The ongoing recession and subsequent increase in insolvencies could prove to be a good time to get into commercial after the event insurance If the ATE market is one that feeds on litigation, then the coming months and years should be a boom time.
Recession always brings litigation in its wake and as more and more lawyers wake up to the role that ATE can play, it seems the stage is set for the much-maligned ATE market to finally come into its own.
Sharon Brown, MD of Harbour Underwriting, believes that this increased appetite to litigate could be well serviced by access to commercial ATE products.
“You only have to look at the high street to see that insolvencies are going to increase. The insolvency practitioner channel will be strong for us and brokers need to be involved in the conversation as they are missing out on a large income source. If you are a true risk manager to a commercial business, you need to start recommending this product.”
But it’s not a given. Underwriters in this space are notoriously picky, often only willing to accept cases that have been assessed as having an at least 60% chance of winning. And rightly so. ATE is a product that is bought, as the name suggests, after the long process of litigation has already begun, so the risks being run are high.
“You get a proposal through and lawyers would have reviewed the prospects of succeeding at trial, looking at the quality of the evidence, the quality of the team, looking at the reasonableness of the insured and the likelihood of settling,” says Rocco Pirozzolo, underwriting director at Harbour Underwriting.
Conservative market
Which means that not every piece of litigation brought is going to be attractive to the ATE market. The days of ATE being sold to everyone and anyone are long gone.
Phil Bellamy of Tibbington Consulting explains:
“Recession does unearth legal cases and results in more litigation. But a lawyer or ATE insurer won’t pursue meritless cases against companies that are set to go insolvent. They need properly insured companies or solvent companies to issue a policy.”
So while there will be opportunities, it appears that such is the conservatism of this market, that underwriters won’t be willing to take on any old case. Standards, it seems won’t be compromised.
D&O
But while ATE may be a conservative market, the product itself is rather flexible and can be applied to a number of different liability classes, such as directors’ & officers’ (D&O) insurance.
The D&O market has had a torrid time of it over the last few years, with coverage restrictions and huge premium hikes becoming commonplace. But ATE may have a role to play.
“Limits of indemnity have been slashed but what happens when a claim occurs?” asks Harbour’s Brown.
“If the D&O isn’t going to pay out, what alternative is there?”
She believes that ATE could effectively act as a top up to existing D&O policies to give directors some comfort that, should the worst happen, their depleted D&O policy isn’t their only defence.
“ATE couldn’t replace D&O wholesale, but it enables a director to sleep at night,” says Brown.
However, anyone hoping to make a profit by quickly entering the market in the midst of a recession, should be prepared for a challenge. There are and will continue to be competitors who have resourced their operations properly and have built up the necessary reputation among the legal sector and with the small number of underwriters out there at the moment.
If you are not trading in ATE at the moment is it too late to take advantage of the looming litigation boom? That cream will undoubtedly be powerfully defended by existing brokers in this space. But, as we’ve learned, that shouldn’t act as a deterrent to entering ATE – it could, in fact, act as an indicator, a guide, to what is possible in a niche but growing market.
With credit to Martin Friel & Insurance Age
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