2022 FPL/MML/MPL Extension Narrative
Thanks to the continued support of Underwriters at Atrium, Dominion's binding authority, renewing December 1st, continues to enjoy good support, notwithstanding the substantial rate increase implemented last year. Key partnerships with professional associations such as the National Guardianship Association (NGA) and the Professional Fiduciaries Association of California (PFAC) through which Fiduciary Professional Liability (FPL) insurance is offered, as well as the American Association of Daily Money Managers (AADMM), which offers our Daily Money Manager Liability (MML) policy to its members remain intact.
Program Overview . Dominion currently writes just shy of $2.5 million in FPL premium, down about $10k from last year, and about $225k in MML premium, up from approximately $222k at this time last year. Total written premium during the 2017-2018 contract period for all lines was $2,645,436.96, 2018-2019 was $3,197,524.14 (for 14 months annualized at $2,740,734.98), 2019-2020 came in at $2,592,204.21, 2021-2021 at $2,738,185.11, and 2021-2022 estimated to end with $2,716,451 in written premium. The total policy count for the program currently stands at 505, down from 522 last year, 598 the prior year, and 700 the year before that, with the average premium per risk having increased by $525 to $5,421.20 in comparison to last year's figure of $4,896.98 which itself increased by more that $500 from $4,337.21 the prior year. The current average FPL premium is $8,688, compared to the prior period average of $8,407.98 as well as $7,467.889, $5,529.00 and $5,300.44 for the periods preceding that. MML average pricing is up as well -- $980.88, $955.61, $928.01, $871.71 and $852.38 for the last five contract periods.
Loss Ratio Analysis . Loss Ratios may be considered from various perspectives as illustrated in the table below. We begin with the incurred costs ratio, which for the program as a whole is currently sitting at 50.73%. Combining this with reserves, increases the percentage to 58.01. Adding a 22.5% brokerage load yields a Net Loss Ratio of 80.51%. Our analysis now continues to consider the affect of potential recovery efforts, as well as the impact of lost claims-free account, and finally a combination of these two factors.
Potential Recoveries . We are currently aware of more than $1,000,000 in potential recoveries for the program. We intend to consult with Furman, Kornfeld & Brennan (FKB) to determine if additional recoveries may be available as well. However, simply modifying the Loss Ratios for the known potential recoveries, dramatically improves the program's results, moving it into the profitable range, yielding in excess of 3% for the program to date.
Impact of Lost Claims-Free Accounts . Since 2019, our program has lost 98 claims free accounts. Of those, 6 have subsequently had actual claims, with defense and indemnity payouts amounting to approximately $100,000. Had we retained this accounts, even at their final expiring premium with Lloyd's, the program would have realized nearly $900,000 net of claim expenses. This in turn would have resulted in an additional 1.14% in program profits since inception.
In light of the foregoing, we suggest an aggressive pursuit of potential recoveries as well as lost claims-free accounts. These accounts have a proven track record of profitability sustained for over a decade and a half. Moreover, as set forth in the following table, although the Net Loss Ratio for the FPL offering since inception currently sits at approximately 86%, the program as a whole is doing significantly better, and holds out significant potential for improvement as set forth above.
Incurred +Reserves +Brokerage
To Date 50.73% 58.01% 80.51%
w/Recoveries 47.16% 54.43% 76.93%
w/Claims Free 49.29% 56.36% 78.86%
w/Both 45.82% 52.89% 75.39%
Underwriting . Our revised FPL underwriting program rests upon three fundamental principles, which we believe will yield much improved results:
Build a More Claim-Resistant Book . As noted above, over the past four years, uniform application of our underwriting guidelines has resulted in culling many claims-free accounts—undermining the profitability of the FPL book in the process. Faced with average single year premium increases of 123.84%, it is little wonder that these Assureds began to consider other options. Rather than penalizing them for straying, we should seek to bring them back into the fold. Many of these are indisputably among the best FPL accounts to insure. While we have developed guidelines designed to identify potentially claim-prone risks, conducting actual claims-free operations for more than a decade and a half should be the primary indicator of a desirable Assured, to be retained or recovered if at all possible. On the other hand, accounts which have demonstrated a tendency towards claims activity should be appropriately surcharged, considered for risk management intervention or, if necessary, nonrenewed.
Early Renewal Submission . The vast majority of the claims-free accounts referred to above, remain insured through Dominion with AWAC, which typically issues auto-renewal terms four months before expiration. With that in mind, we would appreciate the latitude to submit selected accounts for Underwriter consideration at that time. Thus, these attractive accounts could be presented with a competing Lloyd's quote at the time they are considering the AWAC renewal. Because of the manifest benefits of the Lloyd's FPL program, some price disparity may not prove to be determinative in all cases. For those accounts that we are successful in moving back to Lloyd's, we would, of course, obtained a no-loss warranty within 30 days of policy inception. With respect to claims-prone accounts, early underwriting will allow adequate time for assessing the feasibility of rehabilitation, or issuing a timely nonrenewal notice.
Efficient, Productive Collaboration . Being mindful of Atrium Underwriter workload, we wish to implement procedures, which will increase the productivity of program underwriting, while reducing the time required, and enhancing the analytical results. Specifically, we suggest that Larry Hilton have a standing half hour meeting with a member of the Atrium underwriting team at the same time each week. In preparation for that underwriting session in at Atrium's virtual box, Larry will thoroughly analyze each submission and develop well supported written recommendations together with supporting documentation, such as the current and prior year's applications, underwriting notes, claim history etc., for Underwriter's consideration. He will be prepared to field as many Underwriter queries as possible in real time, striving to substantially reduce much of the back and forth messaging that has characterized program underwriting in the past. Assuming we move the renewal process further back into the policy year, once a week meetings should be sufficient as there will consequently be fewer last-minute, emergency submissions.
Risk Management . This coming year, we would like to implement a risk management audit and training program for selected accounts identified during the underwriting process. Much of the necessary materials have already been developed for NGA or PFAC presentations. Dominion would conduct this program at no cost to Underwriters. The aim would be to rehabilitate Assureds by helping them implement best practices in their operations.
Improved Wording . We previously submitted for Underwriters' consideration a revised FPL form, which incorporates new abuse and prior trustee claim exclusions, as well as limiting those circumstances for which Underwriters would be required to provide a defense. The abuse exclusion is designed to address the potential exposure created by California Assembly Bill 1194, which passed in the wake of the Free Brittany movement. The prior trustee claim exclusion pertains to instances where a fiduciary who was removed for cause subsequently sues his successor. With respect to our suggested reductions in Underwriters' duty to defend, we have had promising experience over the past couple of years in managing at low cost attorneys retained and often compensated by the subject trust or estate to resolve claims. Claims overseen by FKB and Dominion for Family Fiduciary Services in Idaho and Herb Cohen in California provide good examples of this type of approach, which we believe can be expanded under the new policy wording, which would relieve Underwriters of their duty to defend so long as the trust or estate is funding the defense. We intend to remain alert to other opportunities to strengthen the FPL policy wording throughout the coming year.
FPL Payout Recovery Program . As noted above, Underwriters are or should be pursuing over $1,000,000 in known potential recoveries at present. We intend to explore with FKB what other such opportunities may exist, and consider cost-effective means to pursue them.
MML Marketing . Underwriting results for the MML program have been very good. Adding additional MML premium to the binding authority will, consequently, improve the results of the whole. We intend to explore in the coming year additional marketing opportunities in close conjunction with our association partner, AADMM. Moreover, Daily Money Managers (DMM) who transition to Fiduciary work, typically do so on a very limited basis, creating opportunities for garnering higher premium writings on lower exposure activities.
Conclusion . Our analysis strongly suggests that the FPL program can be steadily moved into a significantly more profitable posture, adding by the end of the decade as much as 10%-15% in improved performance measured from program inception, by simply working to increase written FPL premiums by as little as 5% annually, and reducing by 2% annually claims expenses from the current annual average of $1,120,000. We believe that implementation of the initiatives described above can at a minimum achieve these results.