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Uncertainty surrounding the COVID-19 pandemic and its economic fallout has driven the U.S. commercial insurance market into a “recalibration,” Arthur J. Gallagher & Co. said Monday in a fall insurance market update.
Most major lines of coverage except for workers compensation saw second-quarter increases and even comp rates are beginning to turn, the report said.
According to the report, all Gallagher clients buying directors and officers liability insurance coverage saw increases in the second quarter.
The sector “has been distressed for several quarters now, as average claims have increased substantially in recent years,” the report said.
The market for privately held companies, however, is not nearly as hard as that for the publicly traded.
Insurers are often reducing capacity for D&O risks and some have a moratorium on new business, Gallagher said.
According to the report, 89% of Gallagher clients saw rate increases for property insurance coverage, the highest number recorded since the early 2000s.
“The pace of change in the property marketplace continues to accelerate beyond most other lines of coverage,” the report said.
Large national property clients, particularly those with total insurable values of more than $150 million, saw average rate increases of 22%. Changes in coverage terms and conditions in the property market have included increased deductibles and lower sub-limits, the report said.
78% of Gallagher clients saw increases for auto liability coverage. Rates continued to increase in the second quarter despite a drop in claims frequency due to the pandemic. Average state auto accident frequency dropped 51% in April, according to the report, but by July were down only 11% as shutdown orders were lifted.
In addition, loss costs are rising as new technologies make vehicles more expensive to repair, the report said.
In umbrella/excess liability, 76% of Gallagher clients experienced a rate increase in the second quarter. “Second-quarter rates continued to climb to their highest levels in recent years,” the report said.
Insurers are also restricting the amount of limit they are willing to offer or repositioning their capacity at a higher level. For example, insurers that have historically offered $25 million lead umbrella policies are limiting their lead positions to $10 million or less, said the broker.
For general liability coverage, 65% of clients saw a second-quarter rate increase.
“The frequency of large judgments, increases in litigation financing and an empowered plaintiff bar continue to challenge our industry,” Gallagher said, adding that the median average verdict for the top 50 cases in the U.S. has doubled in the past four years.
Insurers are beginning to introduce or tighten communicable disease exclusions in response to COVID-19, the report said.
For cyber liability insurance, 47% of Gallagher clients had a rate increase in the second quarter, the report said.
“Increases in the frequency and severity of ransomware claims continues to drive the hardening of the cyber market,” Gallagher said.
In the second quarter, 56% of clients experienced workers comp rate decreases, however, July showed the first positive rate change in any single month since 2014, the report said.