Political Season Is Here But Insurers Aren't Running to Cover Campaigns
Jonathan Schwarzberg
January 23, 2012
Death, taxes and elections. You can count on all of them, but elections might be the easiest to predict, at least when it comes to timing.
Whether every two years or four, for local or federal elections, voters can count on the airwaves being flooded with pleas for votes and advertising by candidates and special interest groups.
Now, the country is in the beginning stages of its first federal campaign since the U.S. Supreme Court's Citizens United decision on corporations' free speech that allowed Super PACs to raise money to support candidates as long as they don't have direct contact with the candidates' campaigns.
So far, Super PACs have already spent $18 million on the 2012 presidential campaign, and that is with only two states voting, according to the investigative journalism organization Pro Publica. And there is plenty more where that comes from.
With this predictability and growth potential, insurers are anxious to grab onto these accounts, right? Not really; in fact, the opposite is true. The fact that so many political organizations are fleeting has tempered the appetites of insurers to pursue them.
"One of the things that limit the marketplace for these is that they happen usually every other year," said Dick Lemon, a nonprofit specialist at McClatchy Insurance Agency in Sacramento. "It's also event-driven and has a lot of exposure all at once. "
McClatchy Insurance is licensed in most states and does business with various carriers for political organization coverage, although it primarily does business on the West Coast.
Lemon has been placing business for political organizations for about 40 years. With this experience and the connections he has made, he can place pretty much any business, but it's not always easy.
"Some of the carriers have pulled out," Lemon said. "I have noticed a change already. There is a thinning of the marketplace for political organizations."
Among the carriers that do write this business are Chartis and Markel, with Chartis probably being the largest insurer in the market. Markel came out with a specific form for political risks a couple of years ago and has some appetite for these risks. Lloyd's is also always willing to write this coverage.
Rates generally follow the rest of the market, with changes in availability of coverage being the biggest variable in the market for political organizations.
In addition to the fact that these organizations only come around every couple of years, insurers sometimes stay away because of the risks involved.
Lemon said most political organizations, such as campaigns, look for a general liability policy. They need coverage for additional insureds at whatever locations they are at.
It isn't always easy to price political events, especially since the number of people showing up at events can change drastically. Lemon said that the booking of Sarah Palin dramatically increased attendance at a political event in Nevada, pushing the cost for insurance by thousands of dollars.
These kinds of coverages may seem fairly run of the mill, but campaigns also need coverage for hard-to-place risks such as personal or advertising injury, things associated with libel and slander. But will insurers really cover a politician in an election year for those exposures?
"Chances are a company isn't going to do that," Lemon said. It's not impossible to find the coverage, he added, but it definitely isn't simple. And he has seen at least one major insurer pull back from it even more this year.
One of the ways to get personal injury included is to add it in directors and officers (D&O) coverage, an area that seems to be requested more often. Since 501(c) 3 organizations are prohibited from political candidates' campaigns, referendums, initiatives, many of these organizations have formed 501 (c) 4 organizations. Most people won't sit on these boards without D&O coverage.
There are some other emerging areas for political organizations including crime coverage, especially following some high-profile embezzlement cases. One such case in Southern California involves Kinde Durkee, a woman who allegedly took more than $677,000 from the campaign account of Assemblyman Jose Solorio. She was reportedly in charge of more than 360 bank accounts for about 100 candidates.
"The big thing this year that we're looking for now is crime coverage," Lemon said. "They have to make sure the same person who writes the checks doesn't handle the deposits. There's usually somebody out there who will do crime."
Identity theft coverage is also something political organizations are interested in, especially with the names and private information they keep in lists.
If one area is opening up, it might be professional liability, according to Lemon. General Star is a market for this coverage.
If anything might convince insurers to get more involved with coverage for political campaigns, it could be the growth of Super PACs. But thus far, insurers have elected to be cautious.
