After two years of turmoil, the Management and Professional Liability insurance markets are cautiously optimistic in 2022, according to a new report by Risk Placement Services (RPS), the Excess & Surplus (E&S) wholesale broker and managing general agency.
RPS's 2022 Management & Professional Liability Market Outlook notes that these specialized market segments have moved beyond the uncertainty created by the COVID-19 pandemic.
"In the latter part of 2021, we saw all the classic signs that a challenging market was in its final stages," said Manny Cho, executive vice president, Executive Lines, at RPS. "New entrants — both insurance companies and managing general agencies — came into the management and professional liability markets. Even with these new entrants, capacity and limits may continue to tighten. However, it won't be to the same degree that we saw during the height of COVID."
After double-digit rate increases in 2021, the markets for management and professional liability have "rightsized" with regard to premiums. According to the report, insureds that are considered a good risk can anticipate rate increases in the 5-10% range this year.
Yet there are exceptions.
RPS cautions that many insureds will see premium increases outside of this range. For example, in the private company Directors & Officers (D&O) Liability market, a claims-free insured with strong financials should anticipate renewal increases of 7-25%, depending on the industry and jurisdiction.
In the Fiduciary Liability market, defined contribution plans with more than $100 million in assets should be prepared for even steeper rate increases. Even with a clean claims history, those plans should expect to experience premium rate increases in the 10-50% range. Plans with a less pristine track record could be looking at premium increases as high as 100% this year.
Capacity, competition and California
According to Cho, another unfavorable market trend that will continue in 2022 is restrictive policy limits. With $5 million being the maximum coverage amount of most insurance companies are willing to offer for the majority of coverage lines, it could take more carriers and layers to reach an insured's desired coverage level.
While new entrants are invigorating the market and increasing competition, that doesn't always translate into increased capacity or higher limits.
In the private company D&O market, for example, many new managing general agency market entrants will only deploy $2-3 million in limits on a primary basis for favorable classes. For riskier classes, limits are in the $1-2 million range.
For the public company D&O market, the report indicates that greater competition and increased capacity will be more prevalent in excess layers, rather than the primary one.
Geography is another consideration, with insurance companies treading carefully in plaintiff-friendly jurisdictions such as New York City, Southern California and the Miami-Dade area in Florida. Capacity is at a premium in those areas as insurers decline to write coverage, particularly for Lawyers Professional Liability (LPL) and Employment Practices Liability (EPL).
The Excess & Surplus market
The complexities of Management and Professional Liability coverages make them particularly well suited for the E&S market.
"Our ability to problem solve for Management and Professional liability insureds and their agents during the pandemic speaks to the advantages of these markets, particularly as coverages and limits became more restricted," said Cho.
Another significant advantage of the E&S market is the ability to tap into wholesalers' expertise in securing coverages for hard-to-place risks and the underwriting relationships they bring to the table.
Retail agents shouldn't underestimate the benefits of working with a wholesaler in these complicated and nuanced markets, the RPS 2022 Management & Professional Liability Market Outlook concluded.
Read more in the full 2022 Management and Professional Liability Market Outlook.