FEBRUARY 2022
As we are now almost two months into 2022, we would like to provide you with a brief overview of the state of the insurance marketplace as we see it, and what we feel can be expected over the course of 2022. Obviously, this analysis we make now of expected insurance trends may vastly change based on major natural disasters, human driven losses, changes in the economy, the direction Covid takes and whether any new variants emerge, effects of climate change, world events, and other factors that may occur over the coming months.
The hard insurance market continues with increasing pricing, increasing deductibles and retentions, reductions in carrier capacity, and coverage restrictions the norm across many major coverages lines.
- Property: Rates will continue to rise. Flat to 15% on risks with less challenging exposures and issues, and 15% to 30% on risks with more challenging exposures, losses, and issues. Deductibles will continue on the rise for some risks. Bear in mind that much of the 2021 losses still remain to be fully realized and absorbed by the insurance industry and so this may lead to further changes in insurance carrier appetite, increased rates, and reduced capacity going forward.
- Casualty: Commercial General Liability across industry groups will continue to see rate increases averaging in the 10% to 15% range. Auto will see a wider fluctuation in rate increases averaging in the 8% to 25% range. Workers Compensation will continue to be the Casualty line of insurance with the least volatility, with average state mandated rates seeing anywhere on average from a 5% decrease to a 5% increase. Umbrella and Excess Liability will continue its trend of the past few years of being one of the toughest casualty lines of coverage. Depending on the class of business, losses, the underlying carrier, pricing and coverage, where in an excess tower a particular Excess layer placement falls, and other factors, rate increases on average can be expected to range between a low of 10% to as high as 75% or higher. Obviously loss experience will play a factor in all of the above, and may drive the expected rate increases higher. Overall, claims frequency and severity remains high, driven by many factors including rising insurance claim costs due to ever increasing litigation (social inflation), nuclear verdicts, and natural catastrophes. Most carriers adding COVID-19 / Communicable Disease Exclusions to their renewal policies, if they were not added last year.
- Cyber Liability / Errors & Omissions (E&O): This continues to be one of the fastest changing coverage areas, seeing some of the largest rate increases, as well as higher retentions, as well as decreased coverage. Rate increases of 40 to 50% on average have been commonplace, and in some cases higher. Due to the ever increasing number and severity of Ransomware and Breach claims of late, there has been a steep pricing correction in the Cyber market as a whole. Coverages have been restricted, and capacity / limits have been cut by carriers – in many cases creating the need to secure Excess layers/limits to meet limit needs. There have been several new entrants into the Cyber insurance market space, spurring some competition, but many of these new entrants are untested in terms of claims handling, and how they price risks at their first renewal that have had losses. We are also seeing more stringent Cyber security underwriting requirements by carriers on insureds / potential insureds – most notably the almost universal requirement that Multi-Factor Authentication (MFA) be in place across the aboard.
- Directors & Officers Liability (D&O): Rate increases will continue in 2022, with rate increases averaging from a low of 5% to a high of 45% or greater. Factors affecting this will include class of business, Public/Private D&O, For Profit / Not For Profit D&O, losses, if Excess – where in the excess tower a particular Excess placement falls, and other factors. Market capacity is stabilizing slightly with new entrants into the market, and retention increases will depend on specific risk factors/profile. The ever present litigation in society, coupled with high verdicts will continue to drive this. We have seen separate higher Retentions in certain cases for Anti-Trust Claims and Class Action Lawsuits.
- Employment Practices Liability (EPLI): Rate increases will continue in 2022, with rate increases averaging from a low of 10% to a high of 30% or greater. Capacity and limits decreasing, while retentions are still being pushed higher. A new alternate higher retention option being seen now is for “highly compensated” employees. We have seen separate higher Retentions in certain cases for Class Action Lawsuits / Multi-Plaintiff claims.
- Fiduciary Liability: This line of coverage has historically been priced relatively low, but as of late is seeing increases in pricing and higher retentions – including separate higher retentions for Excessive Fee claims, and Class Action Lawsuits / Multi-Plaintiff claims. Also seeing decreases in coverage and capacity / limits. Rate increases have averaged between a low of 15% to a high of 50% or higher.
As always, the best way to approach with any insurance renewal during any insurance market cycle, especially now, is to begin the renewal process early, communicate openly and frequently, and present yourself to the insurance marketplace as best in class. We look forward to continuing to help you navigate this ever changing insurance marketplace.
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- Recent Tropical Storm Imelda impacted Houston with the 2nd (500 year) flood in less than 3 years.
- Carriers writing Flood insurance in coastal areas are paying large amounts of claims even outside the designated flood zone.
- Increasing amounts of tornado and hail storms affecting more prone states are pushing carriers to increase retentions.
- With the changes in climate in general, storms have done damage never expected to large regions of the country.
- With the increase in the frequency and severity of wildfires, and the resulting significant losses being incurred, carriers are being forced to price for this exposure, which they never did in the past.
- Non-flood water damage such as broken pipes and overflow of water, and resulting extent of damage, have been all factors to push rates higher.
- Average rate increases of 10% to 20% or more for non-catastrophic property with good loss history.
- Average rate increases of 25% to 40% or more for catastrophic property with minimal losses.
- Average rate increases of 30% to 60% or more for catastrophic property with notable loss activity.
- Provide us the underwriting information early.
- Review your property values to make sure they are up to date, and complete a Business Interruption worksheet.
- Review current deductibles and coverage sublimits.
- Review loss experience and show ways that exposures were mitigated and changes / improvement that have been made since a particular loss.
- Consider a disaster plan.
- Primary Liability / Commercial General Liability, Commercial Auto Liability and Excess/Umbrella Liability pricing has been increasing over the past several years and we will continue to see rates increase.
- Average rate increases of 5% to 10% or more for Primary General/Products Liability. Obviously with losses, those average percentages may go higher.
- The rates are not adequate for the increasing frequency and severity of the losses. Higher settlement / jury amounts, increasing medical costs, and a more socially conscious society has contributed to the rising severity.
- The loss trends are deteriorating and several carriers have exited the market, reduced their capacity, and raised their rates considerably. This is being seen across all industries and business types, and we expect this to continue well into 2020.
- Losses are taking longer to settle and the (tail) exposure is catching many carriers off guard, as many carriers have been under reserving.
- Reinsurance is less available and/or more expensive to carriers and thus more of the expense is falling on the carriers.
- Workers Compensation appears to be the only casualty line in which rates remain competitive for most industries / classifications in most states. Depending on the state, whether the Workers Compensation is Guaranteed Cost or a Loss Sensitive Plan, and other factors, rates can average anywhere from a decrease of approximately 10% to an increase of approximately 5% or more.
- The Umbrella Liability and Excess Liability market in particular has been especially tough recently, in many cases even more so than the primary liability underneath it. Note the following:
- The premiums have and will continue to increase due in part to a significant reduction in capacity.
- Underwriters are not always basing their pricing on the primary underneath it, but rather, using their own underwriting and pricing guidelines. As a result, Umbrella / Excess pricing is often times not proportional to the primary / lead layer underneath it. Rates/pricing itself can average from approximately 10% up to approximately 30% or higher, and again may or may not be based on, and affected by, primary pricing.
- The Primary (Lead) Umbrella or Primary (Lead) Excess layers have seen a reduction in limit capacity. This has changed / added to the Excess “Towers” with more carriers taking less risk.
- Commercial Auto is, and will continue to be, the most challenging line of coverage for the next year. Rate increases can average between 10% anywhere up to 30% or higher depending on fleet size and losses.
- The claims settlements are reaching unprecedented levels.
- More vehicles driven by less experienced drivers.
- Deterioration of our road infrastructure.
- More distracted drivers.
- Increase in medical bills.
- More electronics and the higher cost of repair.
- Higher rate of speed accidents.
- Some Umbrella / Excess carriers are requiring higher limits on the primary auto.
- Carriers are not writing monoline auto and need to package the auto with other lines.
- Provide us the underwriting information early.
- Review and provide accurate estimates for your renewal exposures (i.e. estimated sales or payroll for General Liability / Umbrella / Excess).
- Consider a deductible or loss sensitive program.
- Review loss experience and show ways that exposures were mitigated and changes / improvements that have been made since a particular loss.
- For Auto in particular:
- Better hiring practices – Do your research, check references, road tests, obtain their MVR’s, spot check drivers.
- Look into a firm that can provide some assistance.
- Review your list of vehicles and also make sure all vehicles are properly maintained.
- Consider higher physical damage deductibles.
- Consider dropping physical damage coverage for vehicles over a specified age.
- Consider reducing your limits on uninsured / underinsured motorist coverage.
- Review the losses and highlight changes made including eliminating problem drivers.
- Pricing has averaged as low as around a 5% increase with excellent loss experience, to as high as 20% increase or higher with losses. Specific states and industries may affect pricing as well.
- The Self Insured Retentions (SIR) have been increasing. The carriers are looking for the insured to have more skin in the game.
- We are seeing more claims dues to reputational harm (i.e. – Me Too Movement).
- The public is holding companies responsible for acts that were acceptable in the past but no longer are.
- Work with your Human Resource department to develop an appropriate plan of managing allegations.
- Work on your employee handbook and outsource to your legal team to make sure you are in compliance.
- We can try to obtain consent of counsel from the carrier if you have a particular law firm you would want to use.
- Report an incident promptly; late reporting will jeopardize your case.
- Do NOT try to settle on your own.
- We are seeing rate increases for Fiduciary Liability averaging approximately 5% to 10% for clean accounts.
- We have seen a push from carriers to increase Fiduciary Liability retentions, as they have been historically low.
- We are seeing rate increases for Crime averaging anywhere from as low as around 5% for clean accounts to as high as around 25% or higher. This is due a great deal to Social Engineering Crime claims.
- We have been seeing more social engineering claims and the retention/deductible for that line has increased.
- If you don’t have Social Engineering coverage, let’s discuss.
- Review your limits.
- Check internal controls. Who signs the checks, etc.
- Make certain an outside accounting firm does an audit on a regular basis.
- Financial Institutions are feeling the majority of the pain in terms of pricing and increase in retentions. The increases can be staggering. In general though as a whole for all types of accounts in general, Cyber is seeing anywhere from flat to around a 10% increase with no losses.
- Cyber attacks, particularly with ransomware, are larger than ever. Most of the bad actors are demanding payment in Bitcoins, which are difficult to obtain, and the fluctuations of the value changes by the day.
- When a breach occurs, they may also obtain personally identifiable information (PII) and credit monitoring and other services will be needed.
- If you don’t have Cyber insurance, you need to get it. An application will most likely need to be completed and other information provided.
- Speak with your IT to make sure all your systems and security mechanisms are up to speed.
- Back up your server daily.
- If you do have Cyber insurance coverage, look at your policy, write down the phone number for the crisis hot line, and keep it in a safe place. Call that number immediately if there is a breach, and then call us to notify us what happened. Do NOT send me an email telling me you were hacked and need the policy. They have access to your computer.
- Both the severity of claims and inadequate reserving is pushing the market to increase premiums.
- The market is driven by the carrier dictating rate and terms. Times have changed.
- The economy has been robust, and the public is not satisfied with poor results driving shareholder suits.
- Increased loss costs and increased litigation costs combined with historically low premiums and low retentions has eroded insurer profitability.
- Some clients are combining their coverages (i.e. D&O with EPLI).
- We are seeing premium increases overall averaging anywhere between 20% to 30% and higher on clean accounts with no losses or issues, as well as carriers increasing retentions. While some Private Company D&O may see slightly lower rate increases with clean losses, some Public D&O may see rate increases as high as 50% to even 100% with losses or issues.
- For Public D&O in particular, carriers have been increasing pricing and retentions as a result of a 2018 U.S. Supreme Court decision in Cyan v. Beaver County Employees Retirement Fund that now allows some securities lawsuits to proceed in state court in addition to federal court.
- On layered D&O programs, we have seen Excess carriers increase pricing greater than the primary carriers and not in proportion to the increase in the primary. Carriers are reducing their quota share on towers in layered programs, and reducing their capacity.
- Get an early renewal indication from the carrier so there are no surprises and we know what to expect and how to plan and strategize accordingly.
- Have your audited financials updated.
- Be prepare to thoroughly discuss your financials.
- Consider consent of counsel if not already provided in the policy.
- Meet with us early.
- Premiums are ranging between around a 10% to 20% increase on excellent accounts, but are higher In certain niche areas, especially with losses. As an example, we have seen Bankers Professional Liability with increases similar to Public Company D&O described above.
- The capacity in this coverage area has not been adversely effected.
- As with D&O, there has been a push by carriers to increase the retentions.
- Report potential claims early.
- Obtain consent of counsel if not included already.
- Make certain the statement of services in the policy clearly defines ALL services.
- Builder’s Risk, especially for frame construction, has seen a shrinking market.
- Recent natural disasters have reduced capacity.
- Carriers are now requiring fences, guards, closed circuit monitoring, etc., all producing additional costs for the buyer.
- Auto is particularly tough for construction clients, especially those with large fleets. See Auto section above.
- The Umbrella / Excess market is requiring higher underlying General Liability limits, especially in NY (i.e. – $2 mil each occurrence and $4 mil aggregate).
- There is a reduction in the numbers of carriers writing construction accounts, and new carriers are not entering the space.
- The Umbrella / Excess carriers are basing their pricing on a higher underlying premium(s) if they feel the actual underlying premium(s) is not adequate.
- The Fall from heights issue in NY (third party over claims) will continue to push carriers out of the space and further increase premiums.
- The economy has been so robust that there is a significant labor shortage, forcing unskilled, aging and a temporary workforce to be used. This is creating a higher rate of accidents.
- The medical treatment for these employees has included liberally given opioids to the employees. This has created more injuries when they come back to work, created some addiction issues, and additional litigation.
- Have regular claims review meetings.
- Try to have the carrier accept choice of counsel. I do have a firm that has been very effective. Please ask.
- Help us show your commitment to safety and risk management. Keep your safety minutes, safety manuals, and records of training.
- Hire a safety management firm if not in place already.
- Vet your sub contractors.
- Obtain hold harmless agreements in your favor and appropriate risk transfers (we can help).
- Obtain early renewal positions for incumbent carriers.
- Become FIRST IN CLASS.