Research

Insurance Marketplace Realities: Fiduciary

2018 Spring Update on Commercial Insurance in North America

April 12, 2018

Price prediction

  Trend Range
Overall: No change or slightly up/down –7.5% to +5%
Companies without large concentrations of their stock in benefit plans: No change or slightly down –5% to flat on excess layers
Companies with large concentrations of their stock in benefit plans: No change or slightly up Flat to +5%
Financial institutions with proprietary fund exposures: No change or slightly up Flat to +7% (may trade more restrictive terms for ate)

Key takeaway

Insurance carriers want this business, and in some cases multiyear deals are possible given the profitable results in this line.

Most renewals will likely find rates close to flat.

The fiduciary market remains very competitive with over $500 million in stated capacity.

  • Premiums and retentions are generally flat.
  • Faced with excessive fee claims, incumbent carriers want increases, but market factors are pushing back as new capacity can be opportunistic in these situations — potentially seeing post-claim plans as better risks.
  • Excess rates remain very competitive.
  • Material changes in plan assets, specifically employer stock, may result in potential increases in premiums and retentions for securities claims (for public companies with such exposure).
  • Church, university and public entity plans may see upward rate pressure.

For primary placements exposed to challenging fiduciary risk — such as a financial institution with plan assets invested in its own funds or employee stock ownership plans — this year may be more challenging than last.

  • Asset managers: In 2018, this may prove to be the number one challenge. Asset managers with proprietary mutual funds in their own 401k plans face a much tougher year, as concerned insurers apply even more pressure on terms and occasionally rates.
  • Universities: Due to concern over a new wave of fee cases, universities that have not already experienced fee claims could find their fiduciary placement far more challenging this year. Expect upward rate pressure, increased fee retentions and potentially excessive fee sublimits. Certain go-to carriers in this space assert they will not consider larger universities’ fiduciary liability exposure — unless a fee claim is already in.

Fiduciary liability loss drivers are getting worse.

  • Fees: Excessive fee litigation continues to dominate the exposure, driving severity and client views of appropriate program size.
  • Regulatory uncertainty: What is the state of the U.S. Department of Labor Fiduciary Rule now that it has been vacated? Is the rule now dead? Uncertain. IRS exposure is higher, too. IRS validation has been replaced with “self-service” compliance, affording little protection to plan fiduciaries from audit exposure. A “balkanization” of enforcement could mean more regulation, more enforcement and more fines.