Welcome to The Betterley Report Blog on Specialty Insurance

Welcome to The Betterley Report Blog on Specialty Insurance Products.  In this blog, I hope to shed some light on the different specialty insurance products available to commercial insureds, and how individual products differ from one another.  With luck, we’ll be providing information that helps readers choose the right types of products for themselves and their clients.

If you are familiar with The Betterley Report, you know that I write about specialty insurance products designed for commercial insureds of all sizes.  I have been authoring these Reports since the mid-’90s (!), and am fortunate to have many of the leading insurance companies, agents and brokers, reinsurers, attorneys, and service providers, as well as Risk Managers and CFOs, as subscribers.

As I talk with my readers, they often ask me about new developments in the products I cover.  With each Report limited to an annual freshening, we have not had a way to provide interim updates.  I figure that this blog might solve that problem nicely, since I can report on new products and changes in existing products as they are hitting the market.  Since I don’t want to just be an outlet for press releases, I’ll be sure to offer some observations about those products as well.

These Reports are available only to subscribers, and each Report is updated annually.  Some of the products I research are Cyber Risk, Directors & Officers Liability, Technology Errors & Omissions, Employment Practices Liability, and Intellectual Property insurance.  There are 6 Reports each year.

I write The Betterley Report for insurance professionals that want to find out who has the most appropriate insurance product for their clients, and for insurance companies  looking for competitor intelligence.  To be candid, I also write because I believe that comparative information helps drive improvement in the product .  As an independent risk management consultant (which means I advise clients on the types of insurance they need and which insurers they should buy them from, as well as alternatives such as self insurance), improving the breed is a passion for me.

So, welcome – this is a work in progress, and I hope you will join me in moving the specialty insurance products business forward.

Note: just got my first comment on our October issue (covering Side A D&O products), so I’d better get blogging.


Side A D&O Product Insights

RLI has introduced its Enhanced Side A D&O product, a coverage line that is seeing important coverage enhancements.  I recently had the chance to interview RLI’s Chad Berberich, Vice President of its Executive Products Group, about his company’s approach to the coverage, his view of the market, and his experience with the brokerage community’s interest in Side A products.

The Betterley Report has been reviewing Side A D&O policies in its October issue since 2004.  27 different carriers are included in the 2015 Report, which can be viewed at www.betterley.com

Rick: Chad, you’ve recently introduced RLI’s new Enhanced Side A D&O policy to the market.  How is it different from your existing product?

Chad:  The new Side A D&O policy is a wholesale rewrite of the prior policy form, so the changes are pretty substantive. Changes were made to incorporate many things that were commonly endorsed on the old form into the body of the new policy. There were also a number of coverage enhancements made, such as including:

  • Two policy limit reinstatements
  • Deleting all the exclusions except the conduct exclusion (and narrowing that exclusion), and
  • Defining and providing coverage for a Cyber Claim

Rick: Were these changes driven by client/broker requests?

Chad:  Yes, the changes were driven by both client and broker requests, along with a desire to have a very competitive policy in the marketplace. Executives today are operating in a dynamic and complex business environment where the risks they face are constantly changing. We strive to anticipate the changing needs of our customers and modify existing products, or develop new products, to ensure we are providing them with the most comprehensive protection possible. The new Side A D&O Policy and new Representations and Warranties Liability Policy that we just announced are two recent examples of how we are shaping our products and insurance solutions to better serve the executive suite.

Rick: I see the market for Side A as primarily public companies, which is largely saturated.  Do you agree with my observation?

Chad:  Historically it has been public companies that buy Side A D&O policies, but there continues to be opportunity for growth in other market segments, such as nonprofits and larger private companies. And yes, I would agree that there is plenty of capacity.

Rick: I’ve been saying for years ‘why aren’t large not-for-profits buying Side A?’  It seems carriers agree with me, but I have yet to hear a good reason from the brokers that serve that market.  What do you think are the reasons?

Chad:  We’ve actually seen larger nonprofits and larger private companies start to buy Side A – those classes have been a strong source of new business for us over the last year or so. I think brokers have long promoted Side A to their larger private and nonprofit clients and the coverage has become more widely known and better understood than it was a few years ago. With increased awareness about the need for Side A coverage in this market, we’re starting to see more interested buyers.

Rick: What will it take for large not-for-profits to start buying Side A?

Chad:  We’re already seeing more buyers in the not-for-profit space. As brokers focus more on talking about the product with those customers and helping educate them on the unique risks they face and how Side A coverage can reduce their exposure, sales of the product will increase.

Demand would also increase if there was any significant loss activity where a given nonprofit organization was unable to indemnify the directors or officers. Given that board members on large nonprofit organizations are often prominent members of the community and often have substantial personal assets, they are uniquely exposed when they accept a position on the board of a large nonprofit organization.

Rick: Do you find that most Side A policies are largely sold by a relatively small number of brokers?

Chad:  I think any broker that sells D&O is selling Side A.

Rick: Do you find the non-global and regional brokers knowledgeable about Side A?

Chad:  I do – the non-global and regional brokers are savvy and hungry. They know the product and are definitely selling Side A.

Rick: Do you think that Side A will ever be bought in quantity by non-public insureds (i.e., large private companies and not-for-profits)?

Chad: I don’t think we will see the same limits purchased by nonprofits and private companies compared to public companies, but do believe that those nonprofits and private companies will buy more policies as time goes on and their awareness and understanding about the need for Side A coverage continues to grow.

Rick: Thank you, Chad.  I appreciate your sharing your inside knowledge of the Side A marketplace and the opportunity to highlight the changes in your new policy.

About Chad Berberich and the RLI Executive Products Group:

Chad Berberich is Vice President of the RLI Executive Products Group, a division of RLI that offers a comprehensive portfolio of professional liability insurance coverages for the Executive Suite. To learn more about the RLI Executive Products Group and its Side A DIC D&O liability policy, visit www.rli-epg.com or contact Chad Berberich at (972) 677-2116 or Chad.Berberich@rlicorp.com.

Politico Briefing on Politics and Cyber Security

Worth a read (and not just because they quote our estimate of premium volume).  Great commentary by Dave Perera on Cyber in the political realm, including the administration’s encouragement of Cyber insurance.

The summary is here: Politico

Unfortunately the balance of the article is behind their paywall, but the summary is useful.

Rick’s Keynote Presentation at the PLUS Cyber Symposium (September 17, 2015)

PLUS was kind enough to invite me to speak at this year’s Cyber Symposium, a not-to-be missed gathering of leaders in the Cyber insurance and risk community.

Unfortunately, I was unable to attend due to a scheduling conflict but PLUS asked me to pre-record a keynote address. Done in the form of an interview, it was presented during the opening breakfast and can be watched here: PLUS Cyber Symposium 2015 Betterley Keynote

My thanks to PLUS for allowing me to share some of my current thinking about product, market conditions, and what’s on the horizon for Cyber.

Private Company Management Liability – Rates Up (or Down) Depending On the Carrier

This year’s Private Company Management Liability Insurance Market Survey found a market that would like higher rates, but is struggling to get them.  Some carriers report rising rates, while others report falling rates.  In both cases, the range is small except in California, which continues to be troubled by its EPLI and, to a lesser extent, D&O, loss experience.

We found that more carriers are offering the insured the option of even more lines of coverage that can be included, with a particular emphasis on Cyber coverages (not surprisingly) and Unauthorized Electronic Funds Transfer (thank goodness).  Intellectual Property coverage, especially for patent infringement allegations, was clarified by many carriers at our request.

We are increasingly concerned that insurers are excluding coverage for any claim that arises out of a cyber security breach and so we have asked the carriers whether they include such exclusions in their standard MLI product.  Responses are in the tables.

27 carriers are included in this year’s survey.  We added Aspen, Hanover, and specialist Franchise Perils as sources of MLI coverages.  Fireman’s Fund is now listed as Allianz.

Estimating the total premium volume is difficult, but we asked MarketStance for their insight into the market’s potential.  They responded with enticing information about the size and makeup of the marketplace of private companies in the U.S., reminding us how much potential is yet untapped.  You can find their estimates as well as the summary version of our Report at www.betterley.com.

The entire 62-page Report including specific information about the carriers, products, capacity, and market focus is here.

Cyber Insurance – a Market in Turmoil for Larger Insureds, but Very Competitive for the SME

We recently published our 2015 Cyber/Privacy Insurance Market Survey.  The free 20 page summary article can be read here: Cyber/Privacy Insurance Market Survey 2015 Summary.  To purchase the entire 147 page Report, which includes specific information about carriers, products, capacity, market focus, click here: Cyber/Privacy Insurance Market Survey 2015 Full Report.

This year’s Report includes products offered by 31 carriers, up from 28 in 2014.  Newly added  were ANV, Berkshire Hathaway, and Hanover.  The Report estimates a current annual rate of Cyber insurance sales at $2.75 billion, up from $2.0 billion last year.

The Report notes that coverage for larger organizations, especially those involved in extensive retail and health care operations, are finding it more difficult to buy adequate limits at a reasonable price.  Insurers are increasingly strict about adherence to cyber security and Payment Card Industry standards.

And yet, the small- to mid-sized insured has many insurance products competing for its business.  Brokers are actively selling Cyber policies to their insureds, and more are buying than ever before.

This year’s Report included several new questions that have taken on increasing importance in Cyber coverage:

  • In order to better understand whether the product is oriented toward U.S. insureds, non-U.S insureds, or global insureds, we add the question “Is Product Primarily Targeting Insureds Based in the United States, non-United States, or Both?”
  • We more specifically asked about coverage availability for Consumer Redress Funds in the Data Privacy: Regulatory and Statutory Coverage Provided table.
  • Because of the importance of PCI coverage and its increasing complexity, we added a new table to “Data Privacy: Payment Card Industry Coverage Provided” to ask about payment card industry (PCI) fines and penalties and whether fraud charges and/or card reissuance costs could be included.
  • “Data Privacy: Remediation Costs Covered” now includes a question as to whether the costs of credit repair can be covered.
  • The increasing interest and availability of Cyber-related Bodily Injury and Property Damage  inspired a new table addressing “Third-Party Coverage: Bodily Injury and Property Damage.”  Coverage for both direct and indirect causes of loss is described.
  • Concerned that some cyber insurers exclude claims arising out of the insured’s alleged failure to maintain security standards, we added a question to our Exclusions tables.

A new feature in this year’s Report is insight by Cyber underwriters on market conditions for healthcare insureds.  This confidential commentary is much appreciated and gives good insight into their current thinking.  See the Report for further information.

The RPX Approach to Patent Litigation Insurance – an Interview with Paul Scola

In 2013 we wrote about the RPX Corporation patent litigation insurance product, then offered using a Risk Retention Group approach (see www.betterley.com for the summary of that Report).  Although we were unable to include RPX’s Patent Litigation insurance product in our Intellectual Property and Media Liability Insurance Market Survey 2015, we reached out to Paul Scola, Senior Vice President at RPX and head of RPX Insurance Services for an update.  RPX is a patent risk management company that helps protect its clients by acquiring patent assets and rights and licensing/sub-licensing their use, thus reducing their risk of patent litigation from NPEs (non-practicing entities, also known as patent trolls).  The number of NPE-related patent infringement cases continues to be high, and such cases can be expensive, so RPX offers an insurance solution. 

What follows is my interview with Paul.

Rick Betterley: Paul, RPX wasn’t founded as an insurance company. Can you explain the company’s core business model?

Paul Scola: That’s true. RPX was formed in 2008 to help companies reduce the cost and risk of being sued by non-practicing entities—also known as NPEs, more commonly known as patent trolls. We provide a variety of services to our clients, but in a nutshell, our core service is defensive patent acquisition, where we aggregate our clients’ annual fees and use that capital to acquire potentially problematic patents on behalf of all the participating companies.

It’s a simple and effective approach: mitigate patent risk by removing its source. We buy patents before they wind up in the hands of NPEs. We also buy patents out of active litigations, which clears our clients from lawsuits before their legal costs can pile up. Doing this as a network allows us to clear the risk related to these patents far more efficiently than the companies could on their own. Importantly, we only buy defensively, meaning RPX will never litigate or assert the patents we own. And our clients receive a license or sub-license to everything we acquire.

When we launched RPX in 2008, we went to companies that experienced the most risk, and that’s where we demonstrated how effective the model was. Larger technology companies might see upwards of 20 or 30 patent litigations a year and can easily accrue tens of millions in legal costs and settlement expense annually. Those same companies can spend $5 or 6 million dollars with us, and our network buying clears patents that would otherwise have cost them $10 or $15 million or more to fight and settle.

RB: So why did you add insurance to your service offering?

PS: Our core defensive patent acquisition service is highly cost-effective for companies that face a relatively steady stream of patent troll attacks—say two or three patent assertions every year or so. But, not all companies are facing threats on a regular basis. Hundreds do, but there are thousands of other companies that only face one or two attacks every 24 to 36 months.

That said, even this irregular threat is not something to take lightly. Overall, companies spend more than $10 billion every year in NPE-related costs, and the cost to defend a single lawsuit can run from six figures to tens of millions of dollars. For a small or medium-sized company, this kind of unexpected expense can be damaging or even catastrophic. For larger companies, the price tag on litigation can often be higher than average.

We realized that these companies, still facing significant financial risk, needed to be able to transfer their risk through insurance. It’s an ideal and affordable way for companies with less regular NPE risk to cap their exposure, reduce their burden, and manage patent risk efficiently and cost-effectively.

 RB: RPX has been offering patent litigation insurance since 2012. Tell me about the current offering.

PS: Our insurance offering is a by-product of the risk mitigation service afforded by our core business. As you can imagine, through our involvement in the patent marketplace, we have been able to amass an extensive amount of data on patents and patent transaction costs.

Using this data, we have built an actuarial model that allows us to tailor individual policies to each company’s unique risk. We have a very sophisticated understanding of what NPE litigations cost companies. Our first-generation product was a policy we offered via a Risk Retention Group (RRG). That structure let us launch quickly and build a book of policyholders so we could validate our underwriting model and claims-paying systems.

Our underwriting assumptions and claims management worked extremely well, so about a year ago, we migrated to the Lloyd’s platform. The RRG was not rated by AM Best and required an investment in addition to the policy premium. We knew that model would not scale, so we found a solution with broader market appeal. Our policies are now written on A-rated paper and are accessible to the broker market through a few direct retail appointments and a partnership with wholesaler CRC. We have also rolled out a series of related products to complement our standard policy, including an offering for start-ups and an indemnification solution, where companies can purchase coverage for themselves and their customers.

RB: What are the coverage details for your NPE liability policies?

PS: For companies with emerging risk, like a start-up, our NPE litigation product has premiums as low as $5,000 for $1 million in coverage. From there, we price premiums according to a company’s risk profile. Premiums for indemnification clients will vary as well, but coverage is extended to $10 million.

For all of our insurance products, retentions range from $25,000 to $500,000. Co-pays can be as low as 10% if panel counsel is used.

RB: What kinds of companies are buying insurance from RPX?

PS: RPX insureds come from a variety of sectors and range in size. It’s important to realize that NPEs threaten companies that aren’t traditional “tech” firms. You only need to be using a patented technology in your product or in your operations. So any company with an interactive website or that provides customers WiFi access or that conducts online marketing or customer support—or really just about any company doing business in the 21st century—could risk being accused of patent infringement.

While that is the unfortunate reality, it is true that companies in some particular sectors face more NPE attacks. Last year, for example, more than 30% of defendants in NPE litigations were companies in the software sector.  But NPEs can be somewhat cyclical in where they turn their attention; we’ve seen litigation in a pretty broad array of sectors, from consumer electronics and digital media to retailing, financial services, and automotive.

RB: I find that many insureds and their patent counsel are concerned about losing the ability to select defense counsel. So, tell me more about your panel counsel program. How does it benefit your insurance clients?

PS: The panel counsel program actually is just part of the overall preferred provider legal services our insurance clients have access to when they file a claim. This assistance with legal defense, by the way, is one of the attributes that we think clearly differentiates our offering from others that sell some kind of NPE insurance.

Through our panel counsel program, our insureds have access to more than 20 pre-vetted, best-in-class law firms with expertise and experience in defending companies against NPEs. Our panel counsel operate in four categories: litigation, licensing, local and IPR counsel, and we have pre-negotiated discounted billing rates, fixed fee arrangements, and other alternative billing arrangements with them. Law firms are invited to apply to our panel counsel program on an annual basis. Insureds may select non-panel counsel to represent them, with those representations subject to our approval.

Many appreciate that RPX makes the claims and litigation management process as turnkey as possible. A number of them do not have in-house patent counsel—or in-house counsel at all—and many have little experience with NPE litigation, or are simply focused on running a profitable business. As such, we do a lot of the heavy lifting, and as much of the coordination of legal resources as the insured wants. This includes providing information, data, and intelligence about the NPE, and its litigation and licensing history; running the counsel selection process, and managing the litigation budget.

RB: So what do you think is the single most important aspect of RPX’s patent insurance offering?

PS: Well, Rick, we think that this is a fairly unique kind of insurance for an equally unique kind of risk.  We think it’s really the best approach to insuring NPE litigation liability. Our insureds benefit from RPX’s core patent buying activities, which give us a unique ability to remove risk before our policyholders face an event. And, we have very efficient claims paying and claims management. When NPE litigations do occur we pay claims up to the insured limit, and if the policyholder needs or chooses to fight on, we make that defense very effective. Through our services, our insureds have seen legal fees reduced by 80% or more.

But if there’s one thing it all boils down to, I guess that would be the data. You can’t price or underwrite any risk without an in-depth and accurate understanding of the associated costs.

The data detailing those costs are incredibly hard to find, but our defensive patent business has made it available to us. These data have allowed us to build a proprietary underwriting model that lets us price this risk very accurately. So we have an underwriting model that is based on actuarial reality, not educated guessing. We’ve got the data. That not only allows us to offer this product that no one has been able to deliver, but it also give us a huge competitive advantage going forward.

Anyone can find more information about our products at www.rpxinsurance.com and contact info@rpxinsurance.com with any specific questions. Insurance brokers interested in our products can contact Scott Turkow, Senior Director of Channel Sales and Operations, at sturkow@rpxcorp.com.

RB: Thank you, Paul.  Patent Litigation insurance should be bought by a lot more organizations.  Efforts like yours and other coverage providers is much appreciated.  We’re looking forward to including you in next year’s Intellectual Property and Media Liability Insurance Market Survey

Cyber Insurance for the Small- to Mid-sized Organization – can it be profitable?

Part 2 of my recent WRIN.TV interview focuses on concerns about insuring SMEs on a cost-effective basis.  I comment on:

  • The various sources of Cyber coverages for the SME, including standalone, package, and professional liability policies
  • How  insurers can continue to offer these products at a reasonable cost
  • Challenges in helping more SME’s buy coverage

The interview is here.  It runs about 4 minutes.

Cyber Insurance and the SME Market – How SME’s are the Soft Underbelly of the Cyber Security World

WRIN.TV interviewed me recently about the Small- to Mid-sized enterprise and its place in the Cyber security and insurance worlds.  Note that I used the plural, as the two are still way too separate.

This is a topic that is really interesting, as the interconnections of our global economy create exposures where none existed before.  It is my contention that large enterprises need to tighten up their vendor security to have any hope of being secure themselves.

The 1st part of my interview is here: http://www.wrin.tv/small-and-medium-sized-companies-are-soft-underbelly-of-cyber-security/

Part two will focus on the Cyber insurance market for SMEs and should be available later in February; when it is, I will post the link here.


A Briefing on Cyber Insurance for the Compliance Office

Nymity, a global research company specializing in compliance tools for the privacy office, asked me to offer my thoughts on Cyber insurance from the perspective of the Chief Compliance Officer.  The idea was to provide the non-insurance professional with key information about:

  • The coverages available,
  • The risks of not buying coverage,
  • Why so many organizations don’t buy coverage,
  • Coverage traps to avoid,
  • Value-added risk management services, and
  • Five recommendations for buying coverage

Nymity allowed me to publish it in this blog, so here it is: What is Cyber Insurance Interview

I’d like to thank Nymity for making this information available to the Compliance Officer profession.  There are many parties interested in the purchase of a Cyber policy; helping get the word out to all of them is vital.

Please click here for more information about Nymity.

Intellectual Property and Media Liability insurance – state of the market and a forecast for the future; interviews on WRIN TV

For those of us that can’t get enough of IP and Media insurance, here is a 2-part interview on the state of that market and my comments on its prospects.

Part one covers the current state of the IP and Media Liability insurance market: http://wrin.tv/index.php/component/content/article/1265-the-growing-synergy-between-intellectual-property-and-media-liability-insurance-betterley-reports

Part two offers my forecast for its future and observations as to why there aren’t more buyers (yet): http://wrin.tv/index.php/component/content/article/1267-nothing-but-good-news-ahead-for-intellectual-property-insurance-rick-betterley-reports