The U.S. Department of State’s decision to take an open-market approach in fulfilling the Defense Base Act (DBA) insurance requirement for overseas government contract workers has led to more insurance companies entering the niche marketplace.
Since July when the state department stopped working exclusively with CNA to provide DBA Insurance, at least six carriers have been approved to write on behalf of the state department, says Steve Eginoire, chairman and CEO of Lockton Affinity in Kansas City, Mo.
Insurance brokers Lockton Affinity and Equity Risk Partners also saw an opportunity to capitalize on the growing segment and have both launched new insurance options for the class.
However, because this market is so specialized, there are a limited number of insurance carriers capable of successfully writing the government contractor class, says Eginoire, so don’t expect to see a flood of additional markets.
Lockton Affinity’s Latitude
In response to the the ever-increasing number of smaller contractors being outsourced to work in other countries by the federal government, Lockton Affinity launched Latitude – a new insurance program that targets government contractors with 20 to 100 employees. Eginoire says the state department’s decision motivated the creation of the new program.
“It fits our definition of a niche program because there is limited competition,” he says. “We knew the government had a lot of small contractors and we knew there would be market availability.”
Eginoire says Latitude offers a significantly lower premium than what is now available for smaller contractors. He believes the average premium of less than $2,500 for most classification codes will be a huge selling point for agents.
“Most of the insurance market has been focused on larger [government] contractors,” says Eginoire. “There is nothing developed and tailored for the smaller contractor.”
Latitude operates as a workers’ compensation equivalent for employees of contractors doing work under contract for the U.S. government. Eginoire says the centerpiece of Latitude is coverage for the Defense Base Act, which requires overseas government contractors to cover their overseas workers.
Latitude also includes employer’s liability, medical evacuation and repatriation services. Additional coverages include general liability, automobile liability, business travel accident, and kidnap and ransom insurance, which Eginoire says address the unique circumstances that arise out of contractors working in other countries.
Eginoire says Latitude will not specifically target high-hazard geographic areas, but Lockton will take a look them.
“Our focus is really on issues like traditional government contracts around the world that are not subject to war zones,” he says.
Eginoire says the program is written on a per-contract basis and really targets smaller contracts – not just small contractors.
Lockton appointed Sarah Paine, who has 25 years of experience working with Defense Base Act insurance programs, to lead the launch of the program. The coverage is provided through Allied World.
Eginoire says there tends to be confusion among smaller contractors about when they are required to have coverage. Agents and brokers who specialize in this class can help them navigate the process.
“If they are handling government contractors they are pretty astute at handling what their clients need,” he says.
Equity Risk Partners’ DefCon Risk Group
The Lockton program comes on the heels of another insurance brokerage’s new venture for this class. San Francisco-based Equity Risk Partners launched DefCon Risk Group in October, a new practice group for government, defense and aerospace contractors.
Kim Hennessy, senior vice president at Equity Risk Partners and leader of the new DefCon Risk Group, said they will work with investors and contractors who take on government jobs and do not have experience with government contracts and their insurance requirements.
“Clients are often unsure of what indemnities are coming from the government versus what they are assuming themselves,” she says.
Equity Risk Partners decided to launch the separate practice group because each policy often requires several different lines of coverage to address each risk, and the company thought it could best service clients this way.
“We negotiate insurance on behalf of contractors and help them understand where they have liability and where they don’t have liability and really hold their hands through the process,” she says.