Umbrella Liability Insurance Hard Market Persists

The most recent Commercial Lines Insurance Premium Survey (CLIPS) released by Willis indicates that nearly all coverage lines saw significant rate hikes in 2020 Q1, with Commercial Auto, Property, Umbrella Liability, and Directors and Officers (D&O) Liability insurance exceeding double-digit rate increases. Specialty line prices also increased considerably, including in the hospitality and habitational sectors.

What Is Driving Rate Increases in the Umbrella Insurance Market?

Even before the COVID-19 pandemic, a number of factors have been behind the challenging market conditions in Excess/Umbrella insurance. Among them are years of underpricing; an increase in the frequency and severity of losses, which has upended claims loss ratios and negatively impacted underwriting profitability; and nuclear verdicts rendered by plaintiff-friendly juries, particularly in the Commercial Auto space. Known as “social inflation,” juries seek to right the perceived wrongs of corporate America and look to insurance companies with the “deep pockets” to reward victims. 

For example, the pharmaceutical industry was hit with multi-billion-dollar liability verdicts resulting from the opioid crisis. The transportation sector has been slammed by catastrophic vehicular accidents and skyrocketing judgments in litigation while the hospitality industry has seen liquor liability, assault and battery, and active shooter claims in the millions of dollars. In fact, according to the Wall Street Journal, a review of U.S. cases reported to VerdictSearch shows a more than 300% rise in the frequency of verdicts amounting to $20 million or more in 2019 when compared to the annual average from 2001 to 2010.

Firming of the Umbrella Insurance Market

Umbrella pricing has increased steadily for ten quarters. In fact, pricing for Umbrella insurance increased by an average 17.2% from Q4 of 2019 to Q1 of 2020, according to the Council of Insurance Agents & Brokers’ Commercial Property/Casualty Market Report Q1 2020, the highest increase among all commercial product lines.

Carriers are requesting higher attachment points and thinner capacity layers, resulting in material changes to program structures in the Excess/Umbrella market. Insurers that were once writing $10 million, $15 million or $25 million as the lead in an Excess tower are now only offering $5 million. There are more carriers involved in the tower than before, making the process of developing program structures more complicated, time-consuming, and costly. 

Insureds looking to purchase large limits are also finding it challenging to replace the limits at renewal. Several respondents in the CIAB survey stated they found it “very difficult to secure excess liability coverage” for large accounts, mentioning “challenges building excess towers [due to capacity]” and that in some cases “it was impossible to place coverage due to its prohibitively high price point.” 

Carriers are also continuing to refine their appetites and underwriting guidelines, with a focus on underwriting discipline and rate adequacy. Underwriters are requesting additional information on renewals and in some cases restricting coverage.  Submissions are taking longer, with underwriting management increasingly stepping in to assess risks. 

The continued market shift is challenging and is decidedly exacerbated by the COVID-19 pandemic, but there is also opportunity ahead in 2020 as the need for creative risk management has come to the forefront.

In a separate article, we’ll discuss how industry sectors such as hospitality, habitational and community associations are being impacted by the hardening Excess/Umbrella market, and steps agents and brokers can take to help manage client expectations, get ahead of the renewal process, and improve an insured’s risk profile for improved pricing and better terms. Distinguished is committed to helping our agency and broker partners navigate this new environment.