Aberrations for Certain Coverages Create Problems
for Insureds and Underwriters Alike
As the property and casualty industry begins to settle
into more stable pricing, there continues to be aberrations in
certain coverages. D&O, medical malpractice and workers'
compensation are among the coverages which continue to create
pricing problems for insureds and underwriters alike.
D&O is now almost impossible to
properly underwrite. There are many new perils arising from
financial malfeasance, many of which underwriters simply could not
have anticipated. We expect coverage conditions will be amended
accordingly. A new policy form should be forthcoming shortly.
Medical malpractice coverage is just plain scary. Some
states have passed legislation which limits liability for physicians
but plaintiff's counsel is busy figuring out a loop hole. A
creative solution for insuring medical malpractice will most
certainly be developed by one of the large brokerages or a specialty
D&O underwriter.
Workers' compensation is a real
challenge for politicians and insurance commissioners, particularly
in California, New Jersey and Florida.
Problems are arising
in other states as well and as a result, many publicly traded
insurers are limiting their volume or pulling out of underpriced
states completely. Quite a few states have implemented aggressive
state sponsored workers' compensation pools or funds. The loss
experience in these funds is relatively green. As the
claims mature, these "insurers" will suffer from significant
underpricing and underreserving.
Hopefully, the standard
stock companies such as AIG, ACE and others will be willing to step
in and pick up the slack. State sponsored programs should take into
consideration the immense intellectual capital and underwriting
acumen of the major carriers who are still providing workers'
compensation coverage. It's pretty tough to outsmart these large
insurers. So, if they are charging $1.00 and the state sponsored
"insurer" is charging $.60, something has to be amiss.
Many
of the state funds have only recently started to take a major market
share. Soon, they will begin to suffer from underpricing.
But, they always have the taxpayer to bail them out.
Richard Kerr is chairman and CEO of
MarketScout.
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As the property and casualty industry begins to settle
into more stable pricing, there continues to be aberrations in
certain coverages. D&O, medical malpractice and workers'
compensation are among the coverages which continue to create
pricing problems for insureds and underwriters alike. 
D&O is now almost impossible to
properly underwrite. There are many new perils arising from
financial malfeasance, many of which underwriters simply could not
have anticipated. We expect coverage conditions will be amended
accordingly. A new policy form should be forthcoming shortly.
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