Navigating the Rapidly Changing World of Professional and Financial Lines Insurance

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Text, Wednesdays with Woodward (registered trademark) Webinar Series. A laptop appears on the screen with the text "Wednesdays with Woodward" (registered trademark) Webinar Series on its screen. It's on a desk next to a red mug with a white Travelers umbrella logo on it. Joan Woodward's video feed appears in the upper right corner of the screen. She is seated and speaking from her office. 

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JOAN WOODWARD: Good afternoon, and thank you so much for joining us today. I'm Joan Woodward, President at the Travelers Institute, and I'm really thrilled to welcome you to today's session of Wednesdays with Woodward. We're so glad you're here. Before we get started, I'd like to share our disclaimer about today's program. And 

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New slide. Text, About Travelers Institute (registered trademark) Webinars. The Wednesdays with Woodward (registered trademark) educational webinar series is presented by the Travelers Institute, the public policy division of Travelers. This program is offered for informational and educational purposes only. You should consult with your financial, legal, insurance or other advisors about any practices suggested by this program. Please note that this session is being recorded and may be used as Travelers deems appropriate. Logos: Travelers Institute (registered trademark), Travelers. 

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I'd also like to recognize our terrific partners, the Insurance Association of Connecticut, the Master’s in FinTech program at UConn School of Business, Gamma Iota Sigma, and the MetroHartford Alliance. So welcome. 

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New slide. Text, Wednesdays with Woodward (registered trademark) Webinar Series. Navigating the Rapidly Changing World of Professional and Financial Lines Insurance. Logos: MetroHartford Alliance, Gamma Iota Sigma: The insurance industry's premier collegiate talent pipeline, Travelers Institute (registered trademark), Travelers, Insurance Association of Connecticut, UConn School of Business, M.S. in Financial Technology. 

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Professional and financial lines are areas of insurance coverage that are continuing to grow in importance and significance to carriers, brokers and customers throughout the U.S. and the world. Regular viewers of our series are well aware of the rapidly shifting landscape around cyber insurance. We've done a number of programs around cyber. 

But that's not the only line that's been attracting attention lately. Directors and officers coverage and employment practices liability are lines that have also received significant attention over the past few years as a result of changes in our workplace and in the economy. 

So to unpack the latest in our industry trends and address the really pain points in the professional and financial lines, we put together a star-studded lineup of industry experts for you today. 

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New slide, titled, Speakers, showing photos of the four speakers. Text, Joan Woodward, EVP, Public Policy; President, Travelers Institute; Travelers. Jeff Klenk, EVP; President, Bond & Specialty Insurance, Travelers. Christine Williams, Global CEO, Financial Services Group & Professional Services Practice, Commercial Risk Solutions, Aon. Michelle Sartain, Head of Specialty, U.S. & Canada, Marsh. 

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So first up, I'd like to introduce Michelle Sartain. She's Head of Specialty for the United States and Canada region for Marsh, a leading risk management organization with clients in more than 130 countries. 

In this role, Michelle is responsible for delivering specialization to clients in the construction, energy and power, private equity, transactional risk, credit specialties, marine, aviation, and finpro businesses. Michelle has more than 25 years of insurance and risk consulting experience with Marsh in a variety of client-facing and leadership roles. Michelle, welcome. We appreciate your time today. 

MICHELLE SARTAIN: Thank you, Joan. 

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JOAN WOODWARD: And next up we have Christine Williams, who is the Global CEO and Specialty Products Leader for Financial Lines and Professional Services at Aon, a financial services firm that employs more than 50,000 insurance professionals around the world. As the leader of Global Specialty, Christine oversees Financial Services Group, Professional Services Practice, Cybersecurity, Surety, Trade Credit, FI vertical and IP operations. 

And Christine also leads an innovation streamwork for Aon focused on new products and digital strategy. Christine, so great to be with you today. 

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Christine's video feed briefly replaces Joan's. 

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CHRISTINE WILLIAMS: Thanks for having me, Joan. 

JOAN WOODWARD: Last up is my friend and dear partner at Travelers, Jeff Klenk, who is the President of Bond and Specialty Insurance, where he's worked for the last 24 years. Before entering the insurance industry, Jeff practiced law with the Washington, D.C., law firm Comey and Boyd. He's a recognized industry authority and professional liabilities expert.

He speaks frequently at seminars and conferences inside and outside of the insurance industry. He's been quoted extensively in media outlets, including The Wall Street Journal, the Journal of Commerce, Business and Insurance, Risk & Insurance, just to name a few. 

Thank you all so much for joining us. We're absolutely thrilled to welcome you today. So 

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The slide presentation disappears. The screen is split four ways to show the video feeds of Jeff, Michelle, Christine and Joan. They are each seated in offices and speaking to camera. 

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before we get started, I do want to remind the audience that we want to hear from you as well. We'll take some questions at the second half of our program. So put your questions in that Q&A feature, and we'll get to as many as we can with the time we have left. 

So first, I want to talk about the evolution of the marketplace, especially in the last couple of years. So Jeff, if you would like to kick us off here, we first started our conversation several months ago about the idea of doing this program. We've got audience members with a range of knowledge and expertise joining us today. 

So can you help us first just level set on the scope of the professional and financial insurance lines and why you really wanted to have this conversation today? 

JEFF KLENK: That's great. And Joan, thank you and the Institute for doing this today. I appreciate it. And a special shoutout to the UConn School of Business since they're a partner of ours. Go Huskies. Congratulations on the championship. Fantastic. Well done. 

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Joan and Jeff clap their hands silently in the air.

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Pride here in Connecticut, folks. I'm sorry if I just alienated any of the viewers on the call. 

So let me start with this, so-- so Michelle and Christine and I participated in a panel that I moderated, actually-- so this is fun today-- back in November in San Diego at the Professional Liability Underwriting Society. And it was called "A View From the Top," trying to get industry leaders to talk about the trends that are going on right now. 

And so-- and maybe to personalize this a little bit, Michelle and Christine are truly the best in the industry. They're two brokers that are phenomenal, and they're also great people, which makes them fun for me actually to do business with and do stuff like this with them. 

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Michelle and Christine smile.

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I'm a big believer that the financial and professional lines, from D&O, E&O, cyber, you name it, all of them, are just critical to our American businesses. And so think about that. Addressing cyber exposure, the number one risk, according to the Travelers Business Risk Index, that our customers are facing. 

Dealing with employee theft in a difficult environment. Protecting boards of directors and incentivizing qualified professionals to go and serve a public trust by sitting on boards of directors, insuring professional services, all that stuff. And so much in the context of those exposures and important issues is changing all around us. 

The proliferation of data that's available to us today and the segmentation that we can drill into. The technology and how fast we can trade and businesses themselves can perform their business operations. Vastly different on an almost month-to-month basis at this point. 

Employee needs. We just went through-- you could call it a great resignation. People work in hybrid. Different expectations on inclusion and engagement and the differences in the workforce. And perhaps most recently noticeable, the changes in the financial system that have happened over the years and how potentially the banking system and our financial systems are more fragile than ever before. 

And so when you think about all of those things, Joan, I really think there's plenty for us to talk about over the next hour, and there's not two better folks that we could do it with than Michelle and Christine. 

JOAN WOODWARD: Great. Terrific. Thanks for that. Jeff, I just want to ask you a question around the underwriter. How has the role of the underwriter-- before we get into our guests, I want to hear from you because you've been an underwriter for so many years. 

JEFF KLENK: Don't say it. Don’t say it. 

JOAN WOODWARD: [LAUGHS] How has that changed in the past couple of years, the role of the underwriter? 

JEFF KLENK: So I'll say it then. It's almost 30 years. And I started in this industry learning this business the old-fashioned way, which is I sat next to really talented underwriters, and boxes of submissions would come in. And we'd wade through those. We actually had to read financial statements paper. 

We had to actually make phone calls to people because email and texting was not really the way it was done. So now that I've just qualified myself as a dinosaur, I would say that-- how it's changed-- a couple of big buckets. The availability of information is transforming the way that we as underwriters can do this business and assess risk. 

And so we're able to get such better insights, and sometimes without even asking our broker partners or our customers for that information. And the advanced analytics that we can bring to the table, the science around analytics, it's entirely different. Now, we still may not know our cost of goods sold the day that we sell the insurance product, but we know it a lot better than we did 30 years ago. 

And so the science around underwriting is a lot better. I think technology, both the systems that we use internally so that we can touch more and do a better job, but also the way that we can connect with our broker partners and our customers, massively changing the way that we do this business. 

So all of that-- one of the things that I get asked a lot from our underwriters or from potential employees, they're nervous that these things are changing-- might eliminate their jobs. 

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Michelle shakes her head. 

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I quickly pivot to "no way." This is a people business. We need people who can assess risk. And all of these things are allowing us to shift from the manually intensive work to actually adding more value, being trusted partners for our customers and for our distribution partners. 

And so it's been fun to watch. And I'm sure the changes I've seen over the last 30 years, I'm going to see at least that much change in the next year or two. 

JOAN WOODWARD: OK, thanks for that. Christine, Michelle, welcome again. We want to move on now to talk about the role of the broker agent distributor, so can you talk about the evolution of that role and really how the dynamics have changed. And why don't we start with you, Christine? 

CHRISTINE WILLIAMS: Sure. No, absolutely. It's interesting because a lot of what Jeff touched on has been the same for the broker community. The role of the broker is to be the trusted advisor to our clients. We represent them in the marketplace, we partner with them, and then we go in and we do our best to mitigate their exposures and get them insurance solutions. 

I’d say-- particularly I'd say post the pandemic, that role's evolving. Every client wants access to more data. Many of our clients are very focused on digital collaboration, whether it's them sharing information with us or us sharing information with them. So it's continued to evolve. 

I agree with Jeff. I think spending time and sitting across from our clients has become more critical than ever. We share a lot of data. We unload a lot of information to try to give them, whether it's benchmarking or our thoughts around if they have a significant claim exposure or if they're dealing with a claim. But still, that partnership sitting across from each other is critical, and I think that's not going away anytime soon. 

JOAN WOODWARD: OK. Michelle, what about your perspective on the role? 

MICHELLE SARTAIN: Yeah. Again, very similar. And I do just want to say, Jeff, it's a pleasure to be here with you and Christine again doing this session because we had so much fun the first time. But similarly, the role of the broker is basically to be out in front of the trends that our clients are experiencing in their businesses, bring them insights that we see through the vast portfolio of clients that we interact with, and help them assess the risks that are coming around the corner in addition to the risk that they see currently today. 

So Jeff and Christine both touched on it, but it's not just the access to data, which of course, is-- it's an arms race, if you will. But it’s basically-- the benefit of it is the insights that we can derive and bringing those to clients to help them assess their risk, determine what they need to do differently from a risk mitigation perspective, as well as what they can do in terms of using insurance solutions to mitigate that risk or pass it along to insurance companies. 

And it's really just bringing all of that together in a way-- to what Christine said, sitting across the table and being that trusted advisor for them so that they know that they've got partners that are not only invested in helping them manage their risk, but also invested in their business and bringing them valuable insights on a-- at this stage, it's on a real-time basis. 

JOAN WOODWARD: OK. Michelle, I want to stay with you and talk about some of the challenges or the headwinds you see for the industry in the next five years. What are you worried about and what are you thinking about now for the business? 

MICHELLE SARTAIN: Well again, I don't think that we can stop focusing on the aggregation of data and developing tools that we can deliver to clients to help generate those insights. I think that will be what differentiates people who are good transactional brokers from those that truly can be advisors to clients. So that will be a key part of it. 

Jeff, you mentioned technology. We cannot underestimate the influence that technology will have on our business over the next five years. We've all invested in various different things in our organizations. But knowing just the pace of change that technology can bring, we really need to figure out how we can embrace it, enable it within our organizations. 

And again, Jeff, your point was so spot on. It's not about taking away jobs. It's about freeing up our people to really be much more consultative, much more innovative around the products and solutions that we deliver. So I think that we need to stay focused on technology. 

And there is just so much more opportunity that we've got to digitally enable the work that we do together, transmitting the information around submissions, the things that are valuable to the underwriters and to us from a data perspective. Getting that done in an automated way I think is really what will be transformative for us and for our clients and colleagues over the next five years. 

JOAN WOODWARD: OK, thanks for that. Jeff, I want to ask you the same question about the headwinds or the challenges in the next five years. You run one of the largest organizations for a lot of these products where we sit at the number one or number two spot in market share. And so what are you worried about in the next, say, two to five years? 

JEFF KLENK: So I think the broader macroeconomic is one. So what will happen or be the consequence of inflation, recessionary, and all of the broader macroeconomic I think is top. But we have a saying inside our organization that if we do the right things and we build the portfolios the right way and we're trying to be forward-thinking, that we will outperform because we will have managed better than the rest of the pack. 

And so what does that boil down to? People, people and people. And that's not just underwriters. It's actuaries. It's claims professionals. It's data scientists. It’s-- you name it. And so, making sure that we're bringing the right people into our industry and then making sure that Travelers is a better choice than everybody else to work for. Giving people an inclusive, engaged pathway forward for their careers, that's my number one focus.

 JOAN WOODWARD: OK, great. I want to move on to this new-- not really a new phenomenon, the capital that's really flowing into your industry over the last couple of years. It's not just recently. It's been happening a long time. But how have these capital dynamics changed your business in any way? Christine, maybe I'll start with you. 

CHRISTINE WILLIAMS: Sure. I think it's helped our customers and clients, candidly, across the board because it's helped close some of the gaps that we have using these alternative sources of capital. So that's been useful, especially in some challenging markets, thinking back to 2020 and 2021, for certain classes of business, whether it was D&O and cyber. 

I think it's important now with what's happening in the property market, the nat CAT market too. So we now have more insurers who have come into the space offering additional options for our clients. I think you have the insurance-linked securities, which are becoming more popular. We just recently saw the first cyber CAT bond placed. That's another way to look at this growing need outside of the traditional marketplace. 

So I think overall, it's helpful to our clients to have more options, especially as things get challenging, to Jeff's point, whether it's the macro environment, whether it's climate, whether it's cyber, whether it's another challenging prop CAT year, whether it's some of the things that we're seeing in reinsurance. 

JOAN WOODWARD: OK. Michelle, you want to comment on this new capital flowing into the market? 

MICHELLE SARTAIN: Yeah. I think, again, there are definitely benefits to our clients. We saw a really, really tight D&O market. We had situations where there almost wasn't a check on our ability to get clients the insurance that they needed at rates that were palatable to them. But those are episodic. 

I think the longer-term impact is it really drives a lot of creativity. When things start to stabilize, people are looking for new solutions that they can deliver to clients. And sometimes that new capital, because they're unencumbered with a traditional book of business, can be really creative about how they can provide new solutions to clients. 

And I think that's something that we should all just be excited about. We should challenge ourselves to really put that capital to use. But we have to be mindful, as representatives of our clients, to make sure that we're also placing insurance with markets and insurers that want to be there for the long term. 

The lines that we're talking about, the professional liability lines, they're so important to our clients. And they want to make sure that in the event that a claim happens, they've got reputable insurers with deep expertise in managing and handling claims that are going to be their partners to work through those really difficult and sometimes sticky situations. 

So we want and welcome the new capital, but we also absolutely benefit from the stable capital like Travelers and what they're offering to our clients. 

JOAN WOODWARD: OK, that's good. 

CHRISTINE WILLIAMS: Sorry. I was going to say, Michelle, great point. I think something that we're keeping an eye on, Joan, is there's been so much capital, there's been an influx of new insurance capital, traditional insurance in the market over the past three years. And we're watching how they handle things as claims come in as you have a very different macroeconomic environment now. 

Access to capital markets is not what it was. And we're treading carefully, I think to Michelle's point, and we're really asking our clients to look at the insurer, so we know we're in it for the long haul. And I think it will be interesting for us to look back at the end of this year and see, of the new capital that came in, specifically in these lines, if they're still in the game serving our clients. 

And I wish them all the best, but I can tell you I think a handful will no longer be here because the timing when they came in, timing to get out, and just all the things that have changed. We're still recommending to our clients the stronger insurers for all the reasons Michelle said. 

JOAN WOODWARD: OK. Thank you for that. Jeff, did you want to chime in on that topic or-- 

JEFF KLENK: Yeah, briefly. Briefly. First, I want to say I think they killed the answer. I think they're exactly right. And I mean that, meaning I think that some of the innovation that some of the new capital are helping drive is a good thing for the industry, and it's a good thing for us to make sure that we're paying attention to certain things. 

I think at the end of the day, though-- because has come in and out of this market over time. In fact-- and by the way, I'm not throwing a stone as I say this. Large brokers over time have actually helped fund new insurers at different points in time when capacity was tight, or it couldn't be responsive. 

And so the dynamic’s not new. The ability to get it in is probably new. There's one time-honored tradition, though. Ultimately, that capital’s got to get a return and it's got to make money. And so some of the folks that have come in, they've lost money. Money's been free on the backs of their investors. They've funded losses and losses. 

Well, all of a sudden reinsurance capacity just got tight. The ability to get returns is more important than ever before. And so I think the way my two partners answered it is spot on, that you have to really look at it for what good it can drive, but also make sure that we're managing the risk associated with it so that, ultimately, the policyholders are getting the other end of the trade when they need it. 

JOAN WOODWARD: Terrific. Thank you for that, and very important topic. Let's move on to the pain points in the marketplace. And so first, let's start with cyber. I think, Jeff, you could probably set the stage for us and lay out some of the challenges we've been seeing in the marketplace for cyber over the last couple of years. And what are we doing about it, I guess? 

JEFF KLENK: Yeah. So my partners might start with pain points from a really different perspective. They might talk about services. But let me give you the underwriter's answer. And cyber’s been in the spotlight here for a few years now with ransomware proliferation, deterioration on cyber industry results. And we saw it ourselves. 

That was a driving issue, and companies responded differently. Everybody got rate increases to address some of those trends. Others took really focused additional cybersecurity or-- us-- multifactor authentication and other strategies to try and make sure that we were addressing the issue. 

While I think overall cyber profitability now is probably in a much better state, I think everybody's result will look different or be premised differently based on the actions they took. And so I feel good about where we are in that. I think that we're positioned really well now to continue to grow the cyber line and participate in that explosive market growth that is going to continue here for the next bunch of years. 

I think another pain point on it, Joan, is systemic risk and aggregation. You're already starting to see some reinsurers change their view. A lot of folks are trying to model what a real cyber CAT looks like. And it's tough. We've had some stuff or some things that were close, but the real large one, where a big portion of the electrical grid or some other cloud-based problem that goes really broad, fortunately-- we should all knock on wood right now-- the industry hasn't seen that yet and how it plays out both in terms of affirmative and non-affirmative cyber exposure in the place. 

So I think that, from an insurance company perspective, is absolutely-- and for our distribution partners too. That systemic risk issue is one that's a pain point that we're still working on together. And the last one I would say is people. There's been a real premium, rightly so, for not just underwriters or brokers, but forensics folks, claim professionals, et cetera. 

Making sure that we're filling the talent demand in the cyberspace is absolutely something that we should all be working on together because that demand's not going away. It's only going to get higher. Those would be my first couple. 

JOAN WOODWARD: Yep. Let's get the broker perspective here on how they're meeting the challenges on cyber risk. Christine, why don't you go first? 

CHRISTINE WILLIAMS: Sure. Yeah, great points. Agree. When I think about the systemic impact of cyber-- cyber and climate are something that I feel like we're thinking about every day. We're spending a ton of time helping our clients. So you have the traditional insurance brokerage, but we also spend a lot of time as a consultant to our clients, providing them with analytics, helping them identify, quantify and then mitigate what their exposures are. 

I was in a client meeting earlier this week, and they said they were thankful to Aon as their broker and the insurance community because they forced them to undergo a lot of policies and procedures last year that they weren't that familiar with. They were a smaller public company, and they didn't-- a new CISO had just come in, and they had to fill out a 100-page questionnaire, right, to get cyber coverage. 

And they said, wow, that really forced me to address some things, whether it was around authentication or around some of the controls. They were making a small acquisition. You're acquiring somebody else's systems and controls. That's a red flag for insurers. They want to make sure-- that's, candidly, where you see some problems crop up. 

So lots of conversations, I think, helping-- it's really been a great partnership in helping them quantify their exposures and then seeing how insurance can help mitigate them. That's how we're spending a good portion of our time. And it's not going away anytime soon. 

JOAN WOODWARD: OK. So to you, Michelle, let's drill down a little bit here. Can you talk to us about the, quote-unquote, "silent cyber" or "non-affirmative cyber" and how you're addressing that from a distribution perspective? 

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She uses air quotes when she says, "silent cyber" and "non-affirmative cyber." 

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MICHELLE SARTAIN: Yeah. First and foremost, our role as a broker is to maintain the integrity of the coverage that our clients have and make sure that they understand what it is they're buying an insurance policy. So we want to make sure that our clients are well advised across all of the lines. 

And again, cyber is one of those issues. We like to think about it in terms of the four corners of a cyber policy, but 

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She draws a square in the air. 

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because of the pervasiveness of that risk, it does touch other lines of insurance. So it's understandable that insurance carriers would want to put a ring fence around the policies that would respond. 

But we have to remember that we have a really intricate ecosystem of coverage that our clients have been relying on around this risk. So first and foremost, we want to make sure that when we see language that we think is overreaching or ambiguous, that we address it. 

The worst thing that I think we can do for our clients is not give them clarity that they have a policy that will respond the way that it is intended to respond. So continuing to be vocal client advocates around the integrity of the coverage I think is primarily the role that the broker has to have in this environment. 

Recognizing that cyber is a coverage that continues to change and evolve. The issues that Jeff mentioned, those are the issues that we're dealing with today. But really, it's the issues of tomorrow that we're trying to make sure we have coverage for and that our clients are thinking about. 

So it's around that. It's obviously-- to Christine's point, it's around making sure that our clients have the advice that they need to understand those risks within their business, where they might have coverage, where they might not have coverage. And then-- and again, and then it's also about making sure that they're with insurance partners that are with them across the spectrum and that they have an understanding of the policies that will respond, again, in that worst-case scenario, one that really, really impacts their business in a multidimensional way. 

JOAN WOODWARD: OK, terrific. 

JEFF KLENK: Hey Joan, before you jump off, just real quick I just want to highlight something Christine said. And I get it. I'm an insurance geek. But one of the things that's difficult in our world versus, say, somebody who's adjusting a home claim for somebody who just had their house burn down or-- insurance is a very tangible thing. 

Sometimes it's hard to have a sale or a commercial around why it's good to have D&O insurance, or some of the things that we're insuring are not as tangible as helping somebody get their car fixed or something else. Christine mentioned a second ago the role that insurance plays in helping improve the cybersecurity footprint of United States businesses. 

That's a big deal. We're putting a stamp of approval on a company. And when the White House first engaged-- Travelers participated in an engagement with the president and his broader team to talk about how we were going to assist. And I think that's a big part of the equation, and I think that that's something that we as an industry actually can feel really good about. 

JOAN WOODWARD: I want to talk about friction because for most lines of insurance, there's still a good deal of friction when it comes to the underwriting process, we know, though cyber is a little bit different in removing some of that friction. Why is that? Jeff, do you want to speak to that for a minute? What does this mean for other products, maybe? 

JEFF KLENK: Listen, I think-- and this is back to-- Michelle and Christine made this point about some of the new capital and that it's helped innovate. And I think that in the cyberspace, some of the newer entrants have done a really good job of leaning into removing friction. And I could get into why they were uniquely positioned to do that versus some of the legacy insurance companies, but I don't want to sound defensive. I think it’s actually-- it's a great thing, and it's something that I'm focused on. 

Why is it work for cyber? Because you could give me your URL and you could give me your company's name and address, and without asking the company any more, I could map their entire corporate structure and other places and other subsidiaries. We can go out and look online for what systems they're using, software platforms, whether they've been updating and patching. Do they have any open ports that would be exploitable by nefarious actors? 

We can do things without asking for much more. I think that's not only really a terrific thing for a cyber customer, I think more and more that will be the way that we're going to look at our other coverages. What are the ways that we can get the information that we need as data and everybody's footprint is further and further out in the world electronically so that we can make that trade with our customers more efficient? 

I do think that it's going to mean that we've got to change a couple of things, meaning Christine and Michelle's position as the trusted advisor and the intermediary. We have historically always gone very much through communications through the distribution partner, and I would never want to upend that in any way, shape or form. 

But as an industry, we haven't been capturing email addresses, phone numbers. Who's the CISO for a particular organization? When we would want to get more to a real-time risk control response for a customer to help them avoid their costs, because remember, they've got a deductible. They might have co-insurance, and they have all the exposure at the top of the insurance. 

So avoidance of the claim is in everybody's interest, it's not just in our interest. We're going to have to really partner together to move in that direction. I think that's where a lot of these lines of business are going, and that's to your question, Joan, why I think cyber’s been leading the way on it. 

JOAN WOODWARD: OK. Thank you so much. Christine, we want to go to you on EPL. So how did the transition here in the last couple of years from hybrid to remote work environments change the landscape around employment practices liability claims? And has there been any significant developments you can update us on post-COVID environment? 

CHRISTINE WILLIAMS: Sure. No, and I think it's still in the experimental stage, as sometimes these claims take two to three years to really bubble up. But I think we saw a decrease of EEOC charges certainly across the U.S. during the pandemic, going back to 2016. We have seen an uptick in notices coming in for EPL claims. And what that means is, as people start to transition back or some of our clients are taking a more firm stance on what they expect from their employees-- 

So they may have said, historically, you can be remote five days. Now they want to see hybrid. Most recently, and when we tend to see a lot of claims activity, and we're starting to see some activity now, is when there's a macroeconomic environment that's not favorable to employees and you start to see layoffs. 

So I think it's early days, as you can appreciate, but we do anticipate an uptick in claims activity coming up over the coming months. Some of that will be tied to the ask to come back into the office. Some of it will be tied to just layoffs being necessary because these businesses are making that decision. 

But I think it's something that we're keeping an eye on. It has been relatively quiet post the pandemic. But again, I think we're still largely in a "wait and see" environment as people return to the office. We did see, as you would imagine, typically discrimination claims went down during the pandemic overall because less people were together. It was more of a-- most larger companies were utilizing work-from-home for a while. So that's all normal. 

But I think now as we start to see the return this year, this is going to be the test case. And we do expect things will go back to what they were prior to the pandemic. 

JOAN WOODWARD: Jeff, do you have a comment on EPL before we move on? 

JEFF KLENK: She killed it. The only thing I'd say is that unemployment has really tracked directly with content that we've seen over lots of periods. And so unemployment’s historically low right now. So I think Christine's right on the money that one of the reasons that we didn't see more related to some of the dynamic shifting is because the unemployment number’s been so low. So I think it mitigated it somewhat, muted it. 

JOAN WOODWARD: OK. I want to move on to directors and officers insurance. So Jeff, from your perspective as an underwriter, what are some of the top risks driving exposure now in the D&O marketplace? 

JEFF KLENK: Risks for D&O? Would there be any? We've got a little inflation, potential recessionary, volatility in the markets. All make for potential D&O challenges or concerns. It might not necessarily mean that there's going to be a securities class action claim filed, depending on what happens in the environment. But it certainly does feel like-- 

Ask that question. Do you feel today like you're in a more or less risky environment? I don't know almost really anybody would say, yeah, it feels a lot less risky today. And so I think that's going on. I think, relative to D&O, the real question we have to ask ourselves is, where-- especially for public D&O. And let's put financial institutions off to the side for a second. 

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If leading up to 2019 and the pandemic this was the upward trend in terms of frequency and severity for public D&O claims, and then the pandemic hit and that sort of paused a little-- maybe it was the court closures. Maybe people were focused on other things, right? And 

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if it dropped down, if you're an insurer that just looks at the activity for the last 24 to 36 months, you might say, yeah, I really like what's going on. I think the rates are great. It's not too bad. 

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But if you look at it over a longer period of time and you have to ask yourself the question, where in the slope do we reinsert ourselves in terms of trend and activity, that's a risk relative to D&O and how adequate do we think the pricing is right now. There were a lot of price increases for several years, and those were compounded. And those addressed some of the issues that we had in the business as a market, but I would say-- I say that's a question. 

I think in addition to that-- and I'll throw a few more things out and shut up and let Christine and Michelle talk-- is that you've got heightened regulatory scrutiny. We've got ESG, SEC cyber requirements, you name it. The risks that boards of directors have to manage now are greater than they were yesterday. And some of the environments relative to shareholder-- call it activism, but the things that you can do through the proxy process, how it's easier for people to get proposals out. There is a host of things in the D&O world that we're all paying attention to. 

JOAN WOODWARD: OK. Michelle, do you have a comment on D&O? Or I want to move on to international issues, but I want to give you a chance if there's something you wanted to say there. 

MICHELLE SARTAIN: No, I think I think Jeff covered it off very nicely. 

JOAN WOODWARD: OK. So let's go international, folks. I want to give a special shoutout to our colleagues viewing us, especially from Canada today and elsewhere. Welcome. Michelle, I'm going to go to you first. What's it like working internationally from a broker standpoint? What are some of the key differences from the way you approach maybe the U.S. market versus Canada, for example? 

MICHELLE SARTAIN: Well, I appreciate you asking the question since I'm responsible for the specialties in Canada as well. And first and foremost, we have a huge, robust, healthy market in the United States. And a lot of the stuff that we do here, we export not just to Canada but to many of the countries around the world who might have a less developed insurance market. 

So there's a lot that happens here that we look to bring to other countries. But I think it's so vital that we remember that the United States is but one country, and that there are cultural and business nuances that really need to be factored into the way that we think of how we deliver our solutions to the clients within the market and the environment that they're in. 

So there's a lot of opportunity when we think about our Canadian business and the operation. We think that there's a lot of opportunity for us to continue to drive value to clients in that market. But I think we also need to remember to be really intentional about delivering solutions that are specific to the risks and exposures in a country rather than broad-brushing them with some of the experiences that we've had in delivering those solutions within the U.S. market. 

JOAN WOODWARD: And Jeff, from an underwriting perspective, how do you approach non-U.S. underwriting in different geographies? Is it different or similar? Or can you give us maybe some examples? 

JEFF KLENK: Sure. Very different. You've got to remember, I'm an underwriter, and we've got risks and exposures all around the globe in lots of different territories. I'm also an underwriter and a lawyer. And we have to remember that these coverages are really contract-based, and so the words really matter. The regulatory environments that you're in or the legal environments really matter. And so it's critical to stay focused on that. 

And just a couple of brief examples. To our Canadian friends, just the language requirements for Quebec and the other provinces, making sure that we've got the wordings in French. Go to Brazil, where we had a presence. Brazil has some very strong environmental laws. And so the way that in the United States you would address either an exclusionary or the wordings of the policies relative to environmental exposure for professional liability, you can't do that in Brazil. 

So there's a lot of differences there. I think some geographies are more litigation prone and easier to bring litigation and not have to pay for it if you're wrong, like the United States. Whereas people in other countries, if you bring a piece of litigation and you're unsuccessful, you have to cover the defendant's loss costs. 

All of those things play into the fact that you really have to understand the legal environment, the legal contract, what's required. And critically, last again, I'll go back to people. You have to have people that understand and trade in that environment. They know the distribution. They know the customers. People are at the center of this business. 

JOAN WOODWARD: Christine, I want you to weigh in on the international front. You are a global CEO, so tell us your experiences. 

CHRISTINE WILLIAMS: No, I think Jeff hit it on the head. So I have the opportunity-- as I say to the team, I get to go around the world every day and deal with colleagues in all five regions and try to tackle problems and solutions for our clients. I agree. I think I'm always very mindful in every country the way we do things is a little bit different. 

I think once you get outside of the U.S., it's very much a face-to-face business. If you think about how they do things in Canada, they're going to go to the local insurers there, and they're going to meet with the team. And then if they need additional capacity outside of Canada, they're going to then tap into Lloyd's of London. 

And so I think spending a lot of time getting to know insurers in all these regions is critical, and the face-to-face really goes a long way outside of the U.S. And I agree, I think understanding the language, the laws, being versed in the claims-- we spend a lot of time trying to understand. 

We see a similar litigation system in Australia. Not a surprise. So we see some D&O trends happening here. We tend to see them happen there as far as claims. And then rest of world is a little bit different based upon the laws and indemnification. But it's probably the funnest part of my job, again, to see what's happening all around and trying to solve problems. 

JOAN WOODWARD: OK. Terrific. I want to shift now to another topic that's hot in the world, in the country, is ESG issues, environmental, social and governance issues. And Christine, I'm going to stay with you for a minute. How are you helping your clients with the ESG issues? Are they continuing to exacerbate or accelerate in different parts of the world, or do you feel like this trend is maybe subsiding from its peak? 

CHRISTINE WILLIAMS: No, it's not subsiding, I think it went a little bit quiet during COVID with people's focus shifting. But I can tell you, across climate, environmental, greenwashing has become a hot topic, board diversity, we are-- we're trying to work with our clients to identify what their exposures are and then how we can solve for them with an insurance solution if that's possible. 

So I'd say a recent topic that we're spending a lot of time with a certain sector of clients is on greenwashing. Some of our clients have seen fees-- have been hit with fines because of greenwashing, and how can-- 

JOAN WOODWARD: Can you just define greenwashing for those in the audience who may not know? 

CHRISTINE WILLIAMS: Yes. That's just broadly making a statement about the environment or social status of what your company is doing and saying your products are xyz or your service or this is a practice that you've undertaken when you actually haven't. And I think when ESG first came out and was a hot topic a few years ago, a lot of clients just scrambled and said, here's my ESG report, here's what I'm doing, and then it turned out actually they weren't doing that. 

So it goes back to, I think, what Jeff said earlier about just the regulatory measures that not only is the SEC taking, but also all the foreign governing bodies are looking at that and saying, hey, that's a misleading statement. And why that's so relevant to, I think, what we do is because we're seeing the subsequent directors and officers liability claims come in against the board, because the end of the day, they're being held responsible for all these ESG disclosures or misleading disclosures or failure to disclose. 

So companies are being sued for their direct or indirect contributions or misleading statements on ESG it feels like daily. So I don't think it's something that's going away. We're trying to do our best to help educate and arm our clients. And I'm sure Michelle can share her perspective as well because I think we're all in this for the long haul. 

JOAN WOODWARD: Yeah Michelle, do you want to talk about ESG or maybe enhanced disclosure requirements? Or there's a lot of shareholder proposals. This is proxy season, and a lot of companies are getting ready for their annual shareholder meetings. Do you want to speak to those for a minute about-- 

MICHELLE SARTAIN: Yeah. Definitely, to Christine's point, it's not going away. And again, the role of the broker really is-- this is one of those where we're trying to help our clients look around the corner and prepare for what's coming. And that's in two facets. It absolutely is on the regulatory side and how those disclosures make their way into their public statements, whether they're their financial statements, their proxy statements, their public announcements. 

Really, really important because, as we know, the words do matter and shareholders take them to heart. So it's about being cautious around that. It's also about making sure that we're helping present our clients to the market in the best possible light, so truly understanding what it is that they're doing around these really key issues. 

Again, and the issues around-- we lump in ESG together, but the environmental, social and governance are all three separate things. And companies need to be thinking about them separately, and they need to be thoughtful about what they're putting forward across the board. 

The other element that I think we also spend a lot of time advising our clients, especially within certain sectors, is the insurance response and the capacity availability for certain parts of industries that insurers, through their own ESG initiatives, are moving away from or stating definitively what their goals and responsibilities are to their own shareholders. 

So it's really this interesting ecosystem that I think we're just at the cusp of really understanding what it's going to mean for directors and officers. And it's just-- it's an exciting portion because it is an area where we're going to have an opportunity to innovate and really provide solutions to our clients. 

JOAN WOODWARD: Yeah, it's definitely ever-evolving, I'm sure. I started working on ESG issues more than 25 years ago with the Sullivan Principles in South Africa, one of the first investing platforms. So I want to switch complete gears, get out of insurance for a minute, and really just talk about how you're recruiting and retaining talent. 

The war on talent-- war for talent and what Gen-Zers might want or millennials want. What are you guys doing in terms of your own house of retaining, attracting those cohorts of talent that seem to be so willing just to leave jobs much more frequently than us old baby boomers did? So Michelle, I'm going to stick with you, and then I'll go to Christine 

MICHELLE SARTAIN: Sure. It is the one topic that we probably spend the most time talking about. Jeff mentioned it a few times. I know Christine has as well. We are a people business. We deliver our solutions to our clients through the people who interact with them. So we need to make sure that we're not only attracting the talent that we want, but we're training them and we're retaining them, we're giving them opportunity. 

And I think that we've been mindful of the fact that the demographics and the asks of our colleagues have really changed over the last number of years. So we can't say it's just one generation or another. But as people leaders, it's really incumbent upon us to make sure that we're keeping up with what is important to our colleague base. 

We talk about ESG as if it's a thing that's happening outside of our businesses. But in fact, especially the social aspects of it, they're happening inside our organizations as well. So it's important that we're making sure that we're creating inclusive environments. And again, that's inclusivity across the range of what that really means. 

And we can't just say that it's one population or another. It's really everybody. We need all people to show up every single day to deliver our value to our clients and create an environment that they want to be in. So spending a lot of time thinking about how leadership engages with colleagues. Thinking very differently about the leadership traits that I think engender colleagues to want to stay within an organization. So we spend a lot of time thinking about opportunity, how we deliver that opportunity. 

And then also leading with empathy. People need to know that we care about them as people, not just that we care about them because we're in a business of people. So I really think that we will continue to try and evolve and create an environment that attracts people. I've said this before and I'll say it again. The one thing about this industry is, regardless of what you're interested in, you can find a place in the insurance industry that will lead you to have a rewarding career that will evolve. 

And so when we think about who we want to attract, I think we need to be much more open to the various different areas that people have a personal interest, and then bring that and bring them into our industry because I think it can provide just such a wealth of opportunity. 

JOAN WOODWARD: Well said. Christine, you want to add anything on talent or-- I want to get the audience questions too. 

CHRISTINE WILLIAMS: Absolutely. I'd say three or four things. So empathy is critical. Sponsorship. I've never seen Aon as focused in the 21 years I've been here on the team, sponsoring the team, offering some comments. Another huge thing that we're doing that's been massively successful is our apprenticeship program. 

So we're trying to bring more diverse colleagues into the firm and then keep them. So we're taking on candidates who maybe are in a two-year school, we're helping put them through school. And then the success we've had with them staying on and succeeding at Aon has been fantastic because it's all about retaining and growing and keeping talent. So I agree with everything Michelle said. 

JOAN WOODWARD: OK. Time for audience questions. First one's going to go to you, Jeff. What is the role of insurtechs in the insurance industry today, and how are they-- how do you see their role evolving, I guess? 

JEFF KLENK: Insurtech's a pretty broad bucket. I think I'd start by saying we touched on some of this already with some of the capital discussion. I think insurtechs-- maybe now I go into the second part where I said I didn't want to sound defensive. A lot of the insurtechs have been focused on surplus lines, which is easier to manipulate. 

And they've been singular product focused, which allows you to really put all of your energy and effort into a single thing, which is a beautiful thing. It really allows you to focus on your mission and to drive innovation and outcomes. And some of them have done a very nice job and I would applaud it. 

I think when you start to then say I've got to go broader to fulfill my customer's entire needs, or I want to provide an admitted solution, there are other challenges in there. So there have been some winners. There have been a lot of fairly high-profile failures in terms of, ultimately, you got to be profitable and you have to add value in this business. 

But I welcome the challenge. I welcome the innovation. I think there's some good stuff that's come out of it. 

JOAN WOODWARD: OK. This question comes to us from Grant Moseley. And Christine, this is for you. Can you expand on the benefits of carrying D&O coverage for privately held companies? 

CHRISTINE WILLIAMS: Sure. I think the key benefits are that you get very broad coverage. You get coverage for the entity. And oftentimes, you have employment practices built in there. In some cases, you'll have other lines as well. And the return on investment is fantastic for the pricing, which is still very competitive. 

I think Travelers does a fantastic job of being one of the leaders in this space. And I think the coverage has not become more restrictive over the past few years. In fact, it's expanded, and I think the cost has remained very stable. So I still think it's an excellent buy for our clients. 

JOAN WOODWARD: OK. Michelle, we're going to go to you on this question. It's coming from Kathy Keyes at Assured Partners. For how many years, roughly, will an insured’s bankruptcy impact renewal pricing, in your view? 

MICHELLE SARTAIN: Obviously, the year that the company goes into and comes out of bankruptcy is the one where you see the most economic impact. Really, in the directors and officers line of coverage, people are underwriting the management team of the company. So if you have a management team that has worked through this issue before, has a solid plan, has solid financials coming out of a bankruptcy, there is an opportunity to go in and test the market. 

The one thing about our market is that it actually changes with the influx and the outflow of the capital that's available. So it's hard to answer that question in a time frame because it will also matter what's happening in the market at the time that you then go back into the market. 

We saw this over the last number of years in the D&O market, where there were less capital, escalating prices, certain events that were also highly risky, like IPOs, SPACs, dSPACs, things like that, similar to bankruptcy. All of a sudden, as soon as the market conditions change, the pricing around that risk also changes. 

So it's really just important, again, that you have a solid plan, that you have a solid management team to execute the plan, and that you do go back into the market to try and make sure that you understand what's available to you. And again, it's not always just about price. It's about also making sure that you have the partners that can stick with you through those really sensitive times, which can include a bankruptcy. 

JOAN WOODWARD: Great. Christine, this is for you coming from Luke Gurak. Can you speak more to the first cyber CAT bond? What is it and what effects will it have, in your view? 

CHRISTINE WILLIAMS: I think it was recently developed by-- one singular insurer really led the charge. I think it's an alternative way for our clients to get additional capacity and access to have more comfort with the risk. So it's early days, but I do anticipate other similar insurers putting forth CAT bonds and other coverages. We're looking at different alternatives as far as doing some work with some MGUs and others to provide some other options outside of traditional insurance or in addition to traditional insurance. 

So I think it's a trend that we're keeping an eye on. And I think based upon what transpires, if there's any massive systemic cyber risk in the next few months, you're going to see a demand increase for this type of option. 

JOAN WOODWARD: OK, great. I'm going to have this as a jump ball. Whoever wants to take this, you can take it. So do you see a relationship with D&O risk and historically high PE ratios? Jeff, maybe you? 

JEFF KLENK: I think the answer to that question is that that's been in the underwriter tribal knowledge for a long time, that that's one that we would look at and consider. I couldn't say to you, though, that I've gone back and done a correlation to see it, but that's in the lore of the business as one of the issues. But it's one of a bunch. I don't know if that would be the only-- I wouldn't just focus on that. That would be my answer. 

JOAN WOODWARD: OK. Let's go to Michelle on this one, coming in from Christina Melia. How do you see the economy affecting professional malpractice for lawyers, accountants and other professional services? Increase in claim frequency and severity? Increase in rates? What are your thoughts? 

MICHELLE SARTAIN: It's a big question. Listen, any time that there's a tightening in the macroeconomic environment, we have to-- we see increased claims. Again, it's true in EPL. It's also true in D&O. When you have liquidity issues, you obviously have companies that are going to accountants and other professionals to seek their advice around really, really sensitive issues. 

And so when things don't work out, unfortunately we're in a country where litigation tends to be the outcome. So we would expect to see that if there is a protracted recession, if there are a significant number of bankruptcies because of the inflationary environment or a reduction in access to capital, we will see those bankruptcies looking to go to lawyers and accountants and seek advice. 

And then, again, when things don't work out, maybe there's additional claims around that. I think in general, the rates in that environment, again, will be dictated in terms of the capacity that's available and the types of claim trends that people are seeing. So I always hesitate to talk about rates because I really do think that we need to think about them in a shorter time frame rather than projecting out in the future and scaring people away when maybe that's not necessary 

JEFF KLENK: And we have to look at each risk individually, right Michelle? 

MICHELLE SARTAIN: Absolutely. 

JEFF KLENK: So the broad-brushes sometimes could be a bad thing. 

CHRISTINE WILLIAMS: I will say I still think there's ample capacity, though, in that space. And we're keeping an eye on the recent bank failures and what role the accounting firms played in that or not. I know I spent a lot of time in that space. And it's early days, but I think it's certainly something we feel like our clients have access to ample capacity, which is good. But I think even some of the other failures earlier this year in the digital space too are raising some eyebrows amongst our insurer partners. 

JEFF KLENK: Hey Joan, am I allowed to ask myself a question based on one that I saw come through? And it actually came from Mr. Kodama from the Surplus Lines Association in California. This may not have exactly been the question, but was like, what else is going on or driving growth or whatever that we didn't talk about? 

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He uses air quotes around the question. 

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Christine just touched on some of this. Here's my lead-in, long story short. One of the things that happens in the professional liability, management liability, fidelity, and other products that we're really talking about, we're a little different than some of the lines of business where you do premium audits at the end and you get to match the exposure pretty closely to what the actual thing was that you insure. 

We ask questions up front, and then it goes away for 12 months, and it doesn't always connect that tight. I think inside some of our lines of business that maybe don't get the spotlight as much, for example fidelity, commercial crime, there's lines of business in there where people have been buying the same $500,000 fidelity bond with the same deductible for decades, and their exposure has changed dramatically. 

And I know we like to talk about cyber, and I know we like to talk about D&O, but there are other things that our customers are going to have to experience. So making sure that we really get the exposure right and change the view as things grow-- because I actually think that commercial fidelity is a great space where we probably have a lot of folks that are underinsured that we could be talking about. 

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He uses air quotes when he says the word "underinsured." 

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JOAN WOODWARD: OK, great. I'm going to give you the last word, Jeff, because we're out of time. The hour just flew by. So I want to thank the tremendous efforts that Christine and Michelle and Jeff have put forward here. They're industry leaders, all three of them, if you haven't already figured that out. 

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Jeff claps silently. 

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So thank you all-- Christine, Michelle, especially for your time today. 

JEFF KLENK: Thanks for having us, Michelle and Christine. Thank you. 

CHRISTINE WILLIAMS: Pleasure. Thank you 

MICHELLE SARTAIN: Thank you. 

JOAN WOODWARD: So now I just want to give our viewers an update on what's next. 

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Jeff, Christine and Michelle disappear, and the slide presentation appears again with Joan in the upper right corner. Text, Wednesdays with Woodward (registered trademark) Webinar Series. Upcoming Programs: Webinars: April 26 – Surety Protects: The Economic Value of Surety Bonds. May 3 – A Small Business Playbook for Leading Through Uncertainty. In-Person: April 17 – Cybersecurity Symposium (Portland, OR). Register: travelersinstitute.org 

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If you are in Portland, Oregon, please join us live for a complimentary luncheon and cybersecurity program on April 17. Go to the travelersinstitute.org to register. April 26, we're going to be right out here on our virtual programming, and we're going to look at the economic value of construction surety bonds. We're going to get in the weeds on the surety bond business that we run here. 

And then on May 3, we're going to celebrate National Small Business Week with an expert panel to discuss how small businesses can manage risk through economic uncertainty. And then on May 17, we're going to have a lot of fun, and we're going to talk with the tournament director of the Travelers Championship, our PGA TOUR golf tournament outside of Hartford, Connecticut 

He's going to give us a sneak peek behind the scenes of what it takes to have an elevated event. This year, the Travelers Championship is one of just a handful of those that are “elevated” by the PGA, which means we're going to have, if not all, most of the top 10 players in the world join us at that third week in June. 

So 

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She uses air quotes when she says the word "elevated." 

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come join us and get a sense of what it's like to really put on a PGA event on May 17. Thanks so much for joining us, folks. Stay safe, and we'll see you in a few weeks. 

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New slide. Text, Watch replays: travelersinstitute.org. Linked In, Connect: Joan Kois Woodward. Take our survey: Link in chat. #WednesdayswithWoodward. 

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