Tattoo artist misspell your girlfriend’s name? Beautician turn you honey-blonde when you specifically requested wheat-blonde? Take comfort: you can always sue.
Tattoo parlors and beauty salons are two businesses that usually get liability insurance from excess & surplus lines insurers – in other words, the insurance companies that handle risks no one else wants to touch.
Those are two in the pile of odds and ends that make up much of the E&S industry, which feeds off hard-to-place risks: swing sets and sporting goods sellers, bike rental shops, and nursing homes and social service organizations, to name a few.
These are common business types, but they face rare risks that are often potentially devastating: As a recent example, a Connecticut blonde sued L’Oreal after an allegedly mis-marked dye made her a brunette; the suit was dismissed, but defending it could have severely taxed any salon faced with the same suit. On Dec. 3, Reebok announced a recall of hockey helmets with defective chinstraps – a head injury from those helmets could lead to multi-million dollar lawsuits.
Helmet manufacturers and distributors are especially tough to insure, said Charlie McCarthy, head of Risk Placement Services’ Boston office. A defective swing set might lead to a broken leg, but a broken helmet means a broken head.
“You’re talking paralysis,” he said. “It’s rare, but it does happen.”
Quirky, But Necessary, Niche
Such businesses might get pushed out of the mainstream insurance lines, but they’re not exactly far-flung, fringe operations: nursing homes, for example, are a booming industry – but, said Marty Krause of the Hartford-based Guildford Specialty Group, the risk is enormous that a family will sue if they get a whiff of poor treatment of their loved one.
Standard lines insurers are skittish of all things new and untried, Krause said, so they’ve gradually ceded more ground to E&S insurers, who can afford to take on such risks in part because their rates aren’t set by state insurance commissioners
That’s led to a huge boon in a still-evolving industry, he said. In 1981, the E&S industry took in $2 billion in premium; last year, it took in $37 billion.
Now, E&S insurers find themselves at a potential turning point: increased competition has drawn standard insurers into traditional E&S territory in search of new customers, as they typically do every time the market goes soft. Standard lines insurers have been chomping into E&S territory for the past few years, but some experts predict that in the wake of a heavy catastrophe year like this one, the hard market will return and provide a reprieve for E&S.
No Bottom To Current Drop
But although experts are scanning the horizon for just such a shift, researchers say the turnaround just hasn’t come yet. Early in December, Texas-based researcher MarketScout reported that property/casualty rates are still falling. Rates dropped 9 percent overall, and general liability and commercial property were an even worse 11 percent drop.
Under those conditions, the marauding will continue. An August report from A.M. Best stated although the E&S industry was in better financial shape than the property/casualty industry, a continuing soft market would drag it down considerably.
“Absent a catastrophe that curtails the incursion of standard market insurers and the new offshore market, the surplus lines industry’s market share is expected to continue decreasing over the near term,” A.M Best stated in the report.
E&S insurers say although the past few years have led standard insurers to take a bite out of their market, they operate expecting these types of cycles, and keeping their expenses down as much as possible:
“They operate lean and mean, all the time,” Krause said.
