Mounting claims expenses bring changes to MLI policies

In the last two years, Management Liability Insurers have shifted their underwriting guidelines for privately-held organizations by  increasing rates, retention levels and a reduction in coverage and total limits offered. Wage and hour defense cost sub-limits have also been reduced or removed entirely, and some carriers are not renewing policies based on industry, asset size of risk, financial condition and loss experience.

While there are still Management Liability Insurers willing to write these accounts, the marketplace appears to be reaching a point where this capacity will no longer be utilized to offer terms that the industry has become accustomed to seeing in recent years.

Why is this happening?
Based on conversations with several Management Liability Insurers, there are several reasons: 

1. Poor economic conditions over the past 3 – 4 years leading to a significant spike in the
   numbers of Employment Practices Liability (EPL) related claims
2. EPL claims expenses rising dramatically year over year (remember these policies cover defense costs)
3. Wage and Hour claims being far more prevalent than initially anticipated
4. Significant uptick in Directors’ & Officers;’ Liability (D&O) claims from assorted types of allegations (such as: bankruptcy related allegations, breach of contract, intellectual property and restraint of trade type allegations)
5. The Duty to defend nature of the policies forcing carries to provide defense costs coverage for otherwise excluded allegations

What does this mean for you?
Among the changes that Insureds can expect to see as a result of these market changes include:

• Increases in retentions and premiums.
• Difficulty to obtain defense costs coverage for wage and hour claims.
• Smaller clients may need to absorb bigger increases (percentage wise) in
  premium and retention, although in many situations, their incumbent carrier will
  still be the best option if the increases are not significant.
• A reasonable degree of competition/capacity will likely still be available for larger management liability clients, which can help mitigate increases in premium and
  retention.

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About the Author

Mark Stiles is an Assistant Vice President at William Gallagher Associates and a member of WGA ExecutiveRisk Practice. He works with private and nonprofit organizations to assist them and their executives with protection for their exposures to Directors’ & Officers’ Liability, Employment Practices Liability, Fiduciary Liability, Crime, Kidnap & Ransom and Extortion.

617.646.6743 | Mstiles@wgains.com | Connect with Mark on LinkedIn