Navigating Today’s Umbrella Insurance Market

In our previous article, we discussed what factors are driving rate increases, capacity restrictions, tighter underwriting, and program structure changes in the Excess Insurance market. It’s important to note that prior to the COVID-19 pandemic, carriers were already tightening underwriting in the Excess/Umbrella market, specifically in the hotel, restaurant, and habitational sectors. In recent months, however, these changes have become even more pronounced. Here we take a more detailed look at the firming market and how COVID-19 has impacted certain industry sectors. We also provide you with advice on how to manage client expectations and navigate the disruptive Excess/Umbrella insurance market.

Inside the Hospitality Industry

The pandemic exacerbated an already-stressed hospitality market as businesses lost significant revenue due to closures.  Clients are now requesting lower liability limits due to revenue changes, and insurers are approaching accounts more conservatively. Communicable disease exclusions in renewals have become more commonplace with a majority of insurers. 

The hospitality Excess/Umbrella market was impacted by significant losses over the last few years – from assaults to allegations of abuse and molestation acts, active shooters to recreational-related claims, such as drownings. MGM Resorts International, for example, agreed to pay up to $800 million to settle lawsuits filed by the victims of the deadliest mass shooting in American history. Additionally, the hotel industry is increasingly at the center of human trafficking cases. Dozens of lawsuits have been filed across the country, according to the Wall Street Journal, largely in the past year and still in early legal stages, accusing some of the country’s best-known hotel brands of ignoring sex trafficking at their properties and failing to provide adequate security. 

Auto liability exposure is another concern for hotels with generous verdicts being rendered in litigation cases, making it difficult to secure standalone Commercial Auto insurance and find aggressive pricing for Excess coverage over the primary Auto. 

The #MeToo movement hasn’t left the hospitality industry unscathed, either. The most prominent case involved Wynn Resorts, which agreed to a $41 million settlement from former CEO and chairman Steve Wynn and insurance carriers as part of shareholder lawsuits accusing company directors of failing to disclose the casino mogul’s alleged pattern of sexual misconduct.

These, among other high verdicts in litigation cases, have some carriers exiting the market, or simply reducing aggregate limits on a lead basis for Excess insurance. Carriers are also toughening their risk criteria in order to return to underwriting profitability. Higher Excess limits are difficult to secure, and coverage is narrowing depending on the insured’s location and loss history.

What’s Up in the Real Estate/Habitational Sector?

For more than a decade, the habitational sector has experienced a consistent spate of liability claims stemming from discrimination to wrongful eviction, assault and battery, sexual harassment, drownings, and serious slips and falls, etc. Exacerbating the situation over the last few years have been verdicts with higher settlements in certain jurisdictions and an increase in crime-related claims, contributing to further underwriting deterioration. 

Insurers are also concerned about habitability claims, which currently impact California multi-family property owners, but could potentially gain traction in other cities and states. Habitability involves the current status and living conditions of a building, with claims that don’t involve bodily injury or property damage but make allegations that a property is uninhabitable. A tenant may seek personal injury damages caused by the lack of habitability, for example, where there is mold and/or bacteria contamination.

Some admitted insurers have retreated from writing casualty coverage for habitational risks for specific classes of business, such as senior living and student housing and in certain geographic areas, while also adding exclusions and restricting liability coverage, scaling back limits on the Umbrella/Excess policy, reducing their lead capacity, and tightening underwriting guidelines.

A Look at Community Associations

Market conditions also are impacting the Excess/Umbrella market for community associations as a result of multi-million-dollar verdicts in liability claims, particularly in certain jurisdictions. New York Labor Laws are particularly adversarial to property owners, for example. Broader contract interpretations, an increasingly involved and better-funded plaintiff bar, and sympathetic jurors are driving these verdicts. According to a report issued by Swiss Re, “there is mounting anecdotal evidence of increasing attorney involvement in claims, which often lengthens the claim development pattern and has led to a sharp increase in severity in large liability claims.” 

For each of these industry sectors – from hoteliers to apartment owners, community associations and board members – it’s imperative to comply with the latest COVID-19-related regulations and guidelines to ensure a safe environment for guests and residents and minimize the potential of litigation alleging negligence in the event an individual living within or visiting the property is infected with the virus.

Moving Ahead in This Market with Distinguished

To face this challenging market effectively, agents and brokers should manage their clients’ expectations as to what lies ahead. Start talking to your clients three to four months ahead of their renewals so that they understand there has been a market shift. Give them an overview of what is occurring in the market and why. No one wants to be surprised by higher rates, lower limits, and possible coverage restrictions. Let them know you are going to market earlier than what was typically done in prior years. Be sure they understand that the market is a fluid landscape and rates could change as you get closer to renewal. 

Assure your clients that you are partnering with experienced specialists in their niche market. Our underwriters understand these risks to help you achieve optimal terms. Distinguished also has longstanding market relationships that are equally committed to each of our industry sectors.

Due to the additional time it takes to structure an Excess/Umbrella program, contact our underwriters three or four months ahead of the renewal. Be sure to fill out all required applications with the necessary data, loss runs, etc. so that the underwriter has a complete picture of the risk. Also, be ready to answer more in-depth questions from the carriers.  

Ideally, submissions should also include specifics on the insured’s approach to mitigating losses. This can include implementation of additional staff training in particular areas, enhanced safety and security improvements and measures, contractual reviews with subcontractors and vendors, etc., photos of the property to highlight overall maintenance of the premises, and bios of the management team, among other relevant information.  

Work with clients throughout the year to improve their risk profiles with strong risk management and loss control programs specific to their industry sector. Have them revisit existing programs to see where execution failed and improvements can be made. If there are prior claims, discuss what actions can be taken to prevent further losses in the future.

In this time of disruption and unprecedented health and social challenges, Distinguished is dedicated to helping our agents and broker partners strike the right balance in program structure and pricing in today’s market. Strong partnerships are more critical than ever before. Rely on our tenure in the industry, carrier relationships, and underwriting experience to procure the best possible program.