By Mark E. Ruquet
NEW YORK—Conventional wisdom says the U.S. insurance
marketplace has matured to a point where there is little room for growth.
Indeed, carriers and agents fight over market share in the personal lines space
with promises of lower rates or better service. In the commercial lines space,
larger brokers acquire smaller firms or experienced talent to drive revenue
while carriers cut rates or offer attractive terms and conditions to entice
desirable business to their portfolio.
However, organic growth is still possible outside of
dependence on shifting loyalties. For agents, young teens do not want to depend
on Mom and Dad for the keys to the car forever. The entrepreneurial spirit can
create insurance opportunities with start-ups, driving the need for myriad of
coverage. Then there are markets where insurance penetration is surprisingly
sparse, and the right coverage pitch and contact can lead to growth
opportunities.
Within the independent insurance agent’s sweet-spot is small
companies and non-profits, and as Wednesday’s Advisen conference in New York on
Management Liability made clear, this is an untapped market for Directors and
Officers coverage. All an agent needs to do is convince his or her client that
there is a need. One effective strategy for producers is to identify individuals
on non-profit boards that understand the need for D&O coverage to convince
the rest of the board that there is a need. However, as many speakers attested to,
convincing business owners within a family owned business, or board members of
a non-profit who do not perceive risks in their decision making can be a hard
sell—especially under tight budgets.
Advisen’s report, “The Private Eye: A Spotlight on the U.S.
Private D&O Market,” notes that an average of 60 percent of private
companies and non-profits with $100 million or more in revenue purchase
D&O, while the number drops dramatically to 28 percent for entities with
revenues below $100 million. To get a better idea of the market potential,
there are 45 million companies registered in the United States. Of that, close
to 17 million employ less than 500 people, an indicator of the number of
private companies. In addition, the Census Bureau says there are more than 3
million non-profits.
A major reason for the low take up rate is that small
business owners and non-profits do not believe someone would sue them. They do not
realize that litigation is costly, running into the millions of dollars in some
cases, or the expanding sectors of risk such as cyber-liability, increased
government regulation or the unforeseen. The fear of the rising tide of
litigation presents opportunity for carriers.
“It’s a growth market,” said Steve Anderson, an insurance
industry executive. He says that despite the poor take-up rate, the industry is
“more bullish” about the potential for expansion in D&O for privately held
companies and non-profits as institutions face non-traditional risks.
Anderson said some of the unforeseen risks can arise from media
attention over the plight of college graduates not securing work in the field
they spent years pursuing their degree. The plaintiff’s bar could sue for breach
of implied promise when those years of education fail to become a
stepping-stone to a better life. Then there is a hospital’s board facing exposure
because a patient’s stay in their facility produced an unexpected result.
“No one goes to the hospital with appendicitis and expects
to walk away with a staph infection,” Anderson noted.
For buyers, Bob Adler, business administrator for Essex
County Legal Aid, observed that small institutions are BOPs with professional
legal liability, but carriers do not have the resources to develop the kind of
relationship and education of risk they do with their large clients. The
premium is too small and the number of policyholders too great. Advisen cites
U.S. Census Bureau statistics putting the number of S corporations (family
owned businesses) at more than 20 million. However, Adler feels carriers could
help to differentiate themselves by making resources available to their
customers, such as a dedicated website to give advice and counsel and suggest
what risk management practices would help avoid a claim in the future. Where he
finds himself turning for help is his broker, says Adler.
“What I look for in a broker is a partner in risk
management,” says Adler.
“I want to deal with people who know my business and are in
it,” points out Nakeschi Watkins, risk manager for Yeshiva University, adding
that “carriers should be a little more aggressive” about getting the business.
She says she relies on networking and reputation when choosing whom to deal
with, but she too relies on her broker’s expertise in evaluating and purchasing
insurance.
Carriers could do more to help with the sale, said Sandy
Crystal, executive vice president for the insurance
 |
Christopher Sparro, AIG President, Financial Lines,
U.S. & Canada Region |
brokerage firm Crystal
& Co. He points out that insurers have worked to make their business more
efficient when selling this coverage, but they have not done enough to allow
people to understand their risk. Insurers, he adds, should work to differentiate
themselves in the eyes of their clients and meet their customer’s needs.
“You shouldn’t do the business if you can’t do the business
for that client,” said Crystal.
D&O markets are repositioning, said Christopher Sparro,
president, financial lines, U.S. and Canada Region for American International
Group, as carriers push D&O prices up and seek to build profit into their
books of business. However, carriers cannot expect to expand the business if
they don’t supply the service customers need and find ways to differentiate
themselves.
“Service, service, learning and education” is what the
customer desires, said Sparro. “It is much harder to provide capabilities and
service; it is easy to match terms and conditions.”
