In 2021, many carriers left unprofitable and volatile lines of business. As a result, the U.S. excess & surplus lines market grew to nearly 7% of the total U.S. property-casualty insurance industry, a material departure from its 5% share over the past decade, according to Fitch Ratings. Included in this growth were E&S professional liability lines.

As the E&S property market saw an increase in new submissions due to increased rates in the standard market, E&S professional liability lines—directors & officers, employment practices liability insurance, errors & omissions, and cyber liability—were similarly impacted.

“We have rising rates in all classes of business—D&O, EPLI, and definitely in cyber liability," says Manny Cho, executive vice president, executive lines, Risk Placement Services. “Some of it is driven by carriers' lack of profitability and some of it is driven by current loss trends and rising loss trends in certain areas."

An unprecedented economic environment continues to impact the D&O market, which “has seen significant rate increases over the past several years due to a number of underlying trends adversely affecting this segment," says Adrien Robinson, head of global specialty, The Hartford.

“Some of these factors include the rising costs of complex litigation; an aggressive plaintiff's bar; and the attraction of litigation funding to these large multi-party disputes," Robinson says. Additionally, the recent explosion of special purpose acquisition company (SPAC) initial public offerings (IPOs) and the inherent uncertainty of business plans and financial projections “is another factor driving rising rate trends in this segment," Robinson adds.

The progression of social movements, as well as changes in the workplace environment as companies try to navigate the complicated and ever-changing protocols of returning their employees safely to work amid an ongoing pandemic, are continuing to drive agents to the E&S market.

“I certainly see loss activity for items that weren't always prevalent in the EPLI portfolio," says Jeffrey Kamrowski, president and CEO, Mesa Underwriters Specialty Insurance Company (MUSIC), a subsidiary of Selective Insurance Group Inc.

“These are largely around changes to workplace dynamics which are certainly driving losses around EPLI in ways that weren't seen over the past 20 years," Kamrowski says. “Emerging social trends and social concerns will continue to put pressure on the EPLI line and probably restrict capacity and cause pricing to be higher in the near term."

By comparison, the E&O marketplace has been relatively stable. However, “there are subsectors, such as insurance agent E&O, which are affected by the global pandemic," Robinson says. Further, “the explosion of ransomware cases has thrust cyber insurance into mainstream coverage, even for small and medium enterprises," Robinson adds, which has led to “extreme tightening."

For agents and clients, “the biggest change for the cyber market is the information and the level of detail that underwriters are looking for," Cho says. “They're looking for four major things right now, all of which are subject to change: Does the insured have a multifactor authentication (MFA), do they have an endpoint detection and response solution in place, what are they doing in terms of data backups for recovery, and is there internal training in place for their employees?"

"If any one of these areas is lacking then a lot of the underwriters, whether it's primary or excess, may not quote. From that perspective, it is a big change," Cho adds.

The professional liability E&S market is currently experiencing another tough market cycle and the outlook for 2022 appears to be the same. “We don't see the trend of increasing rates stopping for 2022," Cho says. 

Olivia Overman is IA content editor.