Captive Insurance Premium Deductibility

We came across an article on insurance agents E&O (errors & omissions, or professional liability) with some misleading information. The article, which unfortunately is not available on the web, states that receipt of a subpoena is a claim under an insurance agents E&O policy, and therefore should be reported to your E&O insurer.Unfortunately, the article is misleading. The receipt of a subpoena by itself does not constitute a claim under most insurance agents E&O policies. However, you probably should report it under your E&O policy in an abundance of caution, and to have the benefit of expert advice before complying.Why does a subpoena not necessarily trigger an E&O claim? All definitions of claim in insurance agents E&O policies are similar (but not the same), so we randomly picked one:Claim means a demand for monetary damages arising out of a professional service made against the insured...The key wording is the demand for monetary damages. A subpoena is not a demand for monetary damages, and would therefore not trigger a claim under this policy. However, most policies also provide for some mechanism to report an incident which might lead to a claim, and here is one example:...an event about which an insured obtains knowledge which might result in a claim is reported in writing to us…What a subpoena might trigger is a realization that there is the potential for a demand for monetary damages at a later date. But not always. Here is one real-life example where the subpoena did not trigger a claim:An insured reported a claim to its insurer. After its investigation, the insurer denied coverage for the claim for material misrepresentation in the application. The insured brought a claim against the insurer alleging bad faith, and the insurer subpoenaed the agency which placed the account. The agency checked their files, and concluded that there was no error on their part and that the file was well documented. The agency went first to its own counsel to review the matter and obtain advice, and then immediately requested an indemnification from the insurer for any ensuing litigation. The insurer agreed, and then the agency reported the situation to its own E&O insurer.The E&O insurer was pleased because there was no demand against its insured, the agency (ie no formal claim), and an indemnification was in place. And the agency was protected by the indemnification.

Note that each situation is different, and legal counsel is critical in assessing alternative strategies.

Insurance Competition Remains

Discussions on the potential for a hardening insurance market have pointed to cat property as one area that is leading the way to a tighter insurance market, with increasing pricing. Following our prior post (see here) on the soft insurance market, Business Insurance noted that the reinsurance market is not hardening as fast as some had predicted (hoped?). The article (see here) observed that US cat property renewal rates increased approximately 15% at 7/1, but other territories saw more moderate increases. An insightful comment from notes:Those with the technical discipline and market profile to do so are trying to drive up rates, even at the expense of market share. Companies that were weakened by the financial crisis, in terms of capital and ratings, face pressures to make concessions on rates to keep their customers’ loyalty.AM BestIt sounds like a hard market is not right around the corner.

Hard or Soft Market?

As we pointed out in prior posts (see here, & here on D&O), the insurance market continues its competitive ways – no hardening in sight. Despite deteriorating industry results, the market will not tighten until there is adequate economic incentive (ie pain) for insurers as a group to decline to write business at current prices. In fact, we still see insurers aggressively pursuing new business and new segments. Some of the best insurers are showing excellent underwriting results company-wide, and many insurers are satisfied with underwriting results in some of their key lines of business. The Mercator Risk Services perspective on the insurance market is well represented in three recent articles. According to one article (see here), competition is slowing somewhat in the umbrella and excess liability market.Right now, we’re seeing stability with respect to rate change…A year ago, we were looking at a market that was declining 10- or 12 percent.And the EPL market continues to be soft (see article here).While some are expecting a hardmarket around the corner, the current employment practices liability insurance market is moderately soft… Despite the external factors negatively impacting the EPLI market, significant competition remains. The result is numerous choices, broader coverage and some pricing pressure.The third article (see here) notes that we are not in a hard market now because the pain was not equally distributed and the pain has not lasted long enough, and concludes:While the underlying fundamentals of the market point to a continuation of the current soft market conditions, rate decreases have slowed throughout the early part of this year and may result in a "soft landing" where pricing begins to flatten out as the market finds its footing. The exceptions are, as noted, CAT property and D&O. …Short of further shocks to the market, from either catastrophic losses or further weakening of the economy, the general soft market conditions should continue through at least 2010.