Why Are Umbrella Renewal Premiums Skyrocketing?
By Rodney Nubin – Casualty Practice Leader
Have you noticed that your clients’ umbrella premiums are skyrocketing?
It’s not just you. According to Business Insurance, MarketScout has reported commercial insurance rate increases for every line of coverage in the third quarter of 2020. Umbrella and excess liability rates were up 8.5%.
A Hard Insurance Market
Like other products, insurance products are subject to supply and demand. Right now, market capacity is shrinking, but demand is high. We’re entering a hard insurance market.
In hard markets, insurers are more cautious regarding risk. As a result, underwriting tightens, risk appetites decrease, and rates increase. This is what is happening now.
Many factors can contribute to a hardening insurance market. Some of these are related to the overall economy, while others are related to the risks that insurers and their insureds face.
Right now, the risk landscape is changing under the uncertainty and upheaval caused by the COVID-19 pandemic, as well as an increase in cyberattacks and data breaches. Two other trends – one involving social inflation and the other involving the statute of limitations – are also affecting risks and therefore rates.
Social Inflation and Nuclear Verdicts
Claims frequency can impact rates, but so can claims severity. Lately, severity has become the new
normal thanks to a trend called social inflation, which occurs when juries try to punish companies and
deliver social justice. Unprecedentedly high awards, often called nuclear verdicts, can be for
jaw-dropping sums.
In one example, a jury decided on an $8 billion award against Johnson & Johnson in a case involving its
antipsychotic drug Risperdal, although Reuters says a judge later reduced the award.
The trucking industry has been especially susceptible to nuclear verdicts. According to FreightWaves,
a jury awarded $26.6 million to the children of a victim in a wrong death lawsuit involving a driver who
fell asleep.
Statute of Limitations for Sexual Abuse Claims
Another factor impacting umbrella rates involves a change in the statute of limitations for sexual
abuse claims. The statute of limitations prevents plaintiffs from filing a lawsuit after a specified period
of time has lapsed. The length of this period varies depending on the state and the type of claim
involved.
Recently, multiple states have taken action to extend the statute of limitations for sexual abuse claims.
According to The Associated Press, 15 states and the District of Columbia have either extended or
suspended the statute of limitations for sex abuse claims involving children.
While this change may be necessary to help victims of child sexual abuse find justice, it also creates an
uncertain liability landscape in which a lawsuit may be filed over an alleged incident that occurred
decades ago.
The Takeaway for Insurance Agents and Their Clients
An increase in claims frequency and award amounts makes umbrella coverage especially important, but it also means that insurers have to adjust their rates accordingly. Insurance clients should brace for rate hikes while taking proactive steps to reduce their risk exposures.
Prepare Your Clients Now
The biggest takeaway is to prepare for renewals early. Let your clients know what’s happening in the market and give us plenty of time to shop for coverage on your behalf. Work with your clients’ claims team to make sure reserves on open claims are not overstated, and work with your client to ensure that all risk management controls are in place. Carrier will be selective, so we need to present your client in the best possible light.