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Survey Report

Insurance Marketplace Realities 2020 – E&O

November 13, 2019

E&O is increasingly complicated. Overall, the marketplace today is stable, with some areas experiencing a mild firming.
Financial, Executive and Professional Risks (FINEX)
Rate predictions
  Trend Range
Errors and omissions Increase (Purple triangle pointing up) +5% to +10%
Large law firms Increase (Purple triangle pointing up) +10% to +20%
Technology Increase (Purple triangle pointing up) +5% to +10%

Key takeaway

E&O is increasingly complicated. Overall, the marketplace today is stable, with some areas experiencing a mild firming.

Errors and omissions, or professional liability, is arguably the most complex area of specialized insurance, with several distinct marketplaces:
  • Stand-alone E&O for certain professions (lawyers, consultants, accountants)
  • Technology E&O, sometimes stand-alone, but often coupled with cyber insurance
  • Miscellaneous professional liability (MPL), including those industries without a specific, dedicated policy form
Lawyers: the market for large law firms began to harden in the 4th quarter of 2018 in response to mounting losses.
  • Insurers and reinsurers have reacted to correct past rating deficiencies, respond to the new loss dynamics and regain long-term profitability.
  • For a variety of reasons, including insurer mergers & acquisitions and/or decreased appetite, there has been a reduction in capacity coupled with increased layer ventilation.
Technology: evolving product and service delivery technologies are pushing the edges of technology E&O into other coverages, including CGL, cyber and other types of professional liability.
  • Internet of Things (IoT) devices, in particular, are interacting with people, property and equipment in new ways.
  • Property damage and bodily injury risks from deploying, using or monitoring services using IoT and connected networks and hardware/software are creating new liabilities, contract requirements and interactions between insurance policies.
Other traditional miscellaneous E&O, or MPL: the marketplace is contracting.
  • Two large carriers are retrenching their books.
The overlap of cyber and E&O coverage is a major area of focus.
  • When buying cyber, buyers often ask about splitting E&O and cyber apart. We often recommend combining all coverage in one policy, as E&O claims alleging a failure to properly render professional services are increasingly overlapping with traditional cyber coverages.
  • Further, in the conflict between E&O and cyber, cyber is winning in that more buyers are including E&O as part of their cyber programs. Traditional E&O market capacity continues to erode as carriers focus on underwriting pure cyber risk.
Insureds should be proactive in reviewing their E&O exposure and existing coverage as they determine the best strategy to address growing cyber exposures.
  • When insurance is required in a customer contract, the type of insurance (E&O and/or cyber) should be specified.
  • Contractual requirements continue to drive requests for E&O coverage.
  • Companies should review the limitation of liability and indemnification clauses in their customer contracts, as underwriters are more closely scrutinizing these provisions, especially as they relate to cyber risk.
  • Companies should review customer-use policies and guarantees regarding any estimated or guaranteed service availability.
E&O underwriting is becoming more sophisticated and complex.
  • Excess carriers are looking more closely at rates and making sure that they are getting adequate premium for the risk.
  • Insurers have tightened pricing and retention guidelines for companies offering just-in-time services or guaranteed uptime or output time in their service contracts.
  • Carriers are focusing more on middle market business and being more cautious when it comes to writing technology E&O for companies with over $1B in annual revenues.
  • Certain carriers are limiting or restricting certain classes of business in response to large recent claims.
  • Carriers are reviewing and examining their exposure to intellectual property risk and are reviewing insureds' intellectual property clearance procedures to understand the risk of third-party intellectual property claims.
  • Although carriers continue to accept manuscript policies to directly address professional services risk, they are beginning to increase premiums for these policies.
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