Liability rates keep rising during midyear renewals

Commercial insurance buyers faced another round of increases for general and excess liability coverage during mid-year renewals despite new capacity entering the sector.

In the seventh year of rising liability rates, insurers cite increasing court awards and settlements, particularly for commercial auto risks and habitational real estate exposures, as the primary driver of price hikes.

As a result, policyholders are retaining more risk and looking to restructure coverage to minimize increases, brokers and insurers say.

“We are in a rate-increase environment for the liability lines,” said James Sallada, New York-based North American casualty leader at Willis Towers Watson PLC who focuses on large-account business.

Pricing

Primary general liability buyers are seeing mid-single-digit percentage increases, Mr. Sallada said. Lead umbrella rates are rising 7% to 12% for standard business and 10% to 15% for higher hazards, and excess rates are rising 5% to 12% on standard risks and 7% to 15% for high-hazard risks, he said.

Insurers are more willing to offer umbrella capacity if they also get a policyholder’s workers compensation and primary general liability business, which is often more profitable, he said.

Rates in the market are rising 10% to 25% depending on the industry, and accounts hit by losses are seeing 25% to 40% increases, said Adam Pancoast, president-casualty at Ironshore Insurance, a unit of Liberty Mutual Insurance Co.

Axa XL often writes liability lines as a combination of workers comp, general liability and auto liability, and rates vary depending on loss experience, said Donnacha Smyth, Bermuda-based chief underwriting officer, casualty, Americas at Axa XL, a unit of Axa SA.

Comp is seeing low-single-digit decreases or increases, and primary general and auto liability increases ranged from mid- to high-single-digit increases, he said.

“The brokers are very effective at balancing the overall portfolio profitability view of the account, trying to minimize the rate need in the auto and the GL,” Mr. Smyth said.

Limits

“We remain cautious with our capacity deployment, as I think many in the market are, and that tends to translate to even limit reduction in some places,” Mr. Smyth said.

Auto liability, which has seen rate increases for a decade, is still the biggest problem in obtaining excess liability coverage, said Carol Murphy, Chicago-based executive vice president and North American casualty practice leader at Hub International Ltd.

Capacity continues to decline, with insurers that previously offered $15 million excess layers reducing them to $10 million, she said.

“But clients with very large vehicle fleets or low attachment points, like $2 million primary, they might have only a $3 million lead umbrella,” she said.

Another problematic area is coverage for sexual abuse and molestation liabilities, particularly for schools and the hospitality sector, Ms. Murphy said.

“Many times, we’re moving from where it had been included in the general liability and umbrella in the past to being excluded. So, we’re placing separate coverage for that,” she said.

Insurers are often imposing sublimits or excluding molestation coverage for some nonprofit and habitational real estate policyholders, said Ben Stern, Los Angeles-based managing senior vice president for Southern California at Heffernan Group.

Overall, policyholders are sometimes looking to restrict the general and excess liability limits they purchase to reduce premium costs, he said.

“We’re seeing an affordability dilemma. People are saying: ‘Can we afford the larger limits? What contractually do we need to carry, and does it make sense for us to take the lower limits if we’re satisfying our certificate holders and our contracts?’” Mr. Stern said.

Limits are smaller compared with the past, so it takes many more layers to build a coverage tower, said Wayne Zlotshewer, Philadelphia-based head of excess casualty, major accounts, at Liberty Mutual.

Smaller limits can have the effect of escalating claims because insurers with small limits lower in a tower may be more likely to pay out on large losses, which are occurring more frequently, to limit defense costs, he said.

“It does make controlling these large claims a lot more challenging,” Mr. Zlotshewer said.

In addition, policyholders are increasingly looking to retain more risk through structured solutions or fronted programs, he said.

“It has a couple of good effects for them: Number one, it gets them to the attachment point that ultimately they need to be at for a sustainable program, but it also has a very positive impact on pricing,” Mr. Zlotshewer said.

In addition, buyers can purchase buffer coverage through the excess and surplus lines markets to bridge any gaps between lead attachment points and excess layers, said Mr. Pancoast of Ironshore.

“It’s an area of growth for some of the MGAs and MGUs, but you will see some of the legacy players play down low with short limits as well,” he said.

New capacity

Several companies have entered the market over the past year, but most offer smaller limits in the mid- to high-excess part of the market, Mr. Sallada said.

Some London-market insurers have pulled back, but others have entered, and several insurers have added capacity to the North American market, including Tokio Marine HCC and MSIG USA, a unit of Japanese insurer Mitsui Sumitomo Insurance Co. Ltd., said Ms. Murphy of Hub.

Another block of capacity, offered on a claims made form rather than traditional occurrence, is a $100 million excess liability facility by Chubb Ltd., Zurich North America and National Indemnity Co., offered from July 1.

Sources said they were not aware of any business bound on the facility but welcomed the additional capacity. Chubb and Zurich did not provide comment.