The promising market for professional liability insurance

The property and casualty insurance industry is currently grappling with a complex array of challenges that profoundly affect its market.

Notably, the American Property Casualty Insurance Association (APCIA) reports that the overall P&C market is facing reduced profitability, as evidenced by a net underwriting loss of $26.9 billion in 2022.

The specific market for professional liability insurance is far more promising, with an astounding estimated value of $54.2 billion by 2028, its expansion fueled by a consistent compound annual growth rate (CAGR) of 3.5%.

In the short term, however, this market is expected to remain stable, according to Alera Group’s 2024 Property and Casualty Market Outlook.

Released in December, the Alera Group report forecasts professional liability conditions similar to 2023. Top-performing businesses with favorable loss histories may enjoy policy renewals without rate hike. It’s also encouraging to note that the market is now welcoming new carriers, providing consumers with increased options, improved availability and stiff competition for premium accounts. Insurance providers are increasingly innovative, introducing new programs and products to tap into profitable opportunities.

As insurers show a keen interest in broadening their services, and more businesses find themselves obliged to obtain or increase coverage, the professional liability insurance market presents an opportunity for brokers.

So how can insurance professionals assist buyers seeking professional liability insurance, particularly amidst an overall challenging P&C market?

Here’s a look at current trends within the professional liability insurance market, along with tips for insurance professionals aiming to enhance support for their clients.

A shift in professional liability insurance claims

In the past, professional liability claims primarily revolved around financial losses linked to errors or omissions, rather than to physical injuries, but a notable shift has taken place. According to IRC research, “social inflation” has led to a significant uptick in bodily injury claims, with a growing percentage of these claims paid at policy limits.

Claimants are pushing the boundaries of general liability insurance coverage limits in bodily injury cases. Should those limits be exhausted, or if the claim involves allegations of negligence or misrepresentation, a professional liability claim is likely to emerge. Understanding these evolving dynamics is essential when considering that insurance needs to ensure adequate protection in this changing risk landscape.

In response to the increasing challenges posed by rising litigation costs and claim expenses, insurance underwriters are enhancing their evaluation criteria — seeking more in-depth insights and conducting thorough assessments of businesses they consider for coverage. As a result, professionals in need of insurance coverage should be prepared to furnish comprehensive details regarding their business operations and risk-management measures.

Tips to support underinsured clients

The current P&C market, including professional liability insurance, faces significant impact from the evolving legal and societal factors causing social inflation, which in turn leads to larger and more costly liability claims, including those resulting from “nuclear verdicts.”

Amid such risk, insurance professionals play a crucial role in ensuring their clients have the appropriate level of professional liability coverage. To meet this challenge, brokers must engage in proactive and comprehensive risk assessment, and closely analyzing clients’ industry, exposure and claims data. By staying well-informed about evolving legal and economic landscapes, brokers can assist clients in anticipating potential liabilities more accurately. Furthermore, they can offer guidance to clients on implementing robust risk management practices and tailored coverage enhancements to address specific needs.

Essential considerations

When seeking professional liability insurance, it’s vital to keep five essential considerations in mind. Following these steps can significantly impact your clients’ capacity to address allegations of negligence and protect themselves with adequate coverage.

First, exercise caution when dealing with hammer clauses. If the insurer proposes a settlement offer that is declined, a hammer clause may impose financial responsibility for legal fees and judgments exceeding the initial settlement amount.

With a claims-made policy, obtaining tail insurance is prudent. This extended coverage provides protection past the policy’s expiration date. Errors and claims may arise well after the project’s completion, and without tail coverage, the insured faces the potential of personally covering these costs.

Legal counsel matters, so choose wisely. Insurers may assign panel counsel for a professional liability case, although certain carriers allow for the selection of preferred attorneys and rate adjustments. Professionals, such as attorneys, often favor this option, and it can exert a substantial effect on the claims process.

Make sure to match the liability limits to assets. Opting for lower limits to save on premium can put financial stability at risk in the event of a significant claim. Raising limits after a loss may result in higher premiums and potential insurer reluctance. It’s important to note that excess coverage and pricing depend on the base limits.

Last but not least, the insurance policy’s duty-to-defend clause mandates that the insurer actively protect the insured’s interests when confronted with allegations pertaining to errors, omissions or misrepresentations. This clause serves as an indispensable resource in safeguarding professional reputation, mitigating financial implications and managing unwarranted claims.

Professional liability insurance stands as a vital safeguard for individuals and businesses across a multitude of industries. Its significance lies not only in the financial protection it offers but also in the preservation of professional reputations and the ability to continue providing valuable services. Today’s buyer-friendly market and long-term expansion possibilities make now a favorable time to grow your agency’s professional liability insurance portfolio.

Joel Jarvis is a property and casualty insurance producer at Alera Group.

ALM’s 2024 Complex Claims & Litigation Forum, happening in Las Vegas Feb. 26-28, 2024, is designed to help insurers and litigators Prevent, Prepare, and Prevail in complex claims cases and emerging risks. This event boasts a winning mixture of thought-leadership presentations, actionable case-studies, and closed-door peer-sharing. Follow this link to find out more and register.

See also:

• The current state of professional liability insurance (podcast)
• What professional liability rate increases really say about a carrier