With market conditions softening, however, the line separating those that get coverage easily and those that don't is becoming less clear, according to experts.

Nicole Haggerty, vice president of professional liability underwriting at Darwin Professional Underwriters in Farmington, Conn., described the breakpoint as “a squiggly line.”

Ms. Haggerty, whose company has written E&O coverage for hard-to-place agents since its founding in April 2003, said in the current market, “the hardest risks to place are the more complex hybrid organizations.”

These are organizations that would not necessarily call themselves managing general agencies or retailers or wholesalers, she said. They may have underwriting authority and may also manage and create captives or risk retention groups.

Those that have claims-handling contracts and authority and actually act as true third-party administrators for the lines of business they place are also difficult to secure E&O coverage for, she said.

“Probably the most difficult would be the reinsurance intermediaries, [particularly] those that do placement of reinsurance stop-loss for health plans,” she added.

Linda Blechman, an assistant vice president of Lee & Mason Financial Services in Farmington, Conn., an MGA that is licensed in all 50 states, said the dividing line for hard-to-place agents is always moving.

“The market's soft right now. It's easier to place what may have [previously] been considered hard-to-place business,” she said.

Glenn W. Clark, president of Rockwood Programs in Wilmington, Del., an MGA that has been active in E&O coverage for hard-to-place agents since 2000, said agents involved in more exotic product lines, such as aviation and crop insurance, still have a difficult time securing E&O coverage for their services.

He also included agents that do business in nonadmitted markets, explaining that because those markets are not regulated by the states, the degree of professionalism expected of these agents is higher. That, in turn, increases the risk of an E&O claim being filed against them, he said.

Mr. Clark added that certain regions might make agents hard to place as well. For example, he said, some states are more litigious than others, and that could affect the availability of E&O coverage.

Renee M. Azelby, assistant branch manager of Jimcor Agencies, an MGA based in Marlton, N.J., with offices in six states, said, “If you're doing personal lines, and you're a retailer, you're going to have an easy time finding coverage.

“When you are a commercial lines property-casualty agent, or a life-health agent–group health, group life, individual health or accident–those are considered hard to place,” she said.

“And then MGAs and MGUs are very hard to place,” she added.

Most of the professionals questioned agreed that MGAs are considered hard to place regardless of the market conditions because of their ability to write coverage on behalf of a carrier.

“It's a whole different E&O exposure than a retail agent who might not have the pen for a carrier,” Mr. Clark said. MGAs are “selling to sellers, and so there's a different degree of care there.”

“Are you watching who represents you? Are you making sure that they have E&O? Are you making sure that they're licensed to sell what they're supposed to sell?”

“What are the checks and balances that you use as a wholesaler to make sure that the retailer representing you is properly trained and properly licensed and properly insured?”

“That's a degree of care that a retailer wouldn't have,” he said.

Whether carriers' reluctance to write MGAs is justified or not is up for debate.

“Why don't [carriers] like MGAs? Because you're not supposed to like them, or they've heard that they're bad,” Ms. Blechman said. “Some people make decisions based on what the rumor is. [Carriers will say] 'Nobody else likes them, so I'm not going to like them either.'”

Ms. Azelby, though, said the conduct of some MGAs has given rise to concerns among carriers. She cited one example in the professional lines arena several years ago, where an MGA writing title agents E&O failed to recognize some key exposures.

“They torched that book pretty badly,” she said. “So you have to be careful, not only from an E&O standpoint, but you have to be careful from the company side [about] who you're going to designate as your MGA.”

LOWERING THE RISK

For those who write E&O coverage for hard-to-place agents, there are certain underwriting guidelines and procedures that can mitigate the risks involved.

Ms. Haggerty noted that hard-to-place agents “always require a little more expertise.” She said that these risks “can't be, for lack of a better word, 'dumped' into a standard E&O underwriting facility, because [underwriting] is not just based on revenues or premium volume” like it is for retail agents.

For MGAs, she said, “We look at the contracts with the carriers for whom they have underwriting authority.” The company also considers limits, restrictions, territories and classes of business. Additionally, Darwin looks at audits performed by the MGA's carriers.

Regarding agents that have reinsurance authority, Ms. Haggerty said the company will look at the reinsurance contract, and how that contract is structured relative to the line of business being placed. The company will also look at the financial stability of the reinsurers, overall loss ratios and loss ratios relative to the line of business.

With hard-to-place agents, Ms. Haggerty said, there are a lot of “moving pieces” that need to be understood by those offering E&O coverage.

Mr. Clark outlined some initiatives that Rockwood has taken with respect to securing coverage for hard-to-place agents. For example, Rockwood advises agents “to methodically offer EPLI [employment practices liability insurance] on every one of their accounts, whether it is purchased or not.”

“That way they can document in their files that they offered it, because another phenomenon that we find is that most retail insureds think they have the coverage anyway. They say, 'Oh my agent took care of it. I'm covered for anything,' until they have a loss, and then that can give rise to an E&O claim,” he said.

Rockwood has also developed a specific E&O program for MGAs, program administrators and large wholesalers, Mr. Clark said, noting that the program, launched in September, represents a departure from past strategies for placing these agents.

“In the beginning, we were just like any other specialist that is a wholesaler. We would access the various markets that had the appetite for these kinds of risks,” he said. “We've since progressed,” he said, referring to the fact that Rockwood now has a special program for MGAs with International Insurance Company of Hannover, a wholly owned subsidiary of Hannover Re.

He continued, “We pioneered something called Target Markets, which is an association of program administrators. And inside Target Markets, we have something called 'Best Practices Review.' And so the embodiment of a lot of our collective knowledge as program administrators is in that process.”

Mr. Clark said “Best Practices” is a way of gaining underwriting information such us how an agency documents its files, how it handles its money, ensuring that it does not bind coverage over the telephone, determining whether an agency methodically offers EPLI, and more.

The program also offers “The Defender,” Mr. Clark said, which allows a covered agent to know who his or her defense team is going to be should a loss occur so the agent can obtain advice before or during a loss rather than after.

MORE MARKETS FOR SOME

Asked how the current market has affected the coverage options for MGAs and other hard-to-place agents, professionals had varying answers.

Mr. Clark said, “As little as five years ago, there were two or three key players. Now there are 10. So from that perspective, there are temporary good times.”

Ms. Blechman agreed, stating, “It's easier to place business now than it was in 2002 and 2003.

“There's more capacity out there and people are more aggressive,” she said. “But that can change in a year, or in six months that can change,” she said.

Mr. Clark added, “Carriers will give out things today that they made you pay for before,” such as lower deductibles and defense outside the limit.

Ms. Azelby acknowledged that “there are finally more programs popping up in the last three or four months looking for this business.”

But she continued, “If I had to say that this is the last area within professional liability to see the softening of the market, that would be a true statement.”

Kenneth Bessette, president and chief executive officer of Professional Insurance Agents Management Services in Glenmont, N.Y., said MGAs sees little change even as the overall p-c insurance market softens.

“For wholesalers, MGAs and hard-to- place risks, there still are very few options available,” he said. “This segment of the market is not opening up to the extent that typical 'Main Street' agencies are experiencing.”

“Currently, PIA has 11 markets and only two of those would even consider MGAs and wholesalers, and those carriers are very selective about the agencies they will write,” he reported.

Phil Gusman is editor of Insurance Advocate, an affiliate of National Underwriter.