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Survey Report

Insurance Marketplace Realities 2021 – Errors and omissions

Financial, Executive and Professional Risks (FINEX)
N/A

November 18, 2020

Professional and technology service organizations should be prepared to discuss with brokers and underwriters how they have been impacted by COVID-19.

Rate predictions

Rate predictions: Errors and omissions
  Trend Range
Large law firms Increase (Purple triangle pointing up) +10% to +20%
Technology Increase (Purple triangle pointing up) +10% to +15%

Key takeaway

Professional and technology service organizations should be prepared to discuss with brokers and underwriters how they have been impacted by COVID-19, particularly when it comes to business continuity, as this could have a direct impact on the professional and technology services provided to clients.

Errors and omissions (E&O), or professional liability, is arguably the most complex area of specialized insurance, with several distinct marketplaces:

  • Stand-alone E&O for certain professions (lawyers, consultants, accountants)
  • Technology E&O, sometimes stand - alone, but often coupled with cyber insurance
  • Miscellaneous professional liability (MPL), including those industries without a specific, dedicated policy form

Lawyers: the market for large law firms continues to harden in response to mounting losses.

  • Although capacity is still available, insurers and reinsurers have reacted to correct past rating deficiencies by increasing premiums and raising retentions to seek long-term profitability.

Technology: Evolving product and service delivery technologies are pushing the edges of technology E&O into other coverages, including commercial general liability (CGL) insurance, cyber and other types of professional liability.

  • Internet of Things (IoT) devices, in particular, are interacting with people, property and equipment in new ways.
  • New property damage and bodily injury liabilities have arisen from the use of monitoring services that run on IoT technology and connected networks. These new liabilities have led to further focus on contract requirements and interactions between insurance policies.

Other traditional miscellaneous E&O, or MPL: The marketplace is contracting.

  • Two large carriers are retrenching their books.

The overlap of cyber and E&O coverage is a major area of focus.

  • When buying cyber, buyers often ask about splitting E&O and cyber. We typically recommend combining all coverage in one policy to minimize coverage gaps, since E&O claims alleging a failure to properly render professional services increasingly overlap with traditional cyber coverages.
  • Further, in the conflict between E&O and cyber, cyber is “winning,” in that more buyers are including E&O as part of their cyber programs. The result is that traditional E&O market capacity continues to erode as E&O carriers increasingly offer tech E&O blended with cyber.

Insureds should be proactive in reviewing their E&O exposures and existing coverage as they determine the best strategy to address growing cyber exposures.

  • When insurance is required in a customer contract, the type of insurance (E&O and/or cyber) should be specified.
  • Contractual requirements continue to drive requests for E&O coverage.
  • Companies should review the limitation of liability and indemnification clauses in their customer contracts, as underwriters are more closely scrutinizing these provisions, especially as they relate to cyber risk.
  • Companies should review customer-use policies and guarantees regarding any estimated or guaranteed service availability.
  • Technology companies should be cognizant of potential claims that could result from COVID-19 if there are failures to deliver products or services within contracted timeframes due to supply chain issues. They should understand how such claims would or would not be covered under their E&O policies.

E&O underwriting is becoming more sophisticated and complex.

  • Excess carriers are looking more closely at rates and making sure that they are getting adequate premium for the risk.
  • Insurers have tightened pricing and retention guidelines for companies offering just-in-time services or guaranteed uptime or output time in their service contracts.
  • Carriers are focusing more on middle market business and being more cautious when it comes to writing technology E&O for companies with over $1 billion in annual revenues.
  • Certain carriers are limiting or restricting certain classes of business in response to recent large claims.
  • Carriers are reviewing and examining their exposure to intellectual property risk and are reviewing insureds’ intellectual property clearance procedures to understand the risk of third-party intellectual property claims.
  • Although carriers continue to accept manuscript policies to directly address professional services risk, they are beginning to increase premiums for these policies.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.

Contacts

Joe DePaul
National Cyber/E&O Practice Leader, North America

FINEX Cyber/E&O Thought and Product Leader

Geoff Allen
Head of Professional Services Practice

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