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Liability rate hikes moderate as capacity expands

Posted On: Jan. 10, 2023 6:35 AM CST


General and excess liability insurance buyers saw largely modest price rises at year-end renewals as underwriters continued to push through single-digit rate increases, citing concerns over inflation and higher court awards and settlements.

The moderation in primary and umbrella rate hikes, which also characterized the prior year’s renewal season, contrast with the much sharper increases imposed in 2021 and prior years. Excess liability layers saw more competition, and rates fell for some accounts, market experts say.

Insurers remain concerned over the backlog in claims settlements resulting from restricted court access during the COVID-19 lockdowns and issues such as exposure to lawsuits related to so-called forever chemicals, but increased capacity from new and existing insurers is helping keep a cap on prices, they say.

The hard market of the past several years appears to have plateaued, said Casey Petersen, Chicago-based head of U.S. casualty at brokerage McGill and Partners.

“We haven't seen the drastic drops that maybe we thought we were going to start to see, but what we’re seeing is that peak of (the market), and it’s really just kind of sustained,” he said.

Zurich North America obtained average single-digit rate increases on its recent general and excess liability renewals, said Paul Lavelle, New York-based head of U.S. national accounts at the insurer.

“It was pretty steady in November and December, and looking at 1/1 we were getting the increases we anticipated, both in primary and excess,” he said.

General liability increases were in the mid-single digits, said Emily Crawford, senior director liability product management, global risk solutions, for Liberty Mutual Insurance Co. in Miami.

Claims severity continues to “tick up” due to higher court awards, increased inflation and rising medical costs, among other things, Ms. Crawford said. “So, we’re going to have to continue to make sure that all of us are funding the insurance that is needed by all,” she said.

In excess layers, claims cost trends are running in the mid-teens but rate increases are in the mid-single digits, which is not sustainable, said Jon Tellekamp, chief underwriting officer, excess casualty, global risk solutions, at Liberty Mutual in Boston.

The market is more stable, said Dave Arick, assistant treasurer, global risk management, at International Paper Co. in Memphis, Tennessee.

While the pulp and paper manufacturer received more questions from underwriters on issues such as supply chain exposures, its liability rates were flat to slightly higher at year-end, depending on the layer, he said.

International Paper retains much of its primary exposure and there are still only a handful of insurers offering lead umbrella coverage to companies in its sector, but there is more capacity entering the excess liability market, said Mr. Arick, who is a board member of the Risk & Insurance Management Society Inc.

More competition at higher excess layers has restricted price hikes. Recent startups, such as Vantage Group Holdings Ltd. and Helix Underwriting Partners Ltd. in Bermuda and London-based Inigo Ltd., and established insurers, such as London-based Ascot Group Ltd., which also has operations in the U.S. and Bermuda, added capacity to the market, experts say.

In addition, established insurers expanded their capacity on renewal business, said Ed McNenney, a New York-based executive vice president at Willis Towers Watson PLC.

“They’re saying, ‘Well, I gave you $10 million last year, maybe I can give you $15 million this year,’” he said. And insurers may be prepared to offer more capacity if their limits are distributed, or ventilated, throughout a coverage tower, Mr. McNenney said.

Prior to the beginning of the hard market in 2018, about $2.2 billion in total capacity was available for liability programs; that fell to about $650 million as the market hardened but has since rebounded to about $1.5 billion, he said.

The added capacity has led to some “significant decreases in the excess layers on the easier accounts,” Mr. McNenney said.

Mr. Tellekamp said Liberty Mutual offers its capacity on different layers within excess towers. But “as losses increase in frequency and severity, something we need to look at is: Are we getting paid adequately for both of those layers?” he said. “Losses can go from zero to $50 million or $50 million to $500 million in the blink of an eye.”

Problems in the property insurance market are also influencing the liability market as insurers look to take a multiline approach offering scarce property capacity in return for wider participation on liability programs, said Dan Aronson, U.S. casualty practice leader for Marsh LLC in New York.

“I think multiline approaches are going to be pushed by the markets throughout the year,” he said.

Concerns remain over a backlog of claims following limited court access during the COVID-19 pandemic, which effectively increased the tail on liability claims, as well as rising court awards and settlements or “social inflation,” insurers and brokers say.

“There’s nothing coming out of the COVID time period with social inflation, meaning the larger valuation on cases, making us think that we shouldn’t continue to get increases,” said Mr. Lavelle of Zurich.

The market may need to consider different program structures with additional capacity on higher layers to provide long-term capacity to policyholders facing potential so-called nuclear verdicts, Mr. Aronson said.

Insurers are asking more questions about PFAS, the abbreviation for perfluoroalkyl and polyfluoroalkyl substances, which are also known as “forever chemicals,” several experts said. The substances were used in a wide variety of manufacturing processes but have been phased out in several countries due to health concerns.

In some cases, underwriters are adding exclusions related to the chemicals “but it’s very much account specific,” said Mr. Petersen of McGill and Partners.

“There have been a lot more questions and a lot more scrutiny around PFAS and forever chemicals,” said Mr. Arick of International Paper. “That was kind of a background noise item in the last couple of years, but it was a lot more front and center this year.”