Premiums for the errors and omissions (E&O) liability insurance program that Advocis offers its firm members have quadrupled in some cases. The broker for the Canadian advisor group blames a lack of insurer experience in this young line of business and heightened regulation that is pressuring firms.
The E&O blanket policy covers 60% of Advocis’ advisor members, says the group’s broker, Advocis Broker Services. This program can also insure members’ firms if they choose this option, but the cost of corporate coverage skyrocketed in 2015. “Experience for firms changed dramatically since the second half of 2014,” Robbert McIntosh, director of Advocis Broker Services, told The Insurance and Investment Journal in an interview.
During this turbulence period, two insurers with which Advocis did business – Liberty and Trisura – exited the E&O insurance niche. They are not the only ones, he says. Most players left the market or modified their coverage considerably. The Advocis program is now insured by Ironshore Canada.
“When we look at the corporate coverage, even just two years ago, premiums could be as low as $500. That was considered very inexpensive then. The majority of premiums now are quoted to $2,000. This is across the industry and is certainly true of our program,” McIntosh says.
Insurers have realized that corporate E&O insurance was underpriced given the potentially catastrophic risk of this coverage, he continues. Insurers are now looking for a sufficient premium volume to counterbalance the potential risk of claims, McIntosh explains. “When the volume is insufficient, the actuarial advice that the company relies upon is either to exit the market or dramatically change their underwriting guidelines,” he says.
Scant experience coupled with new regulatory requirements are fuelling the current negative cycle of corporate E&O insurance, McIntosh adds. “Higher premiums will be the reality for the next year or two in the corporate coverages, until we see this line of business reach the same maturity level as the individual coverage,” he says.
Regulators have long required advisors to hold individual E&O liability insurance, but not firms, McIntosh points out. “It is only in the last few years that this coverage has become a focus of attention by the regulators and the industry,” he explains. Regulators have just begun better defining what they require from firms in this area, he adds. This means that it will take some time for the market to acquire structured claims experience in corporate E&O.
In a notice dated June 25, the Insurance Council of British Columbia (ICBC) clarified its expectations of agencies that group their coverage under blanket policies. These policies are compliant if they foresee coverage at least equal to what each firm would have purchased individually.
The ICBC regulation requires that individual coverage be at least $1 million per claim and $2 million total for the year. These limits are generally uniform across Canada, and apply to individual advisors as well. This means that a blanket policy for a group of ten firms should have respective limits of $10 million per claim and $20 million in total for the year. Firms have until the renewal of their insurance coverage to comply.
For its part, Advocis offers its members a program that lets them cover themselves individually or as a firm under the same policy, McIntosh says. “The corporate side is designed expressly for our financial services agencies members, according to their various fields of activities. The corporate coverage is built upon the individual one, on the same definition of professional services. The majority of individual coverages are transposed into the corporate one,” he points out. Definitions cover life and health insurance, segregated funds, mutual funds, financial, tax and estate planning activities, and travel insurance.
Corporate coverage offers a coverage option for both a life insurance firm and a mutual fund firm.The price of coverage varies depending on the practice. “We’ve made the decision on the corporate coverage to separate the pricing for those two. The premium will vary accordingly, based on the potential risk model of the company. If you’re a life only agency, it will cost you a much lower premium than a company that is involved in more business and product areas,” McIntosh explains.
Advocis’ E&O policy complies with the prescribed minimums, at $1 million per claim and a total of $2 million in one year, on both the individual and corporate sides. For an individual advisor, the premium is between $700 and $800, with all coverage included, McIntosh says. For firms, it is $2,000.
Advocis has bigger plans for firms, McIntosh told The Insurance and Investment Journal. “Our hope is, as this market matures and the underwriters get more comfortable with the overall E&O coverage for the financial advisors agencies channel, we’ll be able to offer higher limits,” he says.