It’s safe to say that the global pandemic has forced change in the insurance industry. Although the health crisis isn’t in the back of our minds yet, we must look forward to solutions to the issues 2020 drudged up. Before searching for answers, though, here’s a look at current trends surfacing in the professional liability space. How we respond to these trends will determine the outcome in 2021 and beyond.
A Hardening Market
From agents to insurers to customers, market fluctuations impact us all. Many insurance lines have been transitioning from soft to hard for several years — but 2020 made the most significant difference. Briefly, the term “hard market” refers to an environment where rates are high, competition is low, and coverage is slim.
Naturally, very few of us enjoy these eras, but hard markets aren’t impossible to navigate. Many insurers are being more specific about where they place their value. For example, professional liability insurance policies, also known as errors and omissions (E&O) policies, are quickly becoming specific and highly customizable. Insurers are choosing more carefully where they will place risk and where they won’t. Instead of spreading a broad net, they’re honing in on a handful of the right risks (as defined by them).
Additionally, brokers and agents have resorted to supplemental narratives to describe unique situations and losses. Not only does this approach help clients understand lessons learned from previous claims, but it also instills confidence in future mitigation measures. Commercial clients, such as founders and business owners, can likely expect to spend more time discussing particular professional liability risks in detail with their broker.
An Influx of Independent Consultants
One growing trend is professionals leaving the corporate world or large enterprises to form a sole proprietorship or limited liability company (LLC). With technology making it effortless to work from home (or anywhere with internet access), it’s understandable that people choose route.
However, being your own boss has one significant caveat, you must cover your own liabilities. When you work for a company, various insurance policies typically cover most exposures you face. Going solo means facing those vulnerabilities solo, as well.
No matter the chosen profession — consultant, marketing strategist, graphic designer, writer, etc. — professional liability insurance is necessary to protect a newly-formed company against allegations of inferior work or service. Some clients won’t even consider working with a freelancer without active general liability and professional liability insurance policies.
As a result of this trend, we’re seeing an uptick in gig-workers needing professional liability insurance. Some insurers are offering on-demand insurance, available by the month or even per project. Other insurers are adjusting their traditional programs to accommodate the influx of new small business owners.
The Switch to Remote Work
Besides freelancers, those individuals who choose to remain employed in the corporate sector are facing a shifting environment, as well. Due to restrictions caused by the pandemic, many employees have been working from home for months. Before COVID-19, only 7% of American workers had this opportunity — but now, remote work is here to stay.
Employees report that flexible schedules and hybrid work is high on the list of desirable employer benefits. And many companies are taking these requests to heart, offering flexible work-from-home policies. However, these new arrangements are also forcing businesses to redefine plenty of guidelines and procedures.
For example, employer practices liability (EPL) insurance is under microscopic review along with cyber liability insurance, to name a couple. Employers must redefine how to insure themselves and their employers. This approach is sure to impact several insurance policies, including professional liability.
The Impact on the Design and Construction Industry
Although professional liability insurance is informally known as “malpractice” insurance, it frequently covers missed deadlines, budget overruns, and oversights. Unfortunately, the worldwide health crisis has caused numerous delays and multiple issues in supply chains, causing the design and construction industry to suffer.
Whether a project was indefinitely paused or experienced some delay because workers couldn’t work, architects and engineers have filed more professional liability claims recently than in the past. Even though these professionals aren’t directly responsible for the unfortunate delays or postponement, we expect to see a steady flow of professional liability claims continue to trickle in. Unsurprisingly, this increase will influence how underwriters must approach writing new professional liability policies.
Changing Coverage Enhancements
During the past decade, the insurance industry has experienced a soft market. Unlike now, we enjoyed broader terms and year-over-year rate reductions. Underwriters didn’t have an economic slump or pandemic to navigate, and insurers weren’t asking the questions they’re asking now.
It wasn’t uncommon for policies to include helpful enhancements or supplemental coverage. Many insurers lowered deductibles if criteria were met, while others offered beneficial reimbursement in specific situations.
Not all of these coverage enhancements will disappear overnight; however, the pandemic forced insurers to rethink their strategy. Underwriters are tightening up the processes as they write new policies or renew current ones. What was an “appropriate rate” ten years ago is being redefined in 2021.
In short, we don’t expect many insurers to be offering baby-faced enhancements anytime soon. What’s more, this era of redefining could mean more narrow coverage for professional liability insurance policies. Although there won’t likely be new bells and whistles for this particular coverage, we do expect it to transition into a more tailored product for several industries.
What’s the Next Step?
Getting through the ups and downs of the global pandemic won’t be effortless. Like many markets, the insurance industry hasn’t gone unscathed. How we adapt will undoubtedly define the roles we play in the world’s recovery and how we can help support our clients through this troublesome time.
Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you.
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