Professional liability market is “a game of whack-a-mole now”

Professional liability market is “a game of whack-a-mole now”

“I know there’s a lot of dialogue around this, that this is a hard market – it is a transitionary market,” said Brian Finlay, who heads up North American management and professional treaty liability at Trans Re. “I think there’s a lot of pricing corruption that’s gone on for the past 10 years … [but] the rate is coming back into the market and I’m saying that this is not a hard market. A hard market is where you cannot get something done, [and right now] there is capacity out there – there’s reinsurance capacity, there is insurance capacity.”

Read more: COVID-19 reverberates through non-profit professional liability market

He reminisced about the marketplace back in the early 2000s, when reinsurance experts in professional lines would attend a meeting and there would be a dozen people in the room. Compare that to today, when there are upwards of 60 people in one meeting, which implies that there’s a lot of folks working in this business. The growth in the P&L market has spread out what was once a concentrated industry, which means that there’s more market for insureds to find different alternatives. However, this evolution also means that for reinsurers, portfolios from a gross written standpoint have been diluted because there’s only so much bandwidth to grow into, according to Finlay.

There are other challenging areas in this marketplace, like commercial D&O. While Finlay pointed out that rate is returning into this market, there are notable headwinds.

“It’s a game of whack-a-mole now, because where we saw stability in the private company D&O and where we saw stability in the EPL, with COVID now all of a sudden, those are percolating and there’s a lot of conversation about what is COVID going to do to those lines of business,” he explained.

At the same time, property and casualty lines are seeing their own challenges, from natural catastrophes to social inflation, making this an overall difficult time for insurance carriers. “What we’d like is some sort of stability, if we’re getting a lot of volatility across a lot of different lines,” said Finlay.

Read more: Social inflation making professional lines “trickier”

Another panelist noted that this is a frustrating, but exciting time to be in the professional lines business – exciting because, he said, “This is what we get paid to do.”

“The current loss environment, from my perspective, is not a perfect mirror of past environments,” continued Steve Prymas, vice president, specialty lines manager and global chief underwriting officer of cyber for Gen Re. “It’s exciting because you can’t look at this like we have maybe in years past as this big monolithic system of legal liability that’s causing tremendous amount of loss costs in the lines of business that Brian’s talking about, and the managers can’t afford to take anything for granted. As a result, what we’re seeing is a lot of what I’ll call ‘mini markets.’”

He addressed EPLI, which started to correct slightly on the back end of #MeToo and is dealing now with racial injustice movements and a recession, as well as unique challenges in D&O and the impacts of ransomware, which has become a perplexing issue for everyone, he noted.

“You see each one of those individual markets performing a little bit differently, taking rate a little bit differently, carving up their sub-sectors a little bit differently,” explained Prymas. “When you had a diversified portfolio, it was a benefit as a P&L manager because you could offset a bad line with a good line, and right now, everyone is feeling pain in different ways. You’ve got to zig and zag fast and decisively, and that is really the differentiator [separating] the best underwriters and portfolio managers from the average.”