In the coming year, insurers anticipate rate increases for management liability and professional lines, as they are increasingly concerned about the expanding scope of regulation, the escalating costs of compliance and risks associated with privacy violations and breaches of network security, according to “Management Liability and Professional Lines,” a survey from Torus, a global specialty insurer.

“The results of our second annual ‘Management Liability and Professional Lines’ survey show a marketplace that is firming across many customer segments and product lines,” said Jeffrey Grange, SVP, head of professional lines at Torus. “Poor loss experience in major classes coupled with increased exposures is driving rate increases. 2013 will be a challenging environment where coverage, limits and pricing are all on the table and actively re-negotiated at renewal. Underwriters must be prepared to maintain an open dialogue with producers and their clients, listening and working constructively to successfully navigate this complex and continually shifting risk environment.”

Almost half (49 percent) of participants named the Dodd-Frank Wall Street Reform and Consumer Protection Act as a concern, compared with 35 percent of respondents last year. The Patient Protection and Affordable Care Act (PPACA) was a named concern by 28 percent, and Jumpstart Our Business Startups Act (JOBS Act) was selected by 23 percent.

“Even though it has been more than two years since Dodd-Frank has been passed into law, our survey results show this legislation remains at the forefront of the minds of agents, brokers, risk managers and others that work on behalf of the directors and officers of both public and private companies,” said Sharon Raksnis, SVP, U.S. financial institutions at Torus. “The industry continues to operate in an environment of heightened legal liability and Dodd-Frank is one of a handful of pieces of legislation that we must work to better address with clients and partners.”

JOBS Act concerns:

Almost half (49 percent) named reduced compliance and disclosure as the biggest exposure that the JOBS Act would have on the Directors and Officers (D&O) liability insurance market.

21 percent named crowd funding

18 percent said the allowed increase in shareholders to 2,000 from 500

12 percent said the ability to advertise private placement offerings

With the passage of PPACA, 36 percent said increased demand for professional liability coverage among Allied Health service providers would have the largest affect on the management liability and professional lines market; 28 percent said increased demand for technology errors and omissions (E&O) as well as privacy and network security coverage due to electronic medical records

“The regulatory environment continues to move away from companies and their directors and officers, with an ever growing burden of compliance and disclosure especially in an age of heightened financial sensitivity,” said Craig Grant, VP, U.S. head of private company management liability. “It is therefore more important than ever that insurers understand how these rules and regulations create new potential avenues of liability. We need to work in partnership with producers to build and tailor new solutions for clients across industry segments.”

The vast majority, 87 percent said they believe prices for management liability and professional lines will increase in 2012.

67 percent predict increases of up to 10 percent

35 percent predict increases of up to 5 percent

32 percent predict increases of 6-to-10 percent

19 percent predict increases of more than 11 percent compared to 2012 pricing

Nearly one third (32 percent) said professional liability would drive price increases, followed by employment practices liability (EPL) insurance (31 percent), D&O (22 percent), and fiduciary (5 percent).

“2012 was a year of widespread concern over pricing uncertainty. Today, the overwhelming consensus is an anticipation of rate increases in 2013,” Grange said. “While pricing increases are a positive indicator for the market as a whole, we must remember that this environment will present many challenges to producers as they manage expectations while advising their clients, whether working with small and medium sized enterprises or large, complex publicly traded institutions.”

As small and medium sized enterprises increase their usage of social media, the management liability and professional lines industry cautions those companies about the many liabilities related to the distribution and creation of social content.

58 percent expect small and medium enterprise requests for policies to mitigate social media risk will increase

36 percent expect requests will remain on par with 2012

6 percent said requests will decrease

“As technology continues to increase the scope of exposures for SMEs utilizing social media, insurers must mitigate the risks associated with the rapid proliferation and dissemination of such content,” said Christopher Cooper, AVP, media products. “An increasing number of respondents to this survey recognize the need for broader coverage – specifically media liability coverage - due to the potential risks small businesses face when introducing this medium into their business model.”

One third (33 percent) said data leakage was the primary concern small and medium enterprises must address when using social media; 8 percent said the biggest risk is the “lack of explicit risk management policies and procedures.” Last year, 35 percent named that as their top concern.

27 percent said the biggest risk is the lack of control over potentially damaging content disseminated by employees;

19 percent said increased personal injury exposure (e.g. defamation, libel, slander)

13 percent said increased copyright and/or trademark infringement

8 percent said the lack of explicit risk management policies and procedures

The survey was conducted by Torus at the 2012 Professional Liability Underwriting Society (PLUS) International Conference in Chicago. The survey includes responses from of 105 insurance professionals, including brokers, agents, insurers and risk managers.

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