COVID-19 Driving Huge Claims Hike in U.S. Professional Liability Market: A.M. Best

The COVID-19 pandemic is creating varying levels of disruption for writers in the U.S. professional liability insurance market, with many expecting a sizable increase in claims, according to a new AM Best report.

With its Best’s Special Report, “Professional Liability Insurers Navigate Uncertain Terrain Amid a Pandemic,” in conjunction with the Professional Liability Underwriting Society (PLUS), AM Best surveyed PLUS members on the extent of the COVID-19 pandemic’s impact on individual lines. These lines of business are directors and officers liability (D&O); errors and omissions liability (E&O); medical professional liability (MPL); employment practices liability (EPL); and cyber liability.

Survey respondents said D&O has been most affected along with MPL. The pandemic has also pressured EPL, while E&O has been spared substantial effect compared to other lines thus far.

“Even before the pandemic, professional liability insurers were reporting varying degrees of market pressure, capacity limitations, changing risk profiles and price increases,” said Sridhar Manyem, director of industry research, AM Best. “COVID-19 and the subsequent lockdowns, travel bans and event cancellations, as well as the economic turbulence, have put considerable added pressure on professional liability insurers.”

Results from the survey include:

• Two-thirds of respondents placed the severity of COVID-19 on D&O at the highest levels. The pandemic has increased pressure on D&O renewal pricing, with hardened rates—more than half report hikes of more than 20%—and more-restrictive terms and conditions.
• E&O business has not been affected by the pandemic as significantly as other lines; however, given its long-tail nature, an increase in claims may still be forthcoming.
• Survey results show that the MPL line has been impacted severely by the pandemic, with market participants reporting capacity challenges. However, the degree to which the pandemic ultimately affects the MPL market will take time to determine, given the length of time typically seen before a malpractice lawsuit is filed, followed by slow movement through the judicial system.
• The pandemic has further pressured EPL claims, ranging from enforcement of health and safety standards for employees to an increase in wrongful termination suits. Nearly half of survey respondents reported a tightening of terms and conditions.
• Given the awareness of cyber hazards, particularly with a remote working environment since the onset of the pandemic, pricing for cyber has been rising. Overall, according to the report, cyber insurance remains a relatively small portion of the overall commercial insurance market.

Shortly after the pandemic surge in the United States, AM Best placed a negative market segment outlook on the professional liability insurance segment, which wrote approximately $35.8 billion in direct premium in 2019 using the sum of other liability (claims-made) and medical professional liability lines direct premium totals as a proxy for professional liability.

Source: AM Best

*This story ran prevously in our sister publication Insurance Journal.