Brokers are caught between a rock and a hard place when it comes to arranging excess E&O cover for their professional clients.
This is an increasingly sought after cover as contractual requirements become ever more onerous, particularly for small to mid-sized businesses. To secure even a small part on a job, SMEs and independent contractors have little choice but to sign up to remarkably stringent contractual requirements with their often much larger hiring client, which exposes them to a mountain of legal liabilities and hardly seeks to protect them at all.
An SME’s options to negotiate with the demands of the client are limited; if they don’t agree to the client’s often heavy contractual requirements, then it’s likely that a competitor will given the current economic environment.
It was difficult for these businesses to afford the levels of insurance being demanded by their clients before, but, in a hardening market it has become even more challenging. Clients still need the limits the contracts are demanding, but some insurers have become increasingly reluctant to offer more than $1 million or $2 million in capacity while some have exited the excess E&O space entirely.
As the contractual requirements clients have to meet don’t show any signs of reducing, brokers need to work with insurers that can provide some flexibility and who will consider both primary and excess limits. Having to build towers or replace excess markets that are non-renewing becomes more work for the broker, and that’s something they don’t need right now.
The impact of the hardening market on brokers cannot be understated. They are working harder than ever for every client, not just their largest accounts. Even an SME may buy five different policies with each one likely to renew with a premium increase or restricted cover, challenging brokers when it comes to marketing each risk and demonstrating that they’re working their hardest for their clients.
At the same time, insurers must ensure they don’t let their service standards slip, regardless of the challenges they themselves may be facing in the current market environment. Providing a regular and reliable underwriter who is a decision maker, as well as a dedicated alternative contact if they’re going to be unavailable, is critical to delivering the quick responses that brokers need. Every time an agent has to pick up a phone to chase a risk just adds to their workload and stress levels.
Underwriters should provide an explanation behind any price increase or change in terms upfront to help the broker justify these changes to their clients who are unlikely to simply accept the hard market as an excuse. Understanding the rationale behind any change to the policy can at least make a difficult conversation with an insured easier to handle.
For brokers, having a package policy available to their SME clients can be really useful at a time like this. Combining E&O, GL, cyber, property and excess all on one form means one renewal to negotiate, one underwriter to speak to and one form to review – creating a smoother process for the underwriter as well.
The challenges faced in the current trading environment are difficult for clients, brokers and insurers alike. It’s at times like these when the insurance market has to rise up to meet the challenge head on and service has to be at the forefront.
Antony Aylett is US Professions Team Leader at specialist insurance provider, CFC. He is responsible for managing a team of underwriters who provide U.S. brokers with insurance for professional firms ranging from architects and engineers to oil and gas consultants to staffing agencies and accountants. Antony can be reached at firstname.lastname@example.org.