COMMERCIAL UMBRELLA INSURANCE
So far, big losses aren’t creating big changes in the market
Inits look at general liability insurance trends for 2018, Liberty Mutual points out that GL losses continue to rise, challenging businesses across a variety of industries. “For the past four years,” the firm says in a Viewpoint posting, “the combined ratio for U.S. carriers writing GL has been over 100%, reaching almost 108% in 2017.”
The article says that “larger trial verdicts—from breach of contract and intellectual property to product liability and wrongful death lawsuits—are becoming more common. In addition to trends like litigation funding and the rise in traumatic brain injuries, other factors contributing to this shift include growing public sympathy for injured plaintiffs and attorneys attributing fault to businesses versus individual employees.”
For its part, Allianz reports in a liability claims trends article that “the potential for large liability insurance claims has been increasing.” In describing those trends, Allianz cites the growing scope and complexity of claims that involve large numbers of claimants in multiple jurisdictions, plus increased product liability losses from record levels of product recalls, especially in the automotive and pharmaceutical sectors.
If all that doesn’t harden the market for umbrella and excess liability coverage, what will? Yet underwriting capacity remains strong and soft pricing persists.
With a few exceptions, said USI in its 2018 Insurance Market Outlook, “we do not expect any dramatic increases in casualty rates. Pricing in the umbrella and excess liability market remains very competitive. The liability market remains flush with capacity and new capital. Capacity for lead umbrella and excess liability continues to be plentiful.”
“Umbrella losses continue to grow, both in the aggregate and in terms of individual size, but we are notseeing any signs of volatility.”
Greene & Associates
For its part, Willis Towers Watson said in its Marketplace Realities 2018 report that 2017’s high property catastrophe losses will preclude substantial rate reductions in casualty lines, and “the surplus of casualty capacity will likely prevent any spikes in rate.”
While overall pricing remains soft, carriers will look to terms and conditions to provide their margins.
“Carriers are focusing on limit management, with many capping their primary limits at $5 million,” says Willis. “Quota sharing has become more prevalent in the U.S. and has helped maintain stable pricing conditions.”
“[Carriers] are seeking a reduction in single-layer limits to secure improved premiums,” says USI. “Expect flat to 5% to 10% pricing decreases, but with an effort to raise attachment points and reduce limits for auto liability, particularly on tougher auto fleets.
“Excess liability rates are expected to vary based on the layer, with rates flat to decreasing 10% for mid-limit layers and upper-layer rates leveling out at the current pricing.”
“For stand-alone products liability, the market remains limited, with only a select number of insurers willing to compete aggressively,” the USI report adds. “Clients need to conduct insightful analytics to best assess optimal risk/reward—regardless of the program design.”
At a time when umbrella carriers are constrained on rates, it is all the more important that agents, brokers, and risk mangers be attentive to coverage features that determine the real comparative value of umbrella/excess policies. These provisions include:
- Whether defense costs are paid within or outside of policy limits;
- Whether a policy labeled an “umbrella” will extend and “drop down” to cover claims not covered by underlying liability policies; or, conversely
- Whether the umbrella or excess policy provides coverage that is more restrictive than that in the underlying layers; and
- Whether the policy pays losses on behalf of the insured as they are incurred and/or adjudicated, or whether it pays on an indemnity basis, which would require the insured to play claims and seek reimbursement from the umbrella carrier.
Commercial umbrella/excess policies are still focused on addressing large auto and general liability losses, and are less often written over professional, management, and cyber liability policies.
Given the growing need for cyber coverage among enterprises of all sizes, acquisition of umbrella/excess coverage may become less of a priority for insurance buyers, despite the ever-present possibility of catastrophic liability losses.
Greene & Associates, an MGU that specializes in commercial umbrella and excess coverages, sees the impact of soft market conditions in its day-to-day operations.
“We see the market as generally somewhat soft and getting softer, with some carriers offering increasing capacity,” says Wil Coté, vice president of the Orchard Park, New York-based firm. “Umbrella losses continue to grow, both in the aggregate and in terms of individual size, but we are not seeing any signs of volatility.”
According to Coté, more of Greene’s clients are asking to have their umbrella coverage extended beyond traditional auto and general liability exposures to cover other kinds of liability losses.
It’s not easy to accommodate these requests, Coté says, because the terms of reinsurance treaties often prevent carriers from extending coverage to additional exposures, and carriers are wary about the scope of their own exposures, given that non-auto and non-GL coverages in the primary layer are often subject to sub-limits.
Nonetheless, Coté finds that “environmental carriers are more willing to offer higher umbrella limits over their own primary policies that include environmental and professional liability coverages.
“There are, in general, more options available to insureds, and rates are holding or going down,” he says. “Broader coverages are available, so price alone should not dictate coverage, but insureds should be considering increases in limits, as losses are trending upward.”
For more information:
Greene & Associates
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.