The general liability insurance landscape has undergone significant transformations in response to the rising frequency and severity of claims. Consequently, insurers have adopted stricter underwriting standards, capacity constraints and multiple rate increases. Slight improvements in underwriting results during 2022 and 2023 led to rate decelerations. While premiums have continued to increase during this period, the pace was moderate compared to previous years. Industry data indicates that average premium increases fluctuated 6% to 7% in 2022 and 4% to 5% in 2023.
However, the general liability insurance market faces persistent challenges, including mounting litigation concerns, escalating medical expenses and heightened exposures associated with per- and poly-fluoroalkyl substances (PFAS). These developments could threaten claim costs and market performance. As a result, policyholders should anticipate modest premium increases in 2024, with renewal results dependent on unique exposures, industry classification and claims history. Sectors with elevated liability risks (e.g., real estate, construction, manufacturing, retail, hospitality) may experience substantial rate hikes, restrictive underwriting standards and challenges obtaining higher coverage limits.
Trends Shaping the General Liability Insurance Market
In an increasingly litigious society, U.S. businesses are experiencing a higher frequency of liability-incident lawsuits (actual or alleged) and higher penalties. An increase in attorney advertising, tort reform challenges, third-party litigation funding (TPLF) and deteriorated public sentiment have contributed to social inflation within the liability market. Legal advertising has become widespread across most mediums as lawyers allocate approximately $250 million in funds towards the production and distribution of over 3.5 million local legal advertisements quarterly.
Altogether, increased litigation, rising verdicts and surging social inflation have significantly contributed to elevated general liability insurance claim costs. Some businesses have discovered themselves underinsured, leading to coverage gaps and substantial out-of-pocket expenses amid associated claims.
Surging Health Care Costs
Coverage of medical costs stemming from third-party injuries is a critical component of general liability insurance. According to Bureau of Labor Statistics (BLS) data, the overall value of health care services has experienced a notable increase of 115.1% since 2020. The ongoing escalation of medical expenses, attributed to factors such as rising drug costs, advancements in medical technology and increasing worker wages, has contributed to the upward trend of claims costs. Despite a rare instance in 2023 where general inflation surpassed medical inflation, businesses should anticipate surging medical expenses will continue to be a significant factor in the increased costs of general liability insurance claims.
PFAS Regulation Exposures
Per- and poly-fluoroalkyl substances (PFAS) comprise a range of over 7,000 chemicals that exhibit resistance to environmental degradation and human metabolism and are linked to various health complications. Regulatory actions at the federal and state levels aim to curb PFAS utilization and minimize exposures with initiatives, including:
- Establishing nationwide water quality standards
- Classifying specific PFAS as hazardous substances
- Reinforcing reporting obligations
- Imposing restrictions on PFAS discharge from industrial sources
- Conducting toxicity assessments for different PFAS
In addition, 15 states have enacted regulations limiting PFAS presence in soil and groundwater, with New York and New Jersey incorporating PFAS as hazardous substances in their regulatory frameworks. Organizations found accountable for PFAS contamination face heightened risks of litigation and liability. In fact, many carriers exclude coverage for PFAS-related losses, exposing these companies to additional liability exposures.
Strategic Tips for General Liability Insurance Buyers
- Risk Management: Partner with an insurance broker to gain insights into critical market challenges that may impact your rates. Leverage their expertise to formulate effective responses through tailored loss control measures.
- Improve Safety Measures: Verify your establishment has implemented robust measures to mitigate customer or visitor injuries (e.g., safe walking surfaces, proper housekeeping).
- Address PFAS Exposures: Establish workplace policies and procedures to minimize PFAS exposures, ensuring compliance with relevant laws. Seek legal counsel to navigate the complexities of PFAS-related legislation.
- Review Coverage: Regularly evaluate your general liability coverage with a trusted insurance advisor to align policy limits with evolving insurance needs.
We’re Here to Help Protect Your Business
Experts predict a 1% to 10% increase in general liability insurance premiums in 2024. Fortunately, you’re not in this alone. We’re here to help you understand the current insurance market and implement risk management strategies to protect your organization. If you have more questions about your coverage or the status of the market, connect with a member of our team.