A.M. Best Special Report: U.S. Professional Liability Market Fertile Ground for Growth, But Competition Escalating Rapidly

OLDWICK, N.J.--()--The professional liability sector of the U.S. property/casualty (P/C) insurance market remained dynamic through the end of 2016, as key coverages continue to be impacted by more-than-ample market capacity and the competitive pressure that capacity is placing on rates and contract terms and conditions, according to an A.M. Best special report.

The Best’s Special Report, titled “Fertile Ground for Growth Amid Escalating Competitive Challenges,” notes that in recent years, midsize and larger multinational primary insurers and reinsurers have looked to develop or grow their professional liability portfolios, which include directors and officers liability (D&O), errors and omissions coverage (E&O) and employment practices liability (EPLI) business, along with cyber liability coverage, as part of an overall strategy for top-line growth. The report notes that due to the medium- to long-term nature of the lines of coverage involved, the success or lack thereof of these insurers will not be known for some time, particularly as loss frequency and severity trends shift over time.

Over the last several years, D&O and EPLI premium growths have been attributable in large part to rate increases from 2011 through 2013; however, beginning in first-quarter 2014, the influx of additional competitors in the professional liability market space has slowly but steadily driven rates downward. In addition, the E&O marketplace is still trying to get its arms around the impact of large data and privacy-related losses afflicting the retail and health sectors, along with other technology losses that have breached the six-figure threshold. Some insurers have decided to steer clear or even withdraw from competing on business in the retail, health and financial institution sectors where the exposure to cyber risk is substantial.

A.M. Best anticipates that the professional liability market will continue to be robust in 2017 with the competitive level for D&O and E&O businesses specifically remaining heightened. D&O insurers with growth initiatives can be expected to focus on adding value to their offerings through the utilization of coverage enhancements. If merger and acquisition activity spikes upward in 2017, that could lead to pressure on D&O pricing and coverage terms since M&A activity can yield an increase in claims. Likewise, major cyber attacks impacting businesses and implicating board oversight, also could elevate the challenges for D&O insurers to generate profits. Effective underwriting and rate adequacy will be of paramount importance for E&O carriers that stay active in the market considering the challenging risk profiles of companies with large data/privacy exposures. In addition, some insurers may need to tighten coverage terms, increase deductibles or step away from accounts that have poor loss experience in order to meet profitability goals going forward.

To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=257559.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

Contacts

A.M. Best
David Blades, CPCU, +1-908-439-2200, ext. 5422
Senior Industry Analyst –
Industry Research & Analytics
david.blades@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
David Blades, CPCU, +1-908-439-2200, ext. 5422
Senior Industry Analyst –
Industry Research & Analytics
david.blades@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com