By Cyril Tuohy
After a decade with American International Group (AIG), the National Association of Independent Life Brokerage Agencies (NAILBA) has switched professional liability carriers to Everest Indemnity Insurance, for errors and omissions (E&O) coverage.
The move represents an adjustment to AIG’s business model, said Robert G. Erzen, area vice president with Arthur J. Gallagher & Co., NAILBA’s E&O broker.
AIG’s Berkeley Heights, N.J., unit, which was offering the coverage to NAILBA members for the past 10 years, is moving away from writing 250 or more bespoke errors and omissions policies for individual wholesalers, Erzen said.
Instead, AIG is looking further into its business in writing one master policy for hundreds of agents and/or agencies. That’s because it’s easier and benefits from the economies of scale that massive global carriers like AIG can provide, Erzen said in an interview with InsuranceNewsNet.
“AIG’s focus on individual agencies has changed over the past four or five years,” he said. “AIG’s New York underwriting team likes to write master policies for many agencies under the group rather than writing individual agencies.”
Erzen, based in Irvine, Calif., also said that “Everest is A+ rated and AIG is A rated so this is a step up in financial strength, and when it comes to A.M. Best & Co. ratings, those things matter to NAILBA.”
Individual NAILBA wholesale agencies need more flexibility and customization in their E&O coverage to fit their unique needs since many of them sell not only life insurance, accident and health, and disability insurance, but also sell variable products and other securities.
“These folks need flexibility,” Erzen said. “They have very broad business backgrounds and broad operations, they need a product that can change as their business changes. Everest is more willing to be flexible. That said, AIG remains a big partner of ours.”
NAILBA referred all calls to Erzen.
“We are pleased to announce Everest Indemnity Insurance Company (Everest) as our new insurance carrier for the NAILBA sponsored brokerage general agency errors and omissions (E&O) program,” NAILBA said in post on its website announcing the change.
“Everest’s management team brings deep experience in underwriting brokerage general agencies, life insurance agents, broker dealers and registered representatives,” NAILBA said.
After a decade with AIG and retention rates in excess of 99 percent, “making a move was not something that’s taken lightly,” Erzen also said.
Each brokerage general agency (BGA) and NAILBA member is free to choose whoever they want as a professional liability insurance carrier, but there’s no question that using the carrier recommended by NAILBA makes a big difference in pricing, he said.
“Pricing is based upon the affiliation with NAILBA and pricing is extraordinarily cheap relative to other offerings,” he said. “It’s the cumulative effect of having 250 agencies out there and that’s why we have 99 percent retention rate.”
For large nationwide carriers, BGAs, many of which only employ a handful of people, are just another small business when they walk in “off the street” and look for individual coverage so it’s much cheaper to use NAILBA’s recommended E&O carrier.
“You don’t get the right advice because the policy is not tailored to your brokerage general agency, and you don’t get the cumulative effect of all 250 agencies within the NAILBA umbrella,” Erzen said. “If you have a claim issue, you’re better off being part of program because we have relationship and size.”
To do business with insurance companies, wholesalers need E&O coverage, so the question isn’t whether they will buy the coverage, it’s who are they going to get it from and for how much.
“As a category, BGAs are a great risk,” Erzen also said. “They are a wholesaler not retailer and so they are one step removed from the liability in most cases.”
In 2009 and 2010, E&O claims against BGAs spiked after scores of policyholders sued in connection with investment losses related to the poorly performing investment components of life insurance policies, Erzen said.
Large life and estate policies whose premiums were financed instead of paid for with cash caused issues for wholesalers. When credit markets tightened and financing dried up, the life insurance policies had to be funded by liquidating assets and irate policyholders sued claiming they’d been covered by policies that weren’t suitable for them.
Prices for errors and omissions professional liability have flattened over the past 12 to 18 months as the financial crises faded into history and claims volume tapered off, he said. Rates should remain relatively flat for the near future, he also said.
“There might be some inflation adjustment – a 3 percent increase or something like that – but losses have really leveled out,” he said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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