Is it that shocking that in 1986 insurers balked at the idea of providing errors-and-omissions coverage for insurance agencies and brokers?
The brokers sure thought it was. Coverage was nonexistent or astronomically expensive. Carriers believed agents and brokers were a poor risk and that they would lose a bundle in claims. What did that mean for brokers? It meant it was the right time for them to form a captive.
Three entities--Assurex Global, the Council of Insurance Agents and Brokers, and Fireman's Fund Insurance Co.--joined forces to create Professional Agencies Reinsurance Ltd., or PAR, a specialty E&O captive for insurance agencies and brokers. This solution has had surprising staying power. PAR just celebrated 20 years of service.
"We were very successful early on," said Albert "Skip" Counselman, one of the founders of PAR. "We had a different idea, and we filled a vacuum in the market." Counselman is president and CEO of Baltimore-based regional brokerage firm Riggs, Counselman, Michaels & Downes, one of PAR's original insureds.
The key to PAR's success was first convincing carriers to put up the reinsurance that allowed the captive to be created in the first place, and then convincing prospective insureds that PAR had a quality management system that would prevent common mistakes from occurring both in the policy-issuing process and claims-handling process. Brokers and agents who bought into the captive also had to be more than just insureds. They had the responsibilities of ownership.
"It means more than paying a premium," Counselman said. "It requires an investment in our company and a commitment to our quality management program."
Once an agent or broker makes that commitment, they aren't likely to leave. PAR has maintained an impressive 90 percent customer retention rate since its inception.
"We have outlasted several cycles," he said. "A few years after we started PAR, prices tumbled and errors-and-omissions coverage was really easy to find. (The customer retention rate) is remarkable because most insureds have other options these days."
Counselman suggested that members stay because they recognize the value of being deeply involved in the captive's risk management program. In 2005, PAR members experienced major rate increases, yet they stayed the course. Fortunately, in 2006, rates stabilized.
"If their investment was going to mean anything, they were going to stay with us," he said. "Their ownership in PAR meant the difference between staying with us and going somewhere else."
Every year, PAR does lose a few members when they are sold to publicly traded companies. But the captive offsets that by attracting new clients. Today, PAR members represent 68 of the largest agency and brokerage firms in the United States.
Counselman said PAR, its coverage and its claims have changed little over the past 20 years. What has changed is the litigiousness of society.
"When a claim goes unpaid, it's more common today than it was back then for brokers or agents to be named in the suit," he said. "So we need a really good defense."
A typical deductible for an insured is around $100,000, Counselman said. It applies to legal defense costs, as well as any judgment or settlement costs. PAR uses a number of lawyers throughout the country who specialize in this area. Of course, the best way to deal with losses is to prevent them in the first place. Counselman said PAR is extremely cautious when writing policies, ensuring the process is handled correctly, consistently and in a timely fashion.
March 1, 2007
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