Agents must navigate a challenging landscape to provide coverage for public entities’ unique coverage needs.
Public entities play a key role in our lives, our work and how we conduct business. Whether the entity is an educational institution, a law enforcement organization or a recreational facility, not only does it require routine insurance coverage but also specific insurance coverage.
Today, the public entities market is facing unique risks and an extremely challenging landscape. From cybercrime to active shooters to sexual molestation claims, the list of risk exposures that public entities face is ever-expanding.
Global financial losses from ransomware attacks during 2020 were severe, with 41% of insurance claims in the first half of the year occurring in North America, according to Coalition's Cyber Insurance Claims Report. News about companies impacted by cybercrimes is frequently reported, such as the recent showstopping cyberattacks on CNA and Colonial Pipeline, which crippled both companies and caused huge financial losses.
From ransomware attacks to hackers looking to steal sensitive information and freeze systems “it's an area where agents should make sure all public entities have coverage," says Kevin Beer, president, Wright Specialty Insurance. “There are probably not too many accounts that don't have some form of coverage today, whereas five years ago you were much less likely to see a school or a municipality with some form of cyber coverage."
For an agent providing cyber coverage to public entities, “the first step is just making sure that the entity has some form of coverage and then the next step is evaluating the coverage and seeing if it provides the type of limits needed and broad enough coverage," Beer says.
In 2019, a record 966 government agencies, healthcare facilities and education institutions were hamstrung by ransomware, with cyber crooks pocketing about $7.5 billion, according to an Emsisoft Malware Labs report, an anti-malware computer solutions company. “Between January and April 2020, the number of successful attacks on public sector entities decreased month-over-month as the COVID-19 crisis worsened. We are, however, seeing a reversal in that trend with the number of incidents now starting to increase."
As a result, “pricing in the public entity space for cyber has doubled in many cases, while limits have been cut in half for those with less than favorable loss history," says Steve Robinson, national cyber practice leader, Risk Placement Services. “Several carriers have exited this sector altogether."
While challenges persist on the cyber side, underwriters and agents are also dealing with the increase in exposure and coverage for sexual abuse and molestation in public schools.
“That is something that underwriters are really focused on right now due to an uptick in frequency and severity of claims," Beer says. “Some of that is due to changing laws in certain states. For example, New York has a law called the New York Child Victims Act, which extends the statute of limitations for victims to report crimes until the age of 55 and created a one year 'look-back' period for victims to file civil lawsuits."
In terms of prescribing coverage for public institutions to defend themselves against these claims, “we're seeing carriers sublimit coverage; we're seeing carriers change the way the coverage is triggered. There's a lot going on with respect to that exposure right now," Beer says.
Another growing risk that public entities face is active shooter incidents. Between 2000 and 2018, the FBI identified 277 active shooter incidents in the U.S. and the numbers continue to rise.
“An active shooter situation is definitely something that is on people's minds in terms of schools and municipalities," Beer says. “There are a lot of products that cover active shooter specifically, so it's not really as challenging from an insurance perspective. Underwriters will want to make sure that the entities have emergency plans in place and are taking prudent steps to identify potential threats."
While active shooter situations in schools are horrifying, “we're not seeing the frequency and severity in terms of claims activity and ultimate payouts like we are on coverages like sexual abuse," he adds.
Additionally, the current environment around reports of police brutality is certainly impacting law enforcement liability coverage and “is definitely one of those lines that is firming," Beer says.
With the uptick in claims against police officers “we are seeing difficulty in obtaining municipal liability coverage for risks with police departments due to elevated civil unrest instances," says Patrick Albrecht, president, Associated Insurance Administrators Inc.
Due to social inflation and catastrophe losses, other lines of insurance significantly impacting the public entities insurance market are property and excess liability. “We are seeing the most rate pressure and capacity challenges in excess liability, so right now it's very challenging to find capacity with full coverage for excess liability," Beer says.
On the property side, “we are seeing more intense underwriting with emphasis on risk transfer—hold harmless agreements, additional insured provisions— particularly when working with contractors," Albrecht says.
Olivia Overman is IA content editor.