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Liability rates continue to surge upward

liability insurance

General and excess liability policyholders saw another round of rate increases during Jan. 1 renewals as insurers further restricted capacity.

Increased litigation funding and higher court awards continued to influence pricing and availability of limits, experts say.

And infectious disease exclusions are frequently being inserted in policies in response to COVID-19, they say.

At the latest renewals, large accounts saw average rate increases of 11% for auto liability and 6% for general liability but excess liability increases were far larger, said Anthony DeFelice, New York-based managing director in the casualty practice at Aon PLC.

The median excess liability rate increase for Aon’s large accounts was 52%, and on the most challenging accounts rates increased 160%, he said.

In many cases, policyholders that experienced significant rate hikes at the start of 2020 saw further increases at Jan. 1, 2021, renewals, said Jessica Cullen, managing director in the casualty practice at Arthur J. Gallagher & Co. in New York.

Policyholders that faced 50% to 100% increases last year, along with restructured attachment points and reduced lead limits, still saw 10% to 20% increases this year, depending on the industry, she said.

Rate increases varied considerably, said Andre Eichenholtz, New York-based executive vice president-M&A diligence and portfolio solutions and co-head of property/casualty at CAC Specialty.

Middle-market companies with good-to-average loss experience that don’t face long-tail liabilities and don’t have a large vehicle fleet are seeing increases from 5% to 20% for primary coverage, he said.

But policyholders with more difficult risks or poor loss experience are facing far more challenging renewals where even their incumbent insurers may be reluctant to renew, he said. 

“And the excess and surplus lines market, which usually steps in, has gotten a lot more restrictive,” Mr. Eichenholtz said.

Capacity remains very constrained, said Neil Smallcombe, Chicago-based head of casualty at Lexington Insurance Co., the excess and surplus lines unit of American International Group Inc.

Although capacity tightened during 1/1 renewals last year, the market was firmer this year as insurers continued to come to grips with increased litigation funding and higher liability verdicts, among other things, Mr. Smallcombe said.

Across the total market, there was about $1.2 billion to $1.3 billion in capacity available two years ago, but for many exposures the practical, usable limit available now is about a third of that, he said.

“In relative terms, it’s a little easier on the primary side, it gets tougher when you get to the lead umbrella space, and the toughest, most unpredictable layer is the mid-excess capacity, particularly for insureds buying more than $10 million, with those buying more than $25 million struggling the most,” he said.

Of Aon’s large accounts, only 19% of renewals at 1/1 maintained a lead limit of $25 million, compared with 42% for renewals in the fourth quarter of 2020, Mr. DeFelice said.

“We’ve seen some new capacity come into the market, but it has not been all that meaningful,” he said.

About $80 million in new capacity has entered the market recently, but that compares with $500 million in capacity exiting the market over the past two years, he said.

In addition, some insurers that offer $25 million in theoretical capacity deploy less than $10 million, Mr. DeFelice said.

“We are seeing some new capacity come in,” but the new underwriters are not undercutting the market, said Mr. Eichenholtz of CAC Specialty.

The higher rates and tighter capacity led to some policyholders buying less excess coverage.

“We were able to fill out the capacity and present the options, but obviously it does become challenging when you’re paying the same amount for a lead $5 million that you were paying for a lead $25 million the year prior,” said Ms. Cullen of Gallagher.

However, the reductions in limits are measured and based on analytics, she said.

Policyholders reduced the amount of coverage they bought compared with previous years, said Mr. Smallcombe of Lexington.

“I wouldn’t say it’s the majority,” but there’s a “noteworthy subset” of policyholders that chose not purchase the same limits as last year due to budgetary constraints, he said.

Structured programs that include significant self-insurance can help policyholders create a tower of coverage, said Mr. Eichenholtz of CAC Specialty. “It does enable you to put a program in place to get to the next level of insurance.”

Meanwhile, insurers are increasingly inserting communicable disease exclusions in policies.

“It’s often very industry-specific” and policyholders that document safety controls and cleaning regimens can fight the exclusions, Ms. Cullen said.

“If you are in hospitality, health care or gaming, it’s almost an automatic, but if you are in less risky industries you are not necessarily going to get an exclusion,” Mr. DeFelice said.





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