It’s a time of great change in the world — and the insurance markets are responding accordingly. As active analysts of the various markets, we’ve observed some major shifts that we would like to lay out in this article.
To quickly summarize, we have seen an increase in frequency regarding how often standard & non-standard carriers pull back on capacity limits. Additionally, the areas of Umbrella and Excess Liability coverage are seeing major shake-ups.
We have previously noted that underwriting profitability has been negatively impacted due to deteriorating loss trends. As these trends continue into the new year, we can expect underwriters to react in a manner similar to what we observed last year: appetites for underwriting will be reduced. Rates will increase. Coverage grants will be reevaluated, and changes to program structures will be required, such as requiring higher attachment points and reducing available capacity.
This is not a theoretical situation. In fact, we’re already seeing it happen across markets — capacity is being cut, and pricing is increasing significantly. In our examination of the market, we’ve seen rates increase by anywhere from 20 to 100 percent, though we have also seen some outlier increases well above the 100 percent range. Furthermore, we have noticed that a significant amount of underwriters are lowering their limits regarding what they’re willing to offer.
Why is this occurring? There are a few reasons. First, we’ve mentioned the idea of “social inflation” before, and it’s a term that applies here as well. As litigation costs increase, liability definitions broaden, and juries award greater compensation, costs go up for insurers. This explains part of the rise in rates.
Additionally, the present pandemic has meant that certain businesses that were already facing difficulty are facing even greater challenges. For example, the hospitality industry, brick-and-mortar stores, and certain types of construction companies are being seen as high risk. For those who currently have significant excess tower to renew, we strongly recommend you begin your search as soon as possible and secure commitments from your present underwriters.
That said, renewals are taking longer to complete than ever before, and participation from additional carriers is needed to replicate expiring excess liability and umbrella limits. Moreover, a reduction in renewal capacity on lead umbrella and excess layers is being seen, but underwriters have not been providing the premium relief one would expect to follow this reduction.
Regardless of industry, the COVID-19 pandemic has resulted in most renewal programs adding communicable disease exclusions, especially in particularly exposed industries like retail, hospitality, and healthcare. How communicable diseases are addressed with regard to excess workers compensation varies — for example, some policies include aggregation clauses — and one should be sure to thoroughly review their policy to see how these changes could affect coverage.
This state of the market should not frighten you. Rather, it should remind you of the importance of both being prepared and supported by people who have their eyes on the market. Fortunately, at Conway E&S, we have decades of experience helping people like you navigate these ever-changing situations. With access to more than one hundred markets, we can work with you to ensure you get the answers and coverage you need. For more information, please contact Ken Helmick.