Survey: Agents Report Rise in Agency E&O Premiums

A near majority of agents and brokers responding to the 2008 Insurance Journal Agency E&O Survey said they experienced increases in their agency’s errors and omissions premium this year. Some 44.1 percent of agents responding to the survey reported their E&O premium for 2008 increased compared with that for 2007, while 26.3 percent said their premium decreased and 29.7 percent said their E&O premium stayed the same.

The 2008 Insurance Journal Agency E&O Survey, conducted Oct. 3 through Oct. 16, drew responses from 1,042 agents and brokers from all 50 states.

For the majority of survey respondents, their annual E&O premiums run between $1,001 and $10,000; 16 percent said their cost of coverage was in the $1,001 to $2,500 range; 27 percent of respondents pay between $2,501 and $5,000 for their E&O policy; and 18.2 percent had premiums $5,001 to $10,000. For 10.1 percent of respondents, the cost for their annual E&O coverage is more than $50,000 per year.

For 2009, 43.1 percent of respondents believe their E&O premiums will remain flat; another 40.7 percent think they are likely to see an increase in premium costs next year; 16.2 percent are optimistic that their premiums will decrease in 2009.

Most (68.6 percent) reported having been with the same E&O carrier for the past three years. For those reporting that they had changed carriers in the last three years, 27.3 percent said a lower price was the reason for the switch.

More than half of respondents (55.7 percent) said their carriers had not enacted stricter underwriting requirements and exclusions during the last two years. While 57.6 percent said they were satisfied with the terms, conditions and limits of their E&O policy, 14.9 percent said they were dissatisfied. Another 27.6 percent reported they were “somewhat” satisfied.

The majority of respondents, 54.3 percent, have never made a claim against their E&O policy. Another 56.1 percent believe other insurance agencies take E&O risk management seriously; 58.4 percent said their agencies had taken new risk management steps during the past year to reduce exposure to E&O claims.

More E&O Coverage for a Reasonable Price
Survey respondents also gave their views on what their E&O coverage should look like.

“Joe the insurance agent” wants a reasonably priced E&O insurance policy for his agency that covers all the business activities his operation engages in, whether they are revenue producing or not.

He also wants his premium to be rated on his own loss experience and on his own business practices and procedures.

“Say it ain’t so,” says Joe, “that after 33 years in business without a single E&O claim, my premium is going to go up.”

Joe, in this case, is fictional, as is his female counterpart, Josephine (Jo).

Joe and Jo had a lot to say. They want defense outside the limits of their policy and prefer occurrence rather than claims-made forms. They want their reasonably priced policy to cover the activities of a true multi-line agency that may offer property/casualty, life/health and employee benefits coverages. They want to know that they are protected if one of their partner companies becomes insolvent and they want to know whether an agent will be held responsible for the actions of the companies they represent.

A discounted policy with a minimum of exclusions for agencies that have never filed a claim was a common desire among those responding to the survey. “My agency pays ever increasing premium for coverage I have never used, yet the claims and underwriting experience for the E&O market show poor results,” one wrote. “Cater a policy for claims free agencies, and rate risk more towards personal lines vs. commercial lines agencies. Personal lines agents have a better loss experience than heavy commercial agencies … price the policy as such.”

Agents on AIG and E&O
The federal government’s recent bail out of American International Group Inc. (AIG) via a $122 billion-plus loan to keep the company afloat set the insurance industry on edge. AIG’s insurance entities are solvent and solid, according to most credible observers, including the National Association of Insurance Commissioners. However, some agents fear the instability resulting from the parent company’s financial woes could trickle down to its insurance units.

While 62.7 of respondents to IJ‘s 2008 Agency E&O Survey said AIG’s problems had not raised E&O concerns within their agencies, 23.6 percent reported they did have concerns and 13.7 percent said they were not sure.

Some respondents to the survey expressed concerns about the AIG situation, noting they are bothered by such issues as where to place coverage if the client wants to change, non-admitted insurers, market stability and perception problems.

One respondent wrote that the AIG debacle was “proof that we have no real way of knowing the condition of our carriers.” Another lamented that the security of an “A” rated company is not what it used to be, adding that in recent history such companies have gone “down practically overnight.”

“Never has the [government] taken over a carrier,” one agent wrote. “We no longer have faith in the rating agencies who missed Reliance, Kemper and AIG now maybe Hartford.”

Another agent commented they feel that AIG’s woes will serve to tarnish the reputation insurance agents have with consumers. “Insurance agents and brokers are all painted with the same brush – thieves at any level of the industry drag everyone else down with them!” she exclaimed.

Another agent worries that “any claim AIG agrees to pay will be held in suspicion by an insured. Are they low-balling to save money while under financial duress? Will insured blame my agency if it’s not paid?”

“AIG is an E&O concern due to the publicity surrounding the situation,” one respondent wrote. “We must watch closely what AIG does and monitor its insurance divisions for our clients’ sake and so we can properly answer the questions that have arisen.”

This is an edited version of a special report from Insurance Journal magazine’s Nov. 3 issue, which also included an article on How Agents Can Block Claims.