E&O Suits are Likely to Increase
And here are a few reasons why:
$2.3 billion was invested between January 1, 2019 and June 30, 2019 in litigation funds. That number is expected to increase materially going forward. These are funds to which investors give litigators money to pursue lawsuits in return for some portion of the winnings. These funds enable law firms to invest more time and more effort into more suits. The law firms don't get the investors' monies if they don't pursue more and more profitable litigation. Lawsuits will increase.
Artificial Intelligence (AI) that is designed to read files. This software may decrease the cost of discovery by as much as 75%. This cost savings will also enable law firms to bring more suits. It enables firms to win more suits because they'll find more during discovery. They'll find more because when you can go through more data, the probability you will find errors and inconsistencies increases. It is simple probability math.
Combine the addition of billions of dollars with which to bring suits along with huge savings in discovery, and plaintiff firms should have exponentially more money with which to bring suits of all kinds, not just E&O.
At least one internationally recognized business valuation association is training hundreds of smart people annually to understand business income coverages in order to aid plaintiffs' attorneys in bringing claims against carriers for poor BI claims handling and agents for poor BI design.
These are some, only some, of the outside forces that will cause suits of all kinds, including E&O to increase. Also, there are internal forces within the industry that will contribute to the increase in E&O claims including:
The dumbing down of knowledge. Many factors contribute to the dumbing down of the industry including:
The commoditization of insurance.
Many Insurtech providers have low standards of care relative to professional agents which may protect them legally. However, the resulting coverage issues are likely to worsen the industry's image as more people find they have inadequate coverage. Further issues will arise as regular agents try to compete with these new distributors on price and speed.
Underwriters are fewer in number and usually know less than their predecessors.
The extremely poor nature of so much of the available continuing education.
The high price of agencies may force some buyers to pay so much for acquisitions that they can't afford to service clients at the levels required to comply with E&O standards of care.
Some service center staff are unlicensed. I don't see how that is good for insureds.
Many service center people are minimally trained -- especially if they are not licensed. I am not sure why anyone would expect them to be highly trained.
Service centers are about servicing and not advising. Clients need advice more than they need "servicing".
Exposures and risk and the world in general are getting more and more complex, the antithesis of generic commoditization.
The commercial P&C insurance world is designed to insure the 1950 economy. The forms are not designed well for the vast majority of 2020 assets. When one insures the wrong assets, problems will arise. The commercial world will find other solutions leaving the industry behind or insist the interpretation of policy language include the assets of 2020.
Cyber insurance alone is a minefield due to insureds not knowing or believing they need coverage, agents not understanding the exposures or the coverages they are selling, carriers not understanding their own forms and in some cases, purposely causing people to think their forms provide more coverage than they do, and the complexity of the industry, including not having any kind of standardization in forms or even terms that also do not have long case law histories.
Maybe some offsets will occur such as the public learning to love insurance and not wanting to sue anyone in the industry. Maybe cat claims will cease. Maybe plaintiff attorneys will find easier prey or legislators will decrease the standards of care. I am trying to find positive offsets and they are hard to find.
What can you do then besides hang your head and cry? Take the bull by the horns and learn coverages, become consistent in your processes and procedures, and accept that this is an opportunity. This opportunity is your best positive offset by a million miles. If you know your coverages, if you have solid, consistent processes and procedures, then you can thrive while your competitors fight off suits. More E&O suits may be the best environment for the most professional agents if you are up to the challenge. Are you up to the challenge?
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.