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Most general and excess liability insurance buyers paid more for their coverage at year-end renewals, but the rate of increases was lower than the sharp pricing spikes in recent years and some buyers obtained rate decreases.
Increased competition among new and established insurers, a sense that the increases of the past three to four years have improved profitability for insurers, and lower losses due to the continued closure of many courts, combined to keep average primary rate increases in single digits and excess rates in low double digits, brokers and underwriters say.
In addition, insurers are in some cases walking back disease exclusions imposed at the outbreak of the COVID-19 pandemic but are imposing tighter underwriting conditions on accounts exposed to “forever chemicals” or sexual molestation risks, they say.
Rate increases will likely continue to moderate in 2022, but widespread rate cuts are unlikely, they say.
General liability rates increased in the single digits at Jan. 1 renewals and more increases are likely in the remainder of 2022, said Chris Kopser, New York-based chief underwriting officer, primary casualty, for the Americas at Axa XL, a unit of Axa SA.
“The rate increases will continue because severity continues to outpace rate. It’s just that simple,” he said. “We’ve definitely seen litigated claims going through the limit more frequently.”
Primary general liability rates have increased by single-digit percentage points over the past several years, but still don’t reflect the rise in average losses, said Chicago-based Neal Bhatnagar, executive vice president, major accounts casualty, in Liberty Mutual Insurance Co.’s global risk solutions division.
“Going forward, the marketplace is still in a position to need rate, to keep up with that trend,” he said. While there was a lull in so-called social inflation when courts closed during the pandemic, insurers expect the trend of increased court awards and settlements to return, he said.
Primary liability underwriters are pushing for moderate rate increases but in some cases buyers can obtain rate decreases by moving their programs to other insurers, said Andre Eichenholtz, New York-based executive vice president-M&A diligence and portfolio solutions, and co-head of property/casualty at CAC Specialty, an affiliate of Cobbs Allen.
“If somebody is looking at a piece of business that’s new, they are being opportunistic, where maybe the incumbent carrier was indiscriminately increasing rates for everybody,” he said.
While renewal rates remain significantly higher than prior to the hard market, buyers can obtain significant savings compared with more recent renewals, Mr. Eichenholtz said.
“If you can give a carrier a good reason to get to where you think they should be, they will absolutely provide a program that’s better than what the general market’s been doing,” he said.
New entrants are adding capacity to the market, but are not undercutting the market, Mr. Eichenholtz said. “It is different this go around,” he said.
Twane Duckworth, managing director, risk management, for the city of Garland, Texas, and a Risk & Insurance Management Society Inc. board member, said he saw a single-digit increase at his October renewal, but he expects to see more favorable terms this year.
The municipality’s liability losses have not exceeded its $750,000 self-insured retention for several years, he said.
“For 2022, I plan to really reevaluate the program,” said Mr. Duckworth, who joined Garland’s management at the end of 2020.
“I’m planning to go to the market with a bucketload of data and say, ‘Hey, not only are we a good risk, but we are a class A risk that you would desire to have.’”
Excess liability rate increases also are moderating.
“2021 was a little bit of a kinder, gentler year to the insureds and brokers as far as rates are concerned,” said Baltimore-based Diana Cossetti, senior vice president and chief underwriting officer-specialty lines, excess and rail in Liberty Mutual’s global risk solutions division.
In 2020, average excess rates increased more than 25%, but in 2021 lead umbrella rates increased 10% to 20% and higher layers increased 25% to 30%. In 2022, umbrella rates will likely stabilize and increase 10% to 15%, and excess rates will rise 5% to 10%, Ms. Cossetti said.
On tougher risks, established insurers are still reducing the capacity they are making available but a significant amount of new capacity is entering the market, Ms. Cossetti said.
Average rates increased in the “low teens” at year-end renewals, but some buyers, such as those that saw big increases in past years and marketed their programs, obtained rate decreases, said Jesse Paulson, New York-based excess casualty leader for Marsh LLC.
Limits remain constricted compared with limits available prior to the market hardening, when $25 million lead umbrella limits were common, brokers and underwriters say.
But insurers are willing in some cases to offer larger limits, such as when they are seeking to write both the primary and lead excess layer, Mr. Paulson said.
“Where an insurer has a good comfort level with the risk associated with a given client and are very interested in writing that primary line, they may increase the umbrella limit well beyond $10 million or $15 million,” he said.
Overall market capacity for most large excess liability buyers stands at between $700 million and $800 million, but it is still possible to buy $1 billion towers, Mr. Paulson said.
Several large insurers curtailed their excess liability business over the past three years, including American International Group Inc. and Swiss Re Corporate Solutions, but the market has largely stabilized with new and existing insurers competing more for business, brokers and insurers say.
Axa XL worked on transforming its excess liability portfolio in 2019 and 2020, but 2021 marked a return to more general portfolio management, said Donnacha Smyth, Bermuda-based chief underwriting officer, excess casualty for the Americas at Axa XL.
“We continue to be in a capacity-restricted marketplace for excess,” he said. “We saw rates in excess casualty peak in Q3 2020, and while rate has remained strong it’s sort of been a steady decline month over month.”
Excess rates across Axa XL’s book increased between 15% and 25% at Jan. 1, which is substantially lower than rate increases a year earlier, he said.
During recent renewals, insurers have changed policy wordings and coverage terms, in some cases restricting coverage but in other cases easing terms.
Underwriters have restricted coverage of so-called forever chemicals, such as PFAS, that are used in some household goods and industrial processes. They’ve also restricted coverage for accounts exposed to sexual molestation claims in light of large settlements paid by youth and religious organizations over the past several years.
Insurers are inserting exclusions, reducing limits and changing claims triggers, among other things, to manage the exposures, market participants say.
But they are easing restrictions on communicable disease coverage and removing or changing exclusions imposed at the beginning of the pandemic as significant third-party liability-related losses have largely not materialized.
“There will be litigation, it just hasn’t turned out to be something that is systemic in nature,” said Mr. Paulson of Marsh.