property insurance marketplace has hardened and become more challenging following multiple years of natural catastrophe claims and a frequency of claims on specific classes of business. The importance of quality underwriting data has grown significantly to secure the best terms from carriers. Underwriters price risk on the basis of predictability and uncertainty; the more uncertainty, the higher the price. Most carriers are using science, technology, engineering, and data to better understand the risks they are assuming to accurately analyze rate adequacy.

Providing the best underwriting data available will reduce the underwriting uncertainty of any given risk. Carriers have become more dependent on a variety of exposure rating models and tools to develop loss projections. What is consistent in all of the models and tools is they depend on thorough and accurate data in order to produce the most absolute results. The adage of “Garbage in – garbage out” still rings true! The quality of exposure data has definitely been a concern for the industry, as the poor quality of data has been identified as a key component of the huge gaps between modeled losses and actual incurred losses in recent

catastrophic events. Carriers can no longer avoid the detrimental effect of ignoring details in the underwriting data they have been collecting. Improving data quality in their portfolios has become a focal point for insurers, reinsurers and rating agencies. The exposure data quality is one element of uncertainty in modeling that can be controlled by the industry. The industry is practicing more underwriting discipline in this marketplace and has become diligent and cautious with the capacity they deploy.

So what are the key data items that carriers are looking for in an Excel spreadsheet - Statement of Values (SOV)?

The four Primary Physical Characteristics of every building:

• Construction type/coded properly

• Occupancy type

• Year built

• Building height/# of stories

Pertinent Secondary Physical Characteristics for the relevant CAT-exposed perils:

• For Hurricane-exposed risks: Opening protection, roof geometry, roof age, etc.

• For Earthquake-exposed risks: Engineered foundation, anchoring, soft story, etc.

By Raul E. Plasencia, ASLI, ARM-PExecutive Vice PresidentRPS Boca Raton

Show Me the Data:A Property Marketplace Rundown

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Flood Risk Flood is a very large area of concern for risks throughout the country. Many carriers are actively testing and working with new predictive models for flood. There are a few key data points that can make a large impact on modeling results that aren’t typically captured in SOVs we receive:

• Precise coordinate data

• Basement Y/N

• First Floor Elevation/Elevation Certificates

• Base Flood Elevation (BFE)

Having precise location data for flood risks is important. We recommend capturing coordinate data for all unique structures, particularly important where buildings are spread out across a large area that could have varying levels of flood exposure, but may otherwise share a single address. The presence of a basement has flood implications for obvious reasons, but First Floor Elevation is another critical piece of information in the event a structure is elevated high above the BFE (reducing its likelihood of flooding), or sits below the BFE (increasing likelihood of flooding).

Many carriers are inspecting locations to validate the reported data on the SOVs to protect themselves from making underwriting and pricing decisions on faulty data. When discrepancies are found in the reported information, they are acting swiftly to match what they quoted with the revised data. They rectify the issues by either changing terms, pricing, deductibles or even coming off risk in the most severe instances.

Replacement Cost Values In addition to specific building characteristics, there has been a significant increase in underwriting questions relating to the reporting of proper replacement cost values. Quite often, businesses are inclined to use a tax or market valuation as their insurance limit when they seek coverage. However, insurance replacement costs have risen across most of the country and market values have not necessarily kept pace; this has created disparity. The insurance replacement cost is the value to rebuild the existing structure with a like and kind structure. If the building is older, and would require significant code or ordinance improvements if severely damaged or

destroyed, those should be considered in addition to the like and kind replacement value.

The significant storm damage in recent years has highlighted valuation problems on numerous insured losses. There is a common concern over underreported values and the related claim issues that arise post-loss. Ultimate replacement cost claims have been coming in significantly higher than the reported values on the Statements of Values. Many excess carriers were shocked they were paying claims on assets that were valued under their attachment point on insured property programs. Some carriers thought they had eliminated their CAT exposure by attaching excess of the reported values in CAT zones, but then claims were incurred that eroded through the underlying layers. The result of this was carriers paying claims on exposures they thought they did not have.

Inflated values can cause an insured to pay excessive premiums and carriers to overvalue their exposures. Having accurate replacement cost values would secure adequate insurance limits and help to resolve potential claims.

There are a number of ways to accurately develop the appropriate replacement cost value of a structure. These include:

• Professional physical appraisals

• Using original cost figures and adjusting for market trends

• Desktop appraisal services that utilize building size, class and regional factors to estimate the RC

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Business InterruptionBusiness interruption values and limits are another heightened discussion area in this hardened marketplace. Accurately determining how long it would take to get an insured back in business is not a simple task. Predicting what will happen to the revenue stream and what will happen to the expenses of an insured post-loss is a huge area of uncertainty. The preferred method to arrive at an appropriate valuation is to have an insured complete a business income worksheet. Although this can be quite detailed, it is worth the effort to make sure your insured is properly protected so the carriers understand the risk at the onset as well as assisting later in the resolving of claims post-loss.

ConclusionIt is expected that most markets will continue to secure rate rises through the rest of 2019 and into next year. The admitted marketplace will continue to carefully analyze their books of business and more accounts could end up moving into the Excess & Surplus Lines marketplace as they de-risk their portfolios. The best way to help your client is to help them stay within the admitted marketplace, or obtain the best terms from the E&S marketplace. This can be achieved by improving the format and underwriting data that is being presented in submissions sent to carriers. Best in class submissions and data will produce the best results. To quote Coach Nick Saban, “Eliminate the clutter and all the things that are going on outside, and focus on the things that you can control with how you sort of go about and take care of your business. That’s something that’s ongoing, and it can never change.”

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The market for General Liability for snow plowers can be summed up in a single word—rough. Talk to anyone who’s been placing any volume of snow plowers recently, and I’m sure you’ll hear the same story—there simply aren’t enough carriers willing to take the risk. As the number has continued to dwindle, we’ve seen carriers come and go—leaving and then dipping their toes back into the market, only to stop writing the class again just a year or two later. Among the carriers still writing the class, premiums have been increasing at an alarming rate.

How Did We Get Here? I’m often asked why snow plowing premiums are so high, even for small snow removal contractors. The short answer is that awards on the claims—mostly slip and fall—have been steadily on the rise. In part, this trend derives directly from the medical expenses that can accumulate after an injury. With healthcare expenses having increased significantly over the past decade, injury-related claims have skyrocketed and premiums have followed suit.

Another contributing factor is how these losses are being handled. The insurers are rarely taking these claims to court because the costs involved can be staggering

compared to the actual indemnity of the claim. In the Northeast, for the most part, carriers have not found juries to be sympathetic toward insurance companies. As a result, claim settlements have become the norm.

Finally, for years this class of business had been severely underpriced. Snow removal losses (like many 3rd-party claims) can take years before they’re even reported, which delays the loss from hitting the insurer’s books. Then the adjustment of these losses often takes quite a while—sometimes years—with reserves increasing as the claim progresses. Before the carrier knows it, their book of business that was once running very well for a few years can suddenly spike to a well-over 100% loss ratio. They react by taking drastic action—typically significantly increasing rates or discontinuing writing the class altogether.

Hard-to-Place ExposuresTypically, the most difficult are high-volume retail and transit hub exposures, which see the highest loss frequency, and nursing homes, assisted living facilities and hospitals, which can see the highest severity. For obvious reasons, plowing of airport runways is very difficult to cover as well. There are markets that will write all of these exposures, but you can expect to see minimum premiums starting at $25,000 and easily climbing in excess of $100,000 for the toughest risks.

By Dennis Pellegrino, Jr.Area PresidentRPS Excel

Snow Plowing Market Update: 2019/2020 Season

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In general, snow removal at the following is more difficult to place:

• Convenience Stores and Gas Stations with Convenience Stores, especially 24-hour locations

• Pharmacies, Hardware Stores, Big Box Stores, Large Grocery Stores

• Banks with Walkup ATMs

• Hospitals, Nursing Homes/Assisted Living Facilities, Surgical Centers

• Stadiums, Airports

• Public Roads, Railroads, Subway Locations

By location, snow and/or ice removal operations in Philadelphia and the five boroughs of New York (Manhattan, Brooklyn, Queens, The Bronx and Staten Island) are difficult to cover.

Contractors who remove snow and ice from roofs, or who are involved in avalanche-control operations are also hard to place.

Eye on the FutureA couple of states (Colorado & Illinois) have passed legislation that essentially voids certain indemnity agreements that have become common in snow removal contracts. There are bills before lawmakers in New Jersey, New York, Pennsylvania, Indiana, Massachusetts & Connecticut seeking similar legislation.

A June 21, 2018 article on The National Law Review’s website describes Colorado’s “Snow Removal Service Liability Limitation Act” as follows:

By its terms, the Colorado Act applies to contracts for the following services: (1) plowing, shoveling, or other removal of snow or other mixed precipitation from a surface; (2) deicing services; and (3) a service incidental to either (1) or (2), including operating or otherwise moving equipment or materials used for snow removal or deicing services. The Act makes any effort to require indemnification for one’s own negligence in such contracts void as against public policy.

Specifically, the following types of provisions will no longer be enforceable:

• An agreement by a service provider (snow removal contractor) to indemnify a service receiver (typically a property owner or property management company) from the service receiver’s own acts or omissions.

• An agreement by a service receiver to indemnify a service provider from the service provider’s own acts or omissions.

• An agreement by a service provider to hold harmless a service receiver from any tort claim arising from the service receiver’s own acts or omissions.

• An agreement by a service receiver to hold harmless a service provider from any tort claim arising from the service provider’s own acts or omissions.

• An agreement by a service provider to defend a service receiver from any tort claim arising from the service receiver’s own acts or omissions.

• An agreement by a service receiver to defend a service provider from any tort claim arising from the service provider’s own acts or omissions.

The new legislation, however, does not apply to contracts for services on public roads, at public utilities, or at public or other commercial airports. It also does not apply to “an insurance policy, a surety bond, or workers’ compensation.”

The full article, which includes information about the anticipated effect of the act and the effect of the act on additional insured obligations, is available here.

Getting Your Client the Best DealFor one, start the submission/quoting process early. The best time to begin looking for coverage for a snow plower has actually passed by the time you are reading this article in the fall (but keep that in mind for next year). Most markets have trouble handling the volume of submissions they receive on this class in the fall and early winter, and quote times can sometimes increase dramatically once the weather gets colder and the submission flow picks up. Capacity can also become an issue as winter approaches, because some carriers will stop writing once they hit their magic number in terms of snow plowing premium.

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All this in mind, it’s not surprising that it’s becoming more common to have snow plowing policy terms that begin in August or September. This can be a good tactic for two reasons: it’s generally when the traditional landscaper/snow plower has decent cash flow; and it forces the underwriting process to begin (and end) outside of the busy season for snow plowers.

To get your submission to the top of the pile, here are a few items that most underwriters will be looking for:

• A fully completed ACORD application & snow plowing supplement

• 3-5 Years of currently valued loss runs (some carriers are even asking for 7 years)

• Detailed Information on what, exactly, is being plowed – including addresses

• Copies of the insured’s contracts with their customers

The 2020 edition of the Farmers’ Almanac predicts that two-thirds of the country will face a colder-than-normal winter season. The worst of this year’s bitterly cold winter will affect the eastern parts of the Rockies all the way to the Appalachians. The outlook says the Northeast, including cities such as Boston and Washington, can anticipate colder temperatures than typically expected. The biggest drop will happen in areas across the northern Plains to the Great Lakes.

“With colder-than-normal temperatures in the Northeast and above-normal precipitation expected, our outlook forewarns of not only a good amount of snow, but also a wintry mix of rain, sleet—especially along the coast,” the long range forecast suggests. People in the western third of the US may be in luck, since the publication forecasts near-normal winter temperatures there.

They are calling it a ‘Polar Coaster’1 and RPS is here to help you weather the storm with snow plowers coverage this season!

1 CNN.com

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The majority of law firms in the U.S. have less than 50 attorneys, and most of those are below 25. So when looking at Lawyers Professional Liability solutions for these firms, what is the optimal solution? When asking yourself this question prior to talking with a law firm prospect or client, you should weigh the market solutions.

There are approximately 30 insurers writing LPL for smaller firms, admitted and non-admitted alike. While price is always a metric to consider, broad coverage and optimal cost benefit in the event of a claim need to be considered. Therefore, looking for a quality admitted insurer with broad wording, offering claim expenses outside the limit and first dollar defense deductible should be a priority.

Key Coverage Musts Before we explore the benefits of the admitted, CEOL, and FDD policy, let’s look at key coverages that should always be looked for in an LPL policy form:

1. Broad Definition of Professional Services – the definition should provide coverage for the insured for services provided on behalf of the law firm in the capacity of legal services (i.e lawyer, arbitrator, mediator, or title agent). The coverage should be broad enough to include all services that a law firm would provide as professionals in the legal field.

2. Broad Insured Clause or Definition – the definition should include the law firm and any predecessors in business (past or present partners, officers, directors, stockholders, members, managing members or employees of any person or entity). Furthermore, this should extend to estate, heirs, executors, administrators and legal representatives of any insured in the event of such insured’s death, incapacity, insolvency or bankruptcy.

3. Limited Exclusion Clause – the exclusions in the policy should be limited to illegal and fraudulent acts by an insured or acts/situations that would be otherwise be covered under other available insurance coverages (i.e discrimination, sexual harassment, and ERISA exposures, to name a few).

4. Relaxed Hammer Clause – over the years as the LPL market has become more competitive, carriers have implemented language to bear a portion (typically 50%) of the costs of the contested claim settlement.

The above are key coverage considerations. When obtaining quotes from insurers, a full policy review and analysis should be done to ensure optimal coverage is being provided.

Admitted vs Non-AdmittedThe argument of which is better, admitted or non-admitted, has been going on for ages. For the large law firms that pay six or seven figures in premium, the non-admitted solution is optimal. They have the ability to have bespoke wording to fit their specific firm and risk,

By Jason SouthardVice President RPS Plus

Lawyers Professional Liability: Finding the Best Solution for Small Law Firms

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while the insurer can charge adequate premium that isn’t tied to a filing with the state. Additionally, it gives an insurer the ability to charge higher rates as deemed adequate after significant growth, M&A, and/or large claim payments.

When it comes to smaller law firms that are usually generic or specific specialists, the admitted solutions are superior. The insurer files the rates with each state or a base rate across all states. This gives a limited range that an insurer can credit or debit any one risk. This limits increases a carrier can put on a law firm at renewal. There are generally no taxes added to the premium (select states do tax the premium). Additionally, a portion of the premium goes to the state guarantee fund which is a pool of funds for policy holders in the event the insurer becomes insolvent. Another benefit is that if the insurer exits the market or decides to non-renew an insured, they must give ample notice. State mandates range from 45-90 days in advance. This gives the broker and law firm time to plan and find an alternative market solution. Lastly, the admitted insurers’ rates in today’s market conditions are very competitive.

Claim Expenses Outside the LimitsGenerally speaking insurers offer two types of Claim Expenses Outside the Limits solutions:

1. An additional limit for claim expenses (i.e. $5 million limit for damages with an additional $1 million limit for claim expenses)

2. A matching limit for damages and claim expenses (i.e. $5 million limit for damages with an additional $5 million limit for claim expenses)

The diamond solution is clearly the matching CEOL. As mentioned previously, the admitted market is charging competitive rates for these solutions. Additionally, the discount to move to claims inside the limits is not large. Therefore, to optimize premium to limit and coverage the matching CEOL option is premier because you have limits for damages and limits for defense costs.

First Dollar Defense or Standard Deductible?When looking at the deductible for a law firm, there are generally four to choose from:

1. Each Claim – the deductible applies to each and every claim with no annual aggregate

2. Aggregate – the deductible applies to each and every claim, but has an annual aggregate cap (i.e. $5,000 per claim / $15,000 annual aggregate)

3. Single Annual Aggregate – the same as the previous option, but the per claim and aggregate are the same (i.e. $5,000 per claim/$5,000 annual aggregate)

4. First Dollar Defense – the deductible only applies to damages, with no deductible for claim expenses

As mentioned above, admitted insurers are offering these deductible policy options at competitive rates. And the increase in premium charged for the FDD option is not significant for most insurers. This option gives the insured comfort that in the event an alleged act, error or omission is made against them, the insurance carrier starts paying for defense immediately at no cost to the firm. The insurers have a panel of counsel experienced in defending LPL maters at pre-determined hourly rates. These rates are usually lower than normal. This should equate to lower defense costs overall which means lower loss ratios (win/win!). Lastly, the firm only pays a deductible if a settlement is reached or the court rules damages against the law firm.

ConclusionWhen looking at the smaller law firm market and optimizing the premium, coverage, and limit ratios, the admitted, CEOL and FDD solution should be a priority in your search. Firms that fit these solutions generally have no claims paid or limited payments and have a “traditional” law practice (i.e. no extremely high risk practice areas). When doing your marketing for law firm clients and prospects be sure to utilize your insurance company partners as well as your wholesale broker partner(s) to look at all solutions with an emphasis on admitted, CEOL, and FDD policies.

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Artisan contractors, also known as casual contractors, include many occupations that involve skilled work with tools at the customer’s premises. Contractors need General Liability insurance in case they are sued due to an owner or employee making a mistake that injures someone or causes property damage. These mistakes may render the contractor legally liable for damages to those who suffered a loss as a result of the contractor’s action or inaction. Some lawsuits are quite severe and could bankrupt a business, so it’s essential that artisan contractors—however small—be adequately insured.

The common General Liability coverages include:

• Bodily Injury (BI): This is similar to your auto insurance. If you or someone connected with your business causes an injury to another, the injured party’s medical expenses, lost compensation and costs associated with loss of services will be taken care of.

• Property Damage (PD): If property is damaged by something you or your employee did or even did not do, GL will pay out on the damage and loss of use of the property.

• Products and Completed Ops: If the material you use ends up being defective or you unintentionally skipped a step in the work process, any claims that result will be taken care of.

• Medical Payments: Subject to lower limits (usually $5,000 to $10,000), this coverage pays any medical expenses regardless of who is at fault. The idea is that if prompt medical payments are disbursed, a lawsuit may be prevented.

• Personal and Advertising Injury: If a third party is defamed or libeled because of the advertising of your products or services, it is called a personal and advertising injury. Any resulting claims will be handled by your GL.

• Damage to Rented or Leased Premises: This takes care of any damages to property you rent or lease.

Carpenters, plumbers, electricians, landscapers and tree trimmers are some of the types of artisan contractors that we have available on our easy rate-quote-bind-pay-issue portal. For as little as $500 + taxes/fee, we can insure a small artisan contractor for a $1,000,000 limit and zero deductible (on most classes). We can consider new business ventures with experienced owners. Our system also allows for additional insureds on an individual or blanket basis. The best part about this system is the ease of use. In only a matter of minutes, you can have a policy issued and printed so that your contractor can start work immediately.

Get started today at my.rpsins.com using your Google Chrome browser.

By Laura AllenVice President, SoutheastRPS Lexington

Artisan Contractors:Cover Your Clients With Ease

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By the year 2035, and for the first time in our history, there will be more people in the U.S. that are over 65 years of age versus people under 18 years of age. Both public and private healthcare costs are increasing, which is a direct correlation to the increase in average age amongst the U.S. population. As a result, we are seeing a rapid growth in the investment and creation of new healthcare entities across the entire spectrum.

Risk Placement Services has a specialty business unit that is solely focused on the insurance needs of the healthcare industry. Referred to as RPS Healthcare, our practice group has an in-depth understanding of the evolving insurance risks that healthcare entities and individuals are facing. As medicine and insurance placements become more complex, so does the insurance itself. It’s more critical than ever to work with subject matter experts in the healthcare space when working with a healthcare client. Our main focus is on placing Medical Professional Liability (PL) and General Liability (GL).

We approach insurance for healthcare entities and individuals via the following segments: Allied Healthcare, Long Term Care, Hospital, Social Services, and Physicians. Let’s take a look at some exclusive products that we have to offer as well as our capabilities.

Allied Healthcare is often demonstrative of smaller healthcare risk, like home healthcare, hospices, pharmacy, medical clinics, imaging centers, medical laboratories, etc. For this reason, RPS Healthcare has created and recently launched a proprietary online Allied Healthcare quote-bind-issue program via the RPS eCommerce platform that makes placing Allied Healthcare business easier than ever. Visit RPSSmallBusiness.com for this industry-leading tool.

The RPS eCommerce portal allows retail agents to quote-bind-issue Medical Professional Liability for the following specialties, all within minutes: chiropractic, dental, eye care, dialysis/hemodialysis, physical/occupational therapy, primary care, weight loss, and veterinarian clinics; healthcare training/education/certification programs; imaging centers; individual medical students; and outpatient counseling services.

The long term care space consists of skilled nursing facilities, assisted living facilities, independent living facilities, and continuing care retirement communities. Providing PL/GL for long term care facilities is trending in a challenging direction as the marketplace continues to experience significant hardening. The hardening of this marketplace is due to many years of carrier unprofitability, combined with severity pressures in challenged legal jurisdictions.

By James McNittArea PresidentRPS Healthcare

Healthcare & Insurance:Staying on Top of an Ever-Changing Field

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RPS Healthcare has very strong experience with insuring hospitals including academic medical centers, hospital systems, acute care hospitals, and rural hospitals. Similar to long term care, hospitals are experiencing a dramatic increase in rates coupled with a decrease in market capacity. This too is driven by years of unprofitability as a result of severe losses, with a very strong impact on the reinsurance marketplace.

Another growing space within healthcare is the social services realm of Medical Professional Liability. Also referred to as human services, we provide competitive options for classes of business such as foster care, facilities for the developmentally disabled, drug & alcohol rehab (including substance abuse), community centers, mental & behavioral health clinics, and other related non-profit organizations. These buyers are pre-conditioned to purchase “package” policies, and we have carriers that can include the Property/Auto in conjunction with the PL/GL and Umbrella.

We place insurance for many individual physicians and physician groups, including excess placements and standalone ERPs (Tails). The insurance marketplace is relatively soft for physicians, although we do expect this to move toward a harder environment due to profitability pressures. We have advanced expertise in hard-to-place physicians, including dentists, podiatrists, and optometrists. A hard-to-place physician may be searching for insurance in the E&S marketplace due to claims history, board actions, or a high exposure specialty. No matter what, RPS Healthcare can find a coverage option for your physician or physician group.

The Healthcare division within RPS is prepared to handle risks of every complexity, and our expertise is best demonstrated when partnering with our retail agency partners to help solve their client’s insurance needs.

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I think the old fable of the tortoise and the hare best sums up the type of market we are currently dealing with. In the story, as we all know, the tortoise chugs along steadily and slowly and ends up beating the hare who takes a more lackadaisical approach to the race. I am reminded of this story because in today’s environment, it seems like the carriers are the tortoise and over the course of the last 12 months, they have slowly and steadily transitioned us to what is certainly a “hard or hardening market” in almost every segment of the property world.

In some asset classes, it appears the tortoise took some NFL-approved PEDs because the level of rate increases seen in distressed wildfire business, garden style multi-family, and the hospitality sector seem to be well above market. In other hard markets, the carrier reactions were almost instantaneous, but in this market, the transition was slow; it took time, and it continues to build on itself. If you look back at Q3 and Q4 of 2018 the market showed signs of movement but was primarily restricted to garden style multi-family and hospitality. As 2019 rolled around, the market was reeling from continued CA wildfires, hurricanes in the Atlantic, increased loss reserves from HIM (Harvey, Irma, and Maria) and ultimately a full realization by some carriers to modify business plans and appetites which started the slow push to drive rate across the board. Early in 2019, rates were up 5% to 15% on average, sans garden style multi-

family. As we rolled into Q2 2019, rates were averaging 10% to 20% up and in some cases, clients were seeing well over 50% rate increases because they had accounts that required what many have come to call a “market correction.”

The “market correction” accounts can be divided into four categories:

Category #1 - Single carrier placements from large line players like FM, AIG, Travelers, etc. - Many of these placements were essentially non-renewed as single carrier placements and went layered and shared. The change in appetite by these firms and their push to reduce exposure to municipal business, higher education, large CAT-driven REITs, and what was previously deemed “preferred” or engineered risk has caused the market to be flooded (excuse the pun) with new E&S opportunities that E&S markets were happy to write but at E&S rates. We have seen accounts in this space experience increases well over the market average, even as high as 100%. Most of these accounts also required changes to T&Cs and deductibles.

Category #2 - Distressed wildfire business in CA, WA, OR, and other wildfire exposed states - The standard market withdrawal from wildfire zoned business is CA has occurred faster than Antonio Brown’s fall from grace. Over the course of 2019 we have seen countless opportunities that were previously with package middle market carriers that are now being pushed to the E&S market at rates that have doubled or tripled. In many cases, customers have had few options and in some of

By James Rozzi, CPCU, ASLIArea Executive Vice PresidentRPS San Francisco

State of the Property Market: 3rd Quarter Update 2019

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the smaller accounts, the increased costs have caused financial burdens to their respective organizations, driving some clients to self-insure wildfire all together.

Category #3 - Multi Family - I hate to date myself, but I arrived in the insurance world in 2006 and ever since that time, people have been talking about the difficulty of garden style multi-family and what a challenging asset class it is. Over the course of my career, carriers have entered and exited the space, programs have come and gone, and in some cases, lawsuits have been filed over blatant client misrepresentations regarding loss history and valuations. What we are dealing with today is an extreme tightening of rates, coverage, and is the direct result of carriers exiting this space due to an inability to make a profit over a multi-year period. I am sure if you polled some of the major carriers who entertain this class, they would all tell you that over the last three or four years, this asset class has been the loss leader on their balance sheets. Multi-family is plagued by attritional losses, aging buildings that trigger code upgrades, and poor property maintenance (not in all cases because every customer is different but generally speaking, this is the market perception). You also have numerous clients that still tell you that they can replace the structure at $65 per sq ft because Marshall & Swift says so but after every major event or storm, the cost to repair or replace is likely double and in some metropolitans, the new construction costs are soaring because of labor shortages. Due to all of these factors, garden style multi-family is seeing rate increases that average 15% to 25% for best in class customers and for those with losses or with suppressed rates and those that are dealing with a carrier non renewing, rates can accelerate well above 50%.

Category 4 - Hospitality - It is a simple fact that hotels are where people want to vacation, and people don’t find themselves sitting in their office at their job daydreaming about visiting the world’s biggest ball of yarn in Middle America (no offense if that is your cup of tea). Most people envision themselves sipping some tropical drink with an umbrella in it on a perfect white sand beach while their kids swim happily in the ocean and they quietly read the weekend edition of the Wall Street Journal or their news periodical of choice. Hotels are built along the coast and unfortunately, over the past few years, increased hurricane activity, mudslides, and other

events have plagued the hospitality sector. Everyone will agree that this is not the fault of the hotel operators but 2017 and 2018 marked the worst and fourth-worst CAT years on record in the United States and as a result, the hospitality sector has seen rates jump an average of 10% to 15% a year for non-loss-affected business and likely closer to 30%+ a year for loss-affected accounts depending on the magnitude of their claims. The other issue fueling the rate rise is the continued loss creep regarding BI claims and increased construction costs that are being noted on all the major hospitality accounts that were hit hard by Hurricanes Harvey, Irma, Maria, Michael, and Florence.

If you aren’t in one of these four categories, you are not immune to market conditions but you are likely seeing a more tempered approach to account rate change and are probably feeling a bit better about your property insurance renewal. We don’t have a crystal ball and as we head into the last few months of the year, market conditions in the future are going to be largely determined by whether or not the Atlantic Hurricane Season has an impact in the Atlantic and Gulf and whether or not any other market events contribute to what has so far been a relatively benign year. Sans the mass devastation from Hurricane Dorian in the Bahamas, the industry had a near miss because if the storm had smashed into Miami the way it initially tracked, we would have been singing a different tune right about now.

In the absence of any major CAT events for the remainder of 2019, it is still the expectation of many that the tortoise is going to continue to run and the race is not over. As mentioned previously, this “hard market” or “transitioning market” is unique in that the changes were not abrupt and most industry professionals believe that there remains a shortage of capacity in the market that will keep rates from dropping back down in the near future. The changes seen in Lloyds, with large line carriers like AIG and FM, and the adjustments being made in the reinsurance market due to the withdrawal of outside capital is going to continue to tighten the availability of capacity. The reinsurance world sits atop the capacity pyramid and with the shutdown of CatCo and with reinsurance making model adjustments as a result of past storms, the access to capacity and balance sheet protection is becoming more costly and difficult for

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upfront carriers. These issues and market changes will not correct themselves overnight and that is why I believe the market will continue to transition slowly in whatever future direction it may take.

For the look ahead, I would continue to advise clients that the market of 2019 will look very much like the market of 2020. The market of 2019 really started accelerating in Q2 so I would expect Q4 2019 and Q1 2020 to follow the conditions we have seen thus far and from there, I think rates will continue to firm but at a lower level with averages heading towards the single digits versus the double digits we are seeing more frequently today. We must all remember that most carriers believe that rate levels are still below where they need to be as a result of the four to five years of consecutive rate decline that led up to this market and as result, most carriers I have spoken with are not budgeting for any rate reductions in the new year. I have said it before and I will say it again, you can’t run a business at a loss forever and in order for the market to

balance itself a bit more, the carriers will need to operate healthier balance sheets. I believe we are on track to get there soon, but it does not appear we are there yet. What I would advise for now is that we all continue to maintain a high level of client and carrier communication to avoid any surprises. As brokers, we can continue to use every tool we have to make adjustments to clients’ programs to ensure they get the most competitive and effective means of risk transfer. I know that RPS is here for all our customers and we can solve any problem presented to us. I hope that all our clients continue to have confidence in the full suite of products and capabilities we have and we look forward to working with you to navigate these more difficult market conditions.

In closing, I wish everyone a lot of success in the months ahead and I hope we are all able to close out the year with our heads held high knowing that we did our absolute best to maximize the relationships we have and do what is best for our client base.

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