How claims and lawsuits will impact professional liability

Capacity evolution within markets for errors and omissions (E&O) and professional liability coverages means the P&C industry must apply a risk-based approach, as opposed to a class-of-business approach, to pricing and segmentation.

“We [partnered] with our claims team…as well as our actuarial team…reviewing our portfolio over the last [several] years to understand where the segments are most profitable and where they’re not,” says Katherine Gauthier, Intact’s vice president of specialty solutions (E&O, D&O and Crime Canada).

“Claims trends are something we look at very closely, particularly when it comes to volume of claims.”

Those trends are examined through a lens of claims frequency and severity – as well as the varying regulatory environments across the country.

“We see professionals with expanded mandates, for example, pharmacists…who are now able to prescribe for certain ailments, and we are seeing trends of new claims within that space,” Gauthier tells Canadian Underwriter. “Those are the sorts of trends we need to look at when it comes to pricing sophistication.”

Lingering economic uncertainty both in Canada and globally continues to factor into companies’ views on the need for E&O and professional liability coverages.

“Brokers should be [mindful about the effects of] economic uncertainty,” says Gauthier. “A lot of businesses are evaluating their spend, and one of those items often is their professional liability [coverage]. We’re seeing an increase in claims frequency and claims volume, so brokers need to make sure they’re educating clients on the need.”

She says certain companies operating at smaller size and scale have become cost-conscious when it comes to insurance. And those financial concerns go beyond professional liability coverage.

“It’s absolutely something they’re thinking about, especially when many professionals have strong controls in place…and [find] it difficult to imagine that they would have a claim brought against them,” she adds.

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That’s concerning, given a growing trend toward frivolous claims, particularly in the construction space.

Insureds are being pulled into claims related to construction cost overruns or, in some cases, damages that aren’t directly related to the services they provided, Gauthier notes.

Even when companies have strong internal controls, which limits claims frequency and severity, litigants are naming them simply because they were involved in a project.

“We’re seeing more of a litigious environment make its way towards Canada, which is…something we’re watching from a pricing perspective,” she tells CU.

“We’re seeing a trend in terms of more claims. We are also seeing a trend…especially post-2020, in terms of the number of class actions. And there are lower barriers to bring claims in certain jurisdictions.

“Social inflation has a big impact on the claims that we’re going to pay in the future, as well as the costs associated with defending a claim.”

Potential regulatory shifts and growing environmental, social and governance (ESG) mandates also impact clients.

Gauthier says her team is asking companies what ESG controls they have in place, how they stay up to date on shifting policies and procedures, and how they treat employees.

“We’re having the conversation with the client to better understand what they are doing as a service, and what are they doing to mitigate those exposures,” she says. “It really depends on where they’re operating, in terms of the country or the province.”