With Specialization Comes Responsibility
A panel of insurance experts says specialists are held to higher professional standards—and consumers expect to get what they pay for.
- John Weber
- November 2022
Emerging risks and a changing world are forcing agents and brokers to change with the times as well. And in recent years, there has been a trend toward specialization, insurance industry experts say. But it's also added a whole new level of responsibility that professionals must provide for their clients.
Jeremy Hitzig, co-founder, Starfish Specialty Insurance; Martin Ween, senior counsel, Wilson Elser; Joel Cavaness, president, Risk Placement Services; and Christopher Mee, vice president, Aon's Cyber Solutions, took part in an AM Best panel entitled “With Specialization Comes Responsibility.” Following is an edited transcript of their discussion.
“It’s not just knowing the coverage that exists, but knowing the best partner to place that particular risk with, so just taking it one step beyond where you’re at. It’s a big marketplace out there. Some carriers certainly are better than others.”
Risk Placement Services
What's the complexity of a specialist?
Mee: I really find the complexity of being a specialist starts with the complexity of the covers that you're placing itself. I'll use cyber insurance as an example, because that is my area of specialization. When we look at that line of coverage, there are eight to 10 different insuring agreements that can address a breadth of different losses arising out of cyber events.
Cavaness: You also have to understand and hopefully know in the marketplace, when you're placing the insurance, who's the best insurance company to place that particular risk with. It might be because we're specialized in claims handling. It might be loss control or in cyber, obviously, security. It's not just knowing the coverage that exists, but knowing the best partner to place that particular risk with, so just taking it one step beyond where you're at. It's a big marketplace out there. Some carriers certainly are better than others.
Hitzig: It seems like every other day a new market enters a different specialty area adding to the complexity of staying current with underwriting appetites, pricing and coverage.
Is there an increased liability in being a specialist?
Ween: The short answer is yes. It comes down to the different standards of care that are applied to agents and brokers, and, specifically, specialists. On the one hand, most states impose what's called an “order taker” standard of care on agents and brokers, which means that they have to only follow the specific requests and instructions of their clients as to what coverages they're to procure.
It's a reasonable standard of care—to the extent, of course, the agent or broker properly documents what's requested. That's paramount in any line of insurance business that it is properly documented. On the other hand, there's a higher standard of care for advisers—those who provide advice and counsel as to what coverages should be obtained by the client. That specifically applies to agents or brokers who are specialists.
Aon’s Cyber Solutions
Are specialists essentially fiduciaries for the insurance industry?
Hitzig: I think it's a really interesting question, especially as it pertains to the world of MGAs and program administrators. From a regulatory standpoint, a managing general agent is actually a defined business type, of which the majority of programs and MGAs actually are not. They don't fit the definition from a regulatory standpoint.
The vast majority of program administrators and MGAs are actually organized as insurance brokers. That actually complicates, from my perspective, the discussion around fiduciary responsibility. The key to it, from my perspective, is the contractual relationship between the MGA and insurance company which establishes a fiduciary duty from the MGA to the carrier.
Ween: To the extent that there is a contractual relationship and there is a legal duty to act without negligence and all, that doesn't necessarily connote a fiduciary responsibility … where there's a special relationship, where there is a relationship where the client is relying on you, whether it be the carrier and the MGA or the broker or the agent or broker and the client, that gives rise to a fiduciary duty where there's a reliance by one party on another due to that relationship and the special expertise or ability that one of the parties has.
Starfish Specialty Insurance
What are the implications of misrepresentation to a specialist or by a specialist?
Mee: I look at this generally from two lenses. The first is a little more qualitative, and that has to do with your reputation for professionalism within the marketplace. The insurance industry simultaneously is very large and very small. Clients will talk. If you are purporting to be an expert within a specific industry class within a specific line of coverage and you consistently failed to deliver the types of results that a specialist should deliver to your client or customer, that's going to become known very quickly. That can have implications on your business.
The second … comes down to the level of the higher professional standards that you can be held to as a specialist—when you talk about education and advice in addition to disclosures you have to make when you're placing these specialized lines of business on behalf of your customers.
Are client expectations higher for specialists?
Hitzig: Yes, I think so. Let me tackle that question from my vantage point, as an operator of a program specialist. We hold ourselves out as specialists to the industries and in lines and classes of business that we underwrite. As specialists, we develop and tailor coverage, pricing, underwriting guidelines and so forth around the particular risks that we're ultimately insuring.
Cavaness: Anytime that you, again, hold yourself in a high regarded and particular area and they rely on your advice, certainly insurers and customers would naturally hold you more accountable for what they get.
We've talked a lot about that. Of course, there's an expectation when there's a claim that everything should be covered. Realistically, we all know that that's not the case. There are exclusions on policies that even though something may or may not happen, it's unfortunate, but you can't cover everything generally.
Mee: When a client is engaging a specialist, they're looking for more than just the procurement of insurance at their direction. They really are looking for someone to serve that role as a trusted adviser and fill in that knowledge gap that they have in order to address this new and evolving risk, whatever that may be. I absolutely agree. Clients—they have higher expectations and hold specialists to a higher standard and, I think, rightfully so.
How do you counsel these specialists?
Ween: Aside from telling them not to make any mistakes? The first thing I say in terms of a specialist is don't oversell or exaggerate your special knowledge or expertise. What's been said here during our discussion is that there are so many things that are going on in terms of the market, it's very difficult to make a statement that you know all about an area.
There was a recent article I read that particularly pointed out agency websites that had language that appeared to overstate the level of expertise, experience and the scope of knowledge that the agency had. If there's a claim based on these websites, what's stated in the website can be very detrimental to the defense of the claim.
Second, I would certainly tell the agents or brokers to make sure they're keeping up to date with respect to what's in the market, the types of coverages, and what is happening, in terms of claims and disputes with respect to what's not covered. As an example of something that's been common over the last couple of years, all of the litigation that has taken place with respect to COVID and communicable diseases, it was a specialized thing. Nobody understood it.
Do you think some of the problems could be averted with continuing education in a particular industry segment on the part of a specialist?
Cavaness: You have to stay up with the education. You have to stay up with the evolution of the coverages. Stay up with lead insurance companies that are writing this coverage, that you're able to adequately present the solutions to the customer. I think that always continuing education is certainly a great solution.
Since being a specialist carries such responsibility, is being a specialist a burden or is it an honor?
Hitzig: I think it's absolutely an honor. As we talked about earlier, the world is getting evermore complex. The world of insurance has to respond to that. The right response is through specialty and specialization. It's a great opportunity. I feel it's an honor to be a specialist, even with the added responsibilities that come with it.