Going back to the late 80s (when I first started in an E&O management position), the frequency numbers were off the charts (but not in a good way). Frequency (a measure of the number of E&O claims as a percentage of policy count) was in the 15% area. That translates into 1 claim for every 7 agencies. Today, some carriers are reporting frequency results in the 5% area…1 claim for every 20 agencies. That is one heck of an improvement.
Why the big improvement? Some folks look at technology as part of the reason. Technology has certainly come a long ways since the late 80s. It has resulted in some efficiency gains that has enabled staff to be more productive. There are more E&O classes today than ever before. And there are potentially other reasons as well. My take on the improvement in E&O claims frequency – YOU !
Today, the E&O culture and commitment of agencies (and their Sr. Mgmt.) is very high. E&O is a frequent topic that is discussed when a procedure change is being considered and it is common to see staff meetings include discussion on key E&O loss prevention issues.
So, bottom line, agencies are much more focused on E&O today than ever before. Congrats to all the agencies that can honestly state that their culture is much improved.
While the frequency results continue to improve, the severity results do seem to be heading in the other direction. Severity (a measure of the average size of an E&O claim) has been on the increase. The actual numbers will vary by E&O carrier based on the type and size of the agencies they insure.
Some carriers are reporting E&O severity up over 50% in just the last 5 years. This can be attributable to more exposures that could potentially be uninsured, greater settlement awards, more E&O claims alleging a special relationship, etc.
The key issue here for agencies is to take a serious look at your E&O limits at renewal time. A recent study that I saw in one of the trade journals stated that upwards of 50% of all agencies have a $2mil or less E&O limit. Agencies would be wise to look at increasing the per claim limit. Just ask the underwriter for the premium of the next highest limit.