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The Current State of the Umbrella Marketplace, What you Need to Know

By: Paul Etheridge and Cody Campanella

One thing we can all agree on is no one likes hearing about increases to operating expenses. Whether it is that all too familiar increase on your Property taxes or your companies Group Health Insurance. There is another area of insurance that could be a concern this year, and that is the excess liability coverage (umbrella). The increases we have seen at times have been alarming, and there is no way to prepare a client for a sizable increase to their premium or the lack of availability of coverage at certain limits.

Why is this occurring? What is driving it? What does it mean for my business in 2020?

The Excess Liability insurance market started to change in mid-2019 with the added pricing pressure of commercial auto policies. Combine that with capacity restrictions and pricing increases have accelerated leaving mid-year renewal programs experiencing significant challenges with program structure, available capacity and pricing.

There are several factors driving this hardening market:

  • Years of declining premium rates against exposures
  • Increased frequency of severity outpacing any meaningful movement in rates
  • Large loss events yielding nuclear jury verdicts and pushing up the value of negotiated settlements
  • U.S. medical cost inflation and advancements to improve quality of life for the injured
  • Continuous improvement in science and technology to identify losses and their causes as well as increased publicity including social media and product recall announcements
  • ‘Social Justice’ sentiment among certain groups of people, including anti-corporate philosophy leading to desensitized view of enormous jury awards. “Reptile Strategy” implementation in litigation has further exacerbated this trend
  • Erosion of the concept of fault
  • Lack of reinsurance capacity in the lower layers of liability limits, especially for auto risks
  • Increased focus on non-owned vehicles and the impact on auto attachment points

Due to these factors it’s been found that average umbrella/excess rate change is at the highest level we have seen in the last 10+ years with 70% of umbrella/excess accounts experiencing a rate increase in Q2 2019. Average July 1 premium increases for total umbrella/excess towers has reached double digits with no real change in sight as we progress through the year.

As a business owner what can be done? One is to consult your risk manager to discuss ways to improve your safety program especially surrounding your auto fleet. Any work done in that area can make you a more attractive risk for your auto carrier which will translate into better pricing on the initial layer. This may help mitigate the increase in your excess layer. Furthermore, by improving safety and lowering losses you become a more attractive business partner for insurance companies. That, in turn, promotes competition and better pricing. Secondly, start being mindful of your excess limits. When in a soft market and umbrella pricing is low you can afford to insure yourself for perhaps more than your exposure requires. Now that the environment has changed, what are your real needs and how do they align with the cost? Is your exposure matching your excess limit or could you be comfortable with less? These are all decisions that can impact your bottom line in adverse ways. Make sure you are utilizing the expertise of your trusted risk adviser to help navigate this challenging and changing insurance marketplace.