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General and excess liability policyholders saw some slowdown in the pace of rate increases at year-end renewals, but buyers with a significant auto liability exposure continued to see hefty price hikes.
Primary general liability coverage saw more easing than excess layers, and policyholders who were willing to restructure their programs were sometimes able to achieve flat renewals, experts say.
But a general softening market is not yet in sight as underwriters continue to cite increased claims costs resulting from general inflation, medical inflation and higher court verdicts and settlements.
Policy language continues to tighten as insurers seek to exclude so-called forever chemicals and biometric risks and exert more control over claims settlements, they say.
“Our renewals for the last two quarters were definitely characterized by a more predictable and stable rate environment for a greater number of clients, certainly relative to the first two quarters of 2023,” said Douglas O’Brien, New York-based national practice division manager for casualty and alternative risk at USI Insurance Services LLC.
Primary commercial auto liability rates increased between 5% and 15%, while general liability rates were flat to up 5% on average for large accounts, said Stephen Hackenburg, New York-based U.S. national casualty practice leader at Aon PLC’s commercial risk solutions division.
Many difficulties for policyholders occurred on excess layers, where rates increased 10% to 15% on average, but some buyers who increased their attachment points were able to obtain decreases, he said.
The liability market is currently “mixed to difficult,” said Debbie Goldstine, Chicago-based executive vice president, technical intelligence, and emerging risks practice leader at Lockton Cos. LLC.
“Favorable outcomes are very achievable still, but sometimes ‘favorable’ has to be defined differently than we might have in soft market years,” she said.
“Because my primary risk is auto, it was fairly similar to last year and just as rough,” said Richard Rabs, vice president of risk management, at waste management company Lakeshore Recycling Systems LLC in Rosemont, Illinois.
Increased medical inflation and higher court awards and settlements have meant that insurers are imposing primary general liability rate hikes even on accounts with good claims experience, he said.
“We’re seeing increases under 10%, but in the good old days, with a good record and no claims, you’d see flat to 2%,” Mr. Rabs said.
LRS uses telematics extensively and has stepped up its driver training over the past 18 months and taken other safety measures, he said.
“We are making the investments that have to be made and that’s probably why we are not seeing 10-plus percentage increases,” Mr. Rabs said.
Even policyholders that subcontract their trucking operations are facing questions over commercial auto exposures, Mr. Hackenburg said.
“And if those answers are poor, i.e. you don’t use well-known subcontractors or you don’t get significant amounts of insurance from them, those challenges inure to the renewal of the client. That’s probably the first time we’ve seen that broadly across our client base,” he said.
As higher losses penetrate excess layers more frequently, policyholders are turning more to creative programs for middle coverage layers, such as $15 million excess of $5 million, including multiyear single aggregate auto deals and structured solutions, Mr. Hackenburg said.
In cases where policyholders bundle their primary general liability and umbrella coverage with the same insurer, they are often seeing flat renewals, Mr. O’Brien said.
“I don’t think we’re going be in an environment of wholesale rate reductions for a while, but at least it’s promising that we’re seeing a leveling off of rate increases,” he said.
Policyholders that have multiline placements with insurers and combine difficult lines, such as auto liability, with more profitable lines, such as workers compensation, can see lower increases, Ms. Goldstine said.
Capacity remains plentiful and insurers are looking to grow “as long as clients have an appetite to maybe pursue a renewal that’s not going to be like for like,” she said.
With increased severity and frequency of losses, lower excess layers are being penetrated more frequently, particularly on commercial auto, said Lucas Prahl, senior vice president and head of middle market at QBE North America in Chicago.
A layer of coverage excess of $5 million, “may not necessarily be a working layer, but it’s much closer to being considered a working layer than it has been,” he said. QBE only writes umbrella policies above its own primary policies.
Umbrella underwriters are also increasing attachment points as losses rise, often seeking to attach at $2 million rather than the $1 million attachment point that was common in the past, Mr. Prahl said.
“That’s where the trade-off in pricing comes often,” he said.
For companies with 200 or more vehicles, a $2 million attachment point is “more the norm than the exception,” Mr. O’Brien said.
Those clients are seeing rates increase at least 10% and sometimes 20% or 30%, he said. Below 200 vehicles, the rate hikes range from 5% to 15%.
Underwriters continue to limit blocks of capacity they offer, as they have since the beginning of the hard market six years ago, but they are willing to offer more capacity at different layers in a program, for example $15 million at a lower excess layer and another $10 million higher up in the tower, Mr. Hackenburg said.
Some insurers that cut limits to $5 million or $10 million at the start of the hard market now offer $10 million or $15 million in limits, Mr. O’Brien said.
Looking ahead, market conditions are unlikely to ease much in 2024, but they are also less likely to worsen for buyers because casualty reinsurance renewal rates did not increase as much for insurers as was originally feared, Mr. Hackenburg said.
Policy wordings continue to tighten regarding forever chemicals, or PFAS, which are found in a wide range of household and industrial products and have generated health concerns. (PFAS is an abbreviation for perfluoroalkyl and polyfluoroalkyl substances.)
In addition, insurers remain concerned about biometric privacy laws that have been passed in several states.
Last year, QBE implemented PFAS and biometric exclusions and where they have not been inserted previously, they were inserted at this year’s renewal, Mr. Prahl said.
The market has not broadly excluded PFAS but USI is preparing its chemical manufacturing clients and others to consider alternative risk financing options if exclusions become more widespread, Mr. O’Brien said.
Insurers are also looking to exert influence on claims handling through the insertion of so-called hammer clauses in loss-sensitive programs, Ms. Goldstine said.
The clauses stipulate what happens when a policyholder does not consent to settle a claim, as recommended by an insurer.
“It can be as soft as, ‘We want to be consulted,’ or it could be as extreme as ‘If you decline to settle a lawsuit that we recommend you settle, anything that goes into our layer is your obligation,’” she said.
Lockton seeks to eliminate clauses but it’s healthy for policyholders and insurers to discuss settlement philosophy, Ms. Goldstine said.