If you look hard enough at an issue, you can always find a bright side. While the insurance industry is grappling with a generally soft market, you don’t have to look too hard to find bright, shiny spots as there continue to be areas of new and expanding underwriting appetites.

Commercial lines players in the know are abuzz with talk about encouraging marketplace developments in various lines. A number of key classes are growing (technology, professional liability, officers liability/employment practices liability and marine), emerging (workplace violence protection) and/or flat-out too big to ignore (trucking and marine).

What to pursue in a soft market? Judge for your- self, but before you decide, consider the observations and analysis of industry insiders who provide commentary on key marketplace conditions, line by line…

BOPs and E&O for Small Technology Firms
Travelers and The Hartford are two of the standard markets that are going after the tech niche, each with its own approach to the emerging segment.

The Hartford views the technology industry as an area of across-the-board commercial lines growth. “Opportunity is especially fertile on the technology industry’s smaller end, where startups and other first-time buyers are a large, untapped market for insurance agents,” says Toby Levy, director of The Hartford’s Technology Practice Group in Hartford, Conn.

There are more than 250,000 small technology firms in the United States and the segment’s rate of annual growth, in terms of number of companies, is around 9%, according to Levy. 

What accounts for all the high-tech startups? “(Baby) boomers are retiring or leaving larger technology organizations to start computer consulting, custom programming and systems integration businesses,” Levy says. “They are pursuing their dream of business ownership by starting up small one- or two-person businesses that cater to other small businesses.”

Producers can capitalize on the opportunity to serve the insurance needs of entrepreneurs who may be good at managing their high-tech businesses but often don’t know the nature and extent of their insurance exposures, Levy says. Among the coverages these businesses need: professional liability, errors & omissions liability and business owner policies.

A technology company is far likelier to face an E&O-related lawsuit for economic loss than a case alleging bodily injury or property damage, he says. “Nevertheless, most companies automatically buy general liability, but view E&O coverage as optional,” Levy says.

The technology industry could prove very profitable for agents, but producers must be extremely efficient in serving the insurance needs of this emerging segment. Levy advises agents to “thoroughly acquaint themselves with business and professional liability coverages that are tailored to small tech companies, especially products with affordable premiums and appropriate features.”

Travelers also is focusing on tech companies with two BOP products that target this burgeoning niche: Technology Office PacSM and Technology Manufacturers Pac PlusSM. Travelers uses BOPs as a tool to help meet the overall account needs of various types of small technology firms, says Robert Harrington, Travelers Select Accounts’ product director.

Travelers considers BOPs suitable coverage for high-tech firms because: 1) BOPs addresses a broad range of property and general liability exposures; and 2) agents can obtain quotes electronically and—in some cases—bind online, thus reducing a producer’s paperwork and speeding up the approval process, Harrington explains.

“The high-tech world is a growing niche for agents and insurers alike, and offering BOPs that are tailored to address high-tech exposures is a smart way for producers to provide sufficient coverage quickly and efficiently,” he says.

Professional Liability
Coverage for software developers and accountants are among several hot professional liability segments. In fact, there is a growing niche for software developers, Web site hosting services and other types of information technology firms.

“We’re writing a growing number of computer consultants, management consultants and accountants, to name just a few,” says Tom Herendeen, vice president of specialty lines underwriting at Philadelphia Insurance Cos. “Their customers are insisting on that because they want recourse in the event their consultant commits an egregious error in rendering professional services.”

Professional liability for information technology is no overnight sensation. It’s been around for more than 20 years, but it’s taken off in the past five years thanks to a surge in technology service providers.

“There were maybe three or four markets 10 years ago; now there are 15 or 20 in the field,” says Inga Goddijn, product manager for miscellaneous errors & omissions liability and information technology risks at Shand Morahan Co., underwriting manager for Evanston Insurance Co. “There may be a hundred or more in a few years, because this is an emerging and growing class of business.”

Goddijn characterizes current market conditions as soft because many carriers are willing to write the coverage, which is no longer dominated by surplus lines markets like Shand Morahan/Evanston. These days, standard markets are also competing in this specialty class, Goddijn says.

Coverages are written primarily on a monoline basis because packaging can be difficult. “Some insureds also provide computer hardware such as servers and do the installation, so that makes packaging more complicated,” Goddijn says. That being said, Goddijn believes that Shand Morahan is one of the few surplus lines markets that will write professional liability combined with general liability that includes products liability and completed operations.

Packaging is becoming a popular option with standard markets when there is no need for products and completed operations, Goddijn adds.

Cyber liability shapes up as a byproduct of professional liability, and it is a growing class of business in and of itself. Cyber liability is hacker insurance protection, which covers unauthorized access to a computer system and reimburses insureds for financial losses they suffer as a result, such as the costs of restoring data and notifying customers about data breaches.

Cyber liability has been around for about 10 years, “but it has really taken off in the last three or four years because the number of hacking incidents has grown exponentially with the recent one at T.J. Maxx being the most notable,” Goddijn says. (The parent company of giant retailers T.J. Maxx and Marshalls disclosed a massive customer data security breach in January with more than 45 million credit and debit card numbers reportedly being stolen electronically over an 18-month period. The estimated cost of $4.5 billion for the company makes it the largest loss of its type on record.)

Shand Morahan was among the first carriers to come out with cyber liability, and now there are about 15 players, mostly surplus lines markets, competing in a class of business generating more than $100 million in annual premiums. “Mostly large corporations are purchasing cyber liability, but interest is now starting to spread to smaller and mid-sized companies because they are starting to realize that they have hacker exposures as well,” Goddijn says.

D&O/EPLI
Talk about a large and growing market- place: Directors & officers liability generates about $10 billion in annual premiums when you include employment practices liability (EPLI). EPLI, which accounts for approximately $2 billion of the D&O total, emerged in the aftermath of the Clarence Thomas-Anita Hill sexual harassment contretemps of the early 1990s.

“We’re seeing more business involving companies that have fewer than 100 employees,” says Herendeen of Philadelphia Insurance Cos. “Many of these are firms that previously didn’t have coverage, but they are buying it now because they have either had an uncovered claim or they recognize the exposure from talking to their peers in business.”

Driving D&O and EPLI purchases are an increase in third-party claims involving sexual harassment, public access for the disabled and other forms of wrongful discrimination, Herendeen says.

Agents’ E&O protection also comes into play because agents could face litigation if they fail to recommend suitable insurance protection such as EPLI. “You can assume that an aggrieved third-party such as a producer’s client might sue if he or she becomes a defendant in a wrongful business practices lawsuit and his or her agent failed to recommend either of the two coverages, especially given the fact that these coverages are so accessible,” Herendeen says.

Workplace Violence
The Virginia Tech tragedy and other work- place violence incidents have triggered the emergence of specialty coverages to address such vexing insurance exposures.

Specialty market Markel sees itself as the only U.S. carrier addressing workplace violence exposures with two different products and believes that taking a two-prong coverage approach makes sense in targeting the diverse coverage needs of an underserved niche.

One product is EPLI with an optional endorsement titled Work Secure Protection, which provides first-party coverage. The other Markel workplace violence product is Outbreak Extra Expense, which is a mono- line first-party coverage that automatically affords workplace violence protection.

Specialty markets aren’t exactly the Lone Ranger in this volatile class of business. One way or another, Travelers, PHLY and most other standard markets cover workplace violence exposures.

Travelers’ Vice President of Risk Control Dennis Molenaar says that insurers can put together models to help project earthquake damage and possible quake insurance losses, but “the human factor” makes that far more difficult in the world of workplace violence insurance.

“You can’t predict the amount of personal injury, death and property damage that a deranged gunman could cause at a school like Virginia Tech or at a workplace, so the insurance industry faces quite a challenge in coming up with adequate limits and coverages that address those concerns,” Molenaar says. “Believe me, this is an evolving class of business, meaning that terms and conditions are changing as underwriting circumstances and current events dictate.”

For the past five years, PHLY has been covering workplace violence exposures as an endorsement to its directors & officers liability policy for nonprofit organizations. That’s longer than most standard markets, Herendeen says.

As for the future of workplace violence insurance, “you’ll see it as an endorsement to traditional coverages such as professional liability, general liability and crime, to name a few,” he says. “I don’t envision many carriers offering workplace violence protection on a stand-alone basis.”

Ocean Marine
Ocean marine cargo business accounts for between $200 million and $500 million in written premiums and, overall, the commercial ocean marine industry generates about $2 billion in gross revenue.

“Cargo rates are softening, along with property rates in general, (because) many markets are pursuing marine as an attractive growth class,” says James Nawojchik, senior vice president of Zurich’s Global Energy-Marine unit. “Many markets can provide competitive pricing.”

Factors leading to current marine marketplace conditions include 2006’s lack of hurricane activity. “Historically, marine has been a profitable line, making it more attractive,” he says. “In addition, there have been several new entrants to the market in the last few years.”

Inland Marine
Like ocean marine, inland marine is growing. Transportation-related inland marine is one of the rapidly developing segments, according to Stephen Connor, vice president and head of the ACE-USA Logistics Industry Practice unit, which arranges commercial lines packages for shipping companies such as Federal Express and UPS.

“Warehouse legal liability is growing because more and more products are entering the country, and warehouse space is increasing to handle that influx of business,” Connor says.

Among the other growing industry segments: bailee’s legal liability, motor truck cargo legal liability, contingent motor truck cargo legal liability and third-party commercial auto liability and commercial auto physical damage coverage.

Arranging these coverages in a coordinated way isn’t easy, Connor warns. A lot of this type of business is placed through surplus lines markets and wholesalers that tend to deliver “piecemeal coverages,” Connor says.

“(Wholesalers) place coverages with different markets—casualty with one market and property with another,” he says. “You end up paying more for less protection. Worse, you might have coverage gaps or lack adequate coverage. That’s why packages written by admitted markets make sense. You get a nonfragmented, coordinated delivery approach for your property-casualty needs.”

Trucking
The volatile trucking insurance market has an estimated premium volume between $25 billion and $30 billion, and that total hasn’t changed dramatically in the past few years. But make no mistake, the tough trucking market has softened as more standard markets are re-entering the field.

Stratford, a trucking market for the past 18 years, has seen many a player come and go. “Those carriers who enter the market to quickly build premium ultimately find that their losses outrun their premiums because they had under-priced the business,” says Tom Perch, vice president of underwriting at admitted market Stratford Insurance Co., a commercial auto specialist. “Those of us who are in it for the long run have tended to recognize pricing and other underwriting issues more clearly and therefore have been more profitable over the market cycles.”

Even with a softening market, many specialty truck insurers like Stratford remain a stickler for gathering complete underwriting information on each risk. “To get the best quote possible in the least amount of time, a producer should know what the company is looking for and provide complete information on a given risk,” Perch says. “That will increase the likelihood of getting the best quote while saving time and expense for both the agent and the company.”

Stratford isn’t the only trucking specialty market finding increasing competition. There are more markets writing trucking business than during the hard market that ended about two years ago.

“P-c companies have the capital, so they’re looking for business to write, and trucking is one of their options,” says Jim Eason, executive vice president of Lancer Management Co., which underwrites long- and intermediate-haul trucking insurance for sister company Lancer Insurance Co., which specializes in commercial auto.

Trucking carriers tend to favor agents and brokers who can bring in books of business. “Producers must have a good track record in the business,” Eason says. “Rookies might have a tough time even if it is a soft market, because companies can be choosy with whom they deal.”

Ron Lent (writeron@comcast.net) is markets editor.

Trucking Outlook: Soft but Stable
While the trucking market does find itself in a soft market, it is expected to remain competitive for the next several years.

“Currently, the market’s not as soft as it was in the late ’80s and ’90s,” says Jim Eason, executive vice president of Lancer Management Co. “Companies learned during the last soft market that commercial auto can be very complex when it comes to claims handling and establishing the type of infrastructure needed to service the business, meaning computer systems for underwriting and claims and finding and keeping employee swith trucking expertise.”

“The market is somewhat softer than last year, but I would characterize the trucking market as stable,” says Scott Light, president of Hub International Transportation Insurance Services, the nation’s largest trucking insurance specialty agency.

Hub accounts for about $300 million in trucking written premiums, so the agency has no problem placing business. “That’s the only thing we do all day long,” says Light, whose agency serves owner-operators and fleets of all sizes. But not every agency is as fortunate as Hub in generating trucking business. “The guy who is only serving one or two accounts is going to have a hard time whether it’s a hard or soft market,” Light says.

Light’s cryptic advice to an agent who lacks expertise in trucking? “Get out of that business,” he quips. “Many agents try to do too many things. There are those who dabble by working on one or two trucking accounts but simply don’t understand the uniqueness of the business.
They’d be better off sticking with what they’re good at.”

Sarbanes-Oxley & Professional Liability
Accountants are a growing professional liability niche thanks to Sarbanes-Oxley adding complexity to company reports on revenues and expenses. That translates into rising revenues and more work for accounting firms.

The upshot is two-fold, according to Ron Parisi, underwriting manager of the Fireman’s Fund accountants professional liability business segment: Accounting firms are seeking higher limits than in previous years, and an increasing number of small accounting firms are finding that the additional work they’ve been getting translates into higher fees, so they’re feeling the need to buy professional liability protection for the first time.

“All sizes of accounting firms have experienced revenue growth in recent years because of the impact of the 2002 Sarbanes-Oxley Act that creates stricter financial reporting requirements for companies,” Parisi says.