Trends Behind Double Digit Umbrella Insurance Premium Increases
For 2020, the excess and umbrella market for many insureds is challenging. According to the Commercial Property/Casualty Market Report Q1 2020 by the Council for Insurance Agents and Brokers (CIAB), average premiums increased 17.3%, compared to 3.3% in the first quarter of 2019. This is the 10th consecutive quarter for premium increases.
The excess and umbrella liability market is experiencing significant disruption and is proving to be more difficult than the markets for primary coverage. Insurance carriers are adjusting their underwriting appetites, reducing capacity and increasing attachment points. In most cases, rates on excess layers are exceeding those of primary ones. What’s more, insureds have seen an uptick in nonrenewal notices on various layers throughout their liability towers.
Market conditions are not only being dictated by claims experienced by insurance carriers, but also by fears over trends pushing claims costs even higher. These trends include, but are not limited to, litigation funding, nuclear verdicts, social inflation and medical care cost inflation. Underwriters are likely to apply caution when examining risks, and most insurance carriers are unlikely to increase capacity or expand the writing of new business.
Trends to Watch
- Litigation funding – Litigation funding refers to the practice of having a third party finance a lawsuit in exchange for a portion of the settlement. This practice is becoming increasingly common and is driving up the cost of litigation and settlements.
- Nuclear verdicts – Verdicts that surpass $10 million are becoming more common risks for businesses. The uptick in nuclear verdicts, especially in the commercial auto space, has put pressure on the excess and umbrella markets.
- Social inflation – Insurance claims costs are rising as a result of societal trends and views toward increased litigation, broader contract interpretations, plaintiff-friendly legal decisions and larger jury awards.
- Changes at the insurance carrier level – In light of market turbulence for excess/umbrella coverage, many insurance carriers are reducing their lead umbrella capacity from $25 million to less than $15 million and lowering limits.
Tips for Insurance Buyers
- Plan for price increases and difficult renewals. In many cases, applications will have to be submitted earlier than normal.
- Work with your insurance broker to submit a quality application. Because of the firming market conditions for excess and umbrella layers, submission activity is up. Insurance companies are dealing with a lot of submissions for both renewals and new business. In this environment, poor applications are likely to be denied by underwriters.
If you need additional risk and insurance solutions to help offset these double-digit increases, please contact a member of our team.