Broad Terms, Low Pricing…For Now
By Brian Francetich
The property and casualty insurance marketplace in the U.S. has been in a continued “softening” mode for the past several years and the RIA professional liability space is no exception. Broader coverage language and reduced pricing has evolved to an extent beyond what we have seen in a decade. Below are just a few examples of expanded language we are frequently able to secure in the current market environment:
- Prior & Pending vs. Retroactive Date – This should be of particular interest to firms that do not currently purchase professional liability/E&O insurance. Traditionally, carriers have implemented a Retroactive date for new buyers of professional liability/E&O which is a condition of coverage that limits coverage to only apply to activities/advice occurring after the Retroactive Date (no prior acts coverage). Currently, many carriers are offering Prior & Pending dates for new buyers in lieu of Retroactive dates. The Prior & Pending date language states that the carrier will not cover activities/advice which led to a prior or pending claim, this is the concept of not insuring the house that is already smoking. Issues that come out of the blue or that are unknown are covered under a Prior & Pending date contract. Prior & Pending dates for new buyers in lieu of Retroactive dates. The Prior & Pending date language states that the carrier will not cover activities/advice which led to a prior or pending claim, this is the concept of not insuring the house that is already smoking. Issues that come out of the blue or that are unknown are covered under a Prior & Pending date contract.
- Cost of Corrections/Trade Error Coverage – Many base RIA insurance contracts require a written demand in order for coverage to be triggered. This means that the mistake of a trade error or other correction type event will not “trigger” coverage until a written demand is brought by your client. The triggering mechanism can be endorsed such that the insured can trigger coverage simply by requesting and showing proof of the error. Carriers have been much more willing to offer this coverage and have reduced deductible/retentions in this area as well.
- Coverage extensions to Ancillary Services – Many RIAs have expanded their service offerings to include such things as insurance sales, tax preparation, accounting services, trustee services, family office activities. In recent years, insurance underwriters have shown a greater willingness to expand the definition of professional services to accommodate these additional offerings.
- Private Fund Coverage – Minimum pricing requirements and retentions have fallen significantly in even just the past 12 months for private/hedge fund coverage, a space that has been somewhat cost prohibitive in the past. Some of the traditional, separate account or only large fund insurers have taken notice of the small (Under $300MM) private fund space and are offering very attractive terms for the right strategies and experienced managers.
This easing of underwriting factors will not last forever. While impossible to determine when and to what degree, as storms rage in the Southeast causing reinsurance rates to rise, and capital markets will eventually shift, so we know that the insurance marketplace will harden. We also know that Claims Rise as Market Declines. Underwriters in this space will react when the bull market ends as they will expect a wave of claims to follow. Underwriting response will be to increase pricing and it should be expected that restriction of terms/contract language will also follow.
As always, Golsan Scruggs remains available to the RIA community to assist in protecting each firm’s practice properly.