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INSURANCE
Run for Coverage
Commercial liability insurance trends
By Tracy Barbour
Liability insurance is like a blanket that keeps out the chilly drafts of lawsuits for bodily injury or property damage. The types of claims are changing in the days of COVID-19, leading to a growing demand for liability insurance, which leads in turn to rising rates and policies with fewer bells and whistles. The elevated costs and more restrictive coverages in Alaska indicate a hardening market, according to experts. However, Alaska businesses can implement strategies to better position themselves to navigate the evolving landscape of liability issues.
Many companies that write policies in the Lower 48 opt not to do so in Alaska, in part because of the state’s sparse population. That translates into less competition—and fewer insurance market options for Alaska businesses.
“With the market hardening, there’s been a pull out of a number of carriers: Scottsdale ended its auto dealer’s policy and Philadelphia quit writing its business owner’s policy,” explains Christopher Pobieglo, president of Business Insurance Associates, an independent agency that sells a full spectrum of risk management products. “In some cases, if you get a really niche industry, you might have only one or two insurance companies to go to here. The used auto dealers in Alaska only have a few insurance companies that write that.”
Pobieglo says the market began hardening a year or two ago; it had been a soft market before then for about fifteen to eighteen years. “A lot of businesses have only known a soft market, so they’re used to getting their renewals and prices dropping,” he says. “Now the insurance companies are asking a lot more questions; they may ask for more supplemental information.” For example, some companies have an infectious disease supplement that queries businesses about their COVID-19 policy. Other insurance carriers are asking clients to disclose situations ahead of time and may not cover exposures that have not been disclosed.
In addition to raising premiums, Pobieglo says carriers are requiring higher deductibles to make insured parties put more skin in the game.
Higher pricing is mainly in the property, auto, and excess lines of coverage, says Matt Thon, an Anchoragebased account
Christopher Pobieglo Business Insurance Associates Matt Thon Parker, Smith & Feek
Matt Thon, Account Executive, Parker, Smith & Feek
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Tracey Parrish, Owner and Operator Alaska Pacific Insurance Agency executive at risk management and brokerage firm Parker, Smith & Feek. “General liability, for the most part, has been pretty stable,” he says. “Claim frequency is fairly stable.”
PLI and D&O
One of the more visible shifts is the increased interest in professional liability insurance (PLI) and directors and officers (D&O) liability coverage, says Stacey Matteson, vice president and general manager of Anchoragebased Umialik Insurance Company. PLI, also known as errors and omissions coverage, is ideal for businesses that provide professional services, regular advice, and/or contractual services. It can help cover claims if someone alleges a business made a mistake or failed to provide a service.
Pobieglo attributes much of the increased need for PLI to an uptick
in independent consultants. “We’ve seen a lot of cases where professional consultants and engineers who were previously employed by the government and private companies have been cut back, and the use of independent contractors has gone up,” he says. That tracks with Matteson’s observation: “The highest-demand industries requiring professional liability and/or directors and officers coverages are construction, civil construction, social service, and nonprofit accounts.” Increasing litigation has also been an influencing factor. “The days of Stacey Matteson Umialik Insurance Company a handshake deal and being able to work things out without legal representation are becoming extinct,” Thon says. “When something goes sideways, everybody’s going to be named in the suit. It’s best to just lawyer up.” Just because more people are hearing about costly lawsuits and judgments doesn’t mean all businesses need PLI coverage, though. “Now, some people are getting it because a contract requires it,” Pobieglo says.
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“However, you should always make your insurance purchases based on the exposure of your business—not what people are telling you that you have to have.”
Directors and officers insurance, as the name implies, covers a business or other organization if a lawsuit is brought against one of their directors or officers. It can help the covered entity avoid paying out of pocket for claims or lawsuits that could result in stiff fines or even criminal penalties.
The increase in D&O coverage reflects a growing number of nonprofit organizations, says Tracey Parrish, owner and operator of Alaska Pacific Insurance Agency. During the pandemic, people have been trying to help their communities more, which has resulted in the creation of more nonprofits that require D&O insurance to cover their board members. “People are really into strengthening communities these days,” Parrish says. “With a nonprofit, they can solicit money in different ways [without having to compete as a for-profit business].”
Liability insurance protects businesses not only from lawsuits by disgruntled vendors or customers but from claims filed by employees. This area of coverage is called employment practices liability insurance (EPLI), and according to Parrish, it’s more popular in the COVID-19 era, too. EPLI provides coverage for an assortment of laborrelated issues, including wrongful termination, invasion of privacy, false imprisonment, breach of contract, emotional distress, and wage-andhour law violations. One reason for the heightened interest in EPLI is the popularity of remote work. With more employees working from home, the potential risk to the employer rises. “There is the risk of error from not being able to manage and tend to employees as you normally could,” she says.
Risk factors can also increase with employees who are working on site with limited supervision from management. But whether companies need EPLI will depend on the level of risk in their specific work environment. “If you are away from your job and you have to depend on your employee to manage the job, you need more insurance in place,” Parrish says.
EPLI also covers discrimination claims, which these days might include dress code complaints. “Everything is changing,” Parrish says. “I don’t think it’s bad that they are changing… Some people want to wear tattoos and nose rings, or they don’t want to wear certain Tracey Parrish things to work.” Alaska Pacific Insurance Agency
EPLI is one of the more undersold coverages available, Matteson says. The recent increase in demand for this type of coverage appears to be a result of many very highly publicized lawsuits in the media. “Recent media coverage related to the #MeToo movement has also caused companies to focus on this coverage when purchasing their insurance portfolios,” she says.
Thon expressed similar thoughts, saying the #MeToo movement emphasized the need for EPLI
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Christopher Pobieglo President Business Insurance Associates coverage. “The conversations have gotten better; I think it’s more top of mind with people now,” he says. “I think people are feeling more empowered to come forward about things that happened to them.”
According to Pobieglo, 20 percent of all US court cases involve employment practices claims; 60 percent of employment practices suits are brought by former employees; and wage-and-hour claims have tripled since 1997. “And it impacts everybody,” he says. “About 40 percent of the employment practices claims are from companies with 100 or fewer employees—so it hits larger and small businesses.”
Moreover, employment practices lawsuits can be expensive to engage in, and employers have a lower chance of winning. “If it goes to litigation and goes to court, business owners will win only about 40 percent of those cases,” Pobieglo says. “The average verdict—if the employee wins—is $400,000 to $500,000… Discrimination and sexual harassment claims have all gone up, and $150,000 is the average cost to defend yourself for litigation.”
Small businesses can purchase EPLI for an average cost of $1,000 to $2,000 a year, Pobieglo says. And the coverage can be added to a general liability or business owner’s policy for a more affordable rate than having a stand-alone policy. “Ultimately, every business has to make decisions about balancing coverage and what they can afford by transferring that risk to insurance,” he says.
Other Popular Liability Types
As new risks arise, insurance products are available to blunt the sting. For instance, the expanded use of cyber liability insurance is a current trend—and not just among large companies, Thon says. Companies of all sizes are being targeted with ransomware and other types of cyberattacks, making cyber insurance even more relevant now. “Three years ago, we were barely talking about it; now it’s become a hot topic,” he says. “We [Parker, Smith & Feek] have done multiple webinars about cyber insurance and what the exposure is… If you don’t have cyber insurance, you’re taking that risk into your own hands.”
Pollution liability insurance is also being requested more frequently, even for less conventional situations. “That’s getting written into a lot of contracts as a requirement,” Pobieglo explains. “Sometimes you see it with businesses you might not think have pollution exposure, but they may have to provide it because the contract says they have to.”
And for extending all kinds of liability policies, there’s excess insurance. With the rising frequency and cost of litigation, excess liability insurance provides a safety net—depending on the type of business involved. “A retail store has a mild exposure, but trucking companies’ claims are going through the roof,” Pobieglo says. “They say that the average crash that involves a tractor trailer truck runs $400,000— and if fatalities are involved, that number goes to $4.8 million. Last year, there were over 4,000 deaths that involved trucks.”
Adapting to the Environment
What can or should businesses— especially small companies—do to adjust for the changing liability climate? Pobieglo says the key tactic is for businesses to be aware of their risk and implement a process to manage it or transfer to an insurance policy. He explains, “You can do site inspections, review your contracts and lease agreement, or hire an HR consultant to make sure your employee handbook is up to date… And consider that every person in a business is a risk manager, from the president down to the custodian.”
Parrish recommends investing in training, which can enhance employee retention and safety. She is also a strong proponent of acknowledging employees’ efforts. “It’s small, but it’s a big thing,” she says. “If you don’t, people will go somewhere else because they have so many choices now.”
As a piece of general advice, Thon encourages clients to fully engage with their insurance agency. “Don’t try to do this on your own,” he says. "If you have a great working relationship with your insurance professional and their team, you’ll get a lot further.”
