Commercial Liability Coverage Available in N.Y., But Reportedly Costly, Particularly for Contractors

While more costly for many New York businesses, commercial liability insurance is widely available throughout New York State, according to the New York Insurance Association (NYIA).

Addressing a hearing before the New York Insurance Department, Bernard Bourdeau, president of NYIA, said the current problem of affordability in the commercial liability insurance market will not be solved by requiring the state’s FAIR plan, the New York Professional Insurance Underwriting Association (NYPIUA), to write the cover.

“The insurable commercial liability risks that may not be placed in an admitted market can always find coverage in the non-admitted market,” Bourdeau observed.

More importantly, he said, “we all know that the current crisis of affordability (not availability) in the contractors’ market is a product of New York’s Section 240 & 241 Labor Law.”

Bourdeau characterized labor laws 240 and 241 legacy as “failed public policy” which is the direct cause of unaffordable contractors’ insurance. “Requiring NYPIUA to write the cover will not change the public policy” he said. “Quite the contrary, it will masquerade as a solution and guarantee that public policy will not change”.

Loss costs for the coverage will not change unless public policy changes, Bourdeau observed. “Until loss costs are reduced, contractors’ insurance will remain very available, but very expensive,” he said.

Citing statistics from the 2001 Risk and Insurance Management Society (RIMS) Benchmark Survey, Bourdeau pointed out that the cost of commercial liability insurance as a percentage of business revenue is still less today than it was a decade ago. The cost of risk to corporations fell 42 percent between 1992 and 2000.

“Even though industry estimates project that the cost is on the rise, the cost today is still less than it was in the early 1990s and much less than in the late 1980s. As expected, by the third quarter of 2003 we are already seeing rates leveling off,” he said.

Given the pre-9/11 capacity crunch, the events of 9/11, the Enron and WorldCom scandals and the staggering losses in the contractors’ market, it was easy to understand the recent temporary market disruptions, he said.

“Fiduciary liability, directors and officers liability, excess liability, and even workers’ compensation insurance have experienced dramatic market changes for one simple reason. These commercial risks are no longer the same risks as the insurance community once thought them to be. Price and terms reflect the new reality.”

Recent RIMS data indicates the premiums for most of the difficult-to-place commercial lines increased during the first half of this year anywhere between 3 percent and 32 percent over last year’s rates; though by the third quarter rates had already begun to level off, according to Bourdeau.

“The good news is there has been no availability problem as the vast majority of even the hard-to-place insurable commercial risks I have noted above are finding coverage either in New York’s standard market or, temporarily I hope, in the excess and surplus lines market. That’s how the market’s supposed to work,” he said.

Applauding the New York Insurance Department for acknowledging the deteriorating market for some specific commercial lines, Bourdeau said the department’s data call in April of this year to monitor issues and developments affecting the contractor’s liability market was timely and warranted.

Unfortunately, the department did not disclose or share the survey results with the industry, he said. “I suspect the Insurance Department found that many voluntary market insurers are no longer willing to write these strict liability risks. That forces the risk to the non-admitted market where the coverage is readily available but the rates are much more reflective of the true risk being assumed,” Bourdeau noted.

In conclusion, he underlined that the only one true solution to the current problem of affordability in the contractor segment of the commercial liability market was a repeal of the strict liability standard imposed by Labor Law Sections 240 and 241.

“The commercial market for insurable risks does not suffer from an availability problem. Insurable risks get insured. In some classes there is an affordability issue, but that’s a function of New York’s public policy. Change public policy and the cost issue will go away too,” he said.

Editor’s Note: See related story in East news.