Commercial Insurance Rate Increases Aren’t As Dramatic As They Were in 2020, But Insureds Should Still Be Prepared for Complex Renewals

Risk Placement Services released their mid-year casualty market outlook, highlighting which segments are meeting challenges and embracing opportunities.

By: Emma Brenner | December 6, 2021

In a world that continues to be with unexpected risks, it’s no surprise that insurance markets also experience the same ups and downs.

Last year was the most chaotic insurance market the casualty space has seen in the last 30 years. Marked by dwindling capacity, rate increases and non-renewals, the year was a whirlwind for insureds and insurers alike.

2021 is proving to be only somewhat less chaotic. Risk Placement Services’ “U.S. Casualty Market Outlook: Mid-Year 2021” report detailed the trends in the casualty market during the first half of the year and how carriers can craft successful responses for the risks that lie ahead.

Key Takeaways: What Readers Should Know

This year, rate increases are not nearly as dramatic as they were in 2020.

RPS reports that for high hazard segments, like cyber, sexual assault and molestation and assault and battery coverages, rates jumped 15-25% on average. Compared to last years 30% spikes, this could be good news for insureds.

What’s more, fewer carriers are trimming capacity across the board, making renewals less challenging.

While the factors that contributed to an unruly 2020 proved to be not as disastrous in 2021, insureds and their carriers should still be prepared to weather some challenges in the months ahead.

“Agents and brokers should continue to expect the unexpected, because results are going to differ from [both] account to account and week to week,” said Adam Mazan, vice president, RPS Pacific West Region.

Mazan also emphasized the need for a quality of data submission, which he noted should contain exposure and loss data ranging from 7-10 years prior. Agents should also ensure they work with insureds to have all questions from underwriters thoroughly answered.

Of course, these issues are impacting sectors unevenly. The report found that habitational and nonprofit sectors experienced harder markets than others this year.

Increased Claims in the Habitational Sector

When it comes to the habitational casualty market, the increased hardening stems from an increase in assault and battery claims, according to the report. These claims are producing defense costs totaling a sizable increase in comparison to other industry segments.

This notable difference undoubtedly produced an individual challenge for the habitational sector; Mazan noted the average defense costs for habitational claims are around 50% of the total incurred claim cost, compared to nearly 20% in all other sectors.

Another issue contributing to the high defense costs is apartment exposures. Property owners are being implicated in lawsuits regardless “of whether or not negligence exists,” according to the report.

In these cases, the quality of data submission, including loss histories and adopted risk management techniques, is critical for underwriters. Insureds should try to get submissions in early for the best chance of retaining coverage.

Other Notable Impact

The outlook found the public sector has not been left unscathed by challenges this past year, which include an influx of “law enforcement and abuse claims that continue to come in,” Mazan said.

One entity that has been no stranger to claims is education, which is being impacted by a number of abuse and injury claims from athletic participants.

Adam Mazan, vice president, RPS Pacific West Region

For athletes, these lawsuits stem from suffered head traumas, which aren’t included in carrier coverage. This is due to uncertainty surrounding the injury.

Despite educational institutions putting more head trauma protocols in place, “carriers [still] aren’t willing to come back in and offer terms for athletic participants coverage without head trauma exclusions,” Mazan said.

Another challenge adding to abuse claims is statute of limitations, which typically cover 10 years. When this statute of limitations is removed, claims could be filed as much as 20 to 30 years after the initial abuse occurrence.

“That’s really where a lot of challenges from an underwriting standpoint come in on the abuse side,” Mazan said.

Positive Takeaways from the Report

While the report found that challenges still are embedded within the market, one area that sees a promising future is the construction casualty market.

While the market is still responding to rate increases, construction business is booming, “as more new projects and renovations get on [contractors’] books,” per the report. Additionally, the report noted the then-anticipated infrastructure bill would enhance the industry as well.

“[As] new market entrants entered the casualty world in the last year, most of them are focused on construction business,” Mazan added.

Mazan also emphasized the success of the excess trucking segment.

“We’re seeing positive results in the excess truck world with fleets under 250 units,” he said. “In some cases, we’re able to get actual pricing reductions on those accounts [while] utilizing some of the new capacity that [has entered] the marketplace.”

An aspect to note about the success in the construction casualty market is the adoption of innovative resources, which could include “green building materials,” according to the report. This will be something to note in the future, especially in terms of claim potential surrounding these new materials. &

Emma Brenner is a staff writer with Risk & Insurance. She can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.