Excess and Surplus Insurers Were Already Raising Prices. Then Came COVID-19

Already grappling with a shaky run due to several years of massive Nat CATs, the E&S market is facing even larger hurdles thanks to COVID-19.
By: | May 18, 2020

It was the perfect storm waiting to happen.

For years, insureds have traditionally enjoyed reduced rates and large coverage limits across the board in the excess and surplus (E&S) market.


But when carriers were hit by mounting losses arising from prior year loss development, a series of large jury verdicts and adverse weather events, it became clear that this protracted soft market was unsustainable.

During the last year or so, many have been left with no choice but to increase prices — in some cases by as much as hundreds of percentage points — and reign in capacity.

Among the biggest rises were in directors and officers’ (D&O), property, commercial auto and excess casualty insurance.

To make matters worse, now companies are being crippled with the economic fallout from COVID-19, with many being forced to shut or layoff staff, most notably in retail and hospitality.

“When most underwriters are confronted by significant levels of uncertainty related to the frequency of very large losses, they often reduce capacity and take exposure to large loss off the table,” said David Bresnahan, executive vice president at Berkshire Hathaway Specialty Insurance.

“Now introduce the COVID-19 crisis and accompanying global economic distress and you are layering even more uncertainty on top of an underwriting market that was already off-balance.”

Escalating Losses

Joel Cavaness, president, Risk Placement Services

The E&S market enjoyed stellar growth over the past decade before sustaining record losses from Hurricane Harvey, Irma and Maria; the California wildfires in 2017; and further losses from Hurricane Florence and Michael in 2018.

Additionally, the E&S market remains grossly underpriced as medical costs have escalated and jury awards continue to increase.

To correct this, carriers adjusted their premiums upwards and tightened their limits, resulting in a hard market.

The Wholesale & Specialty Insurance Association, for one, forecast that this trend will continue until at least the end of this year, if not longer. 

“It was not uncommon for a carrier to offer a billion-dollar limit on a property policy,” said Joel Cavaness, president of Risk Placement Services.

“Those days are gone now — companies are now ensuring much greater consistency among the layers of coverage.”  

Jim Auden, managing director and head of North Americans Property/Casualty at Fitch Ratings, said the larger players, such as Lloyd’s of London and AIG, pulled back sharply on coverage terms being offered, with lower limits and higher insured deductibles.

Among the most pronounced changes, he said, were in the hardest hit segments such as commercial property, commercial auto and liability.

“Rates hardened considerably at year-end 2019,” said Auden.

“Again, the hardest hit areas of property and auto have seen continual rate increases for some time, but more recently casualty, liability umbrella and D&O are seeing significant increases on weaker results, particularly from more high-severity claims arising from rising litigation and settlement costs.”

Casualty is another area that spiked, according to Matt Dolan, president of North America Specialty at Ironshore and executive vice president of global risk solutions at Liberty Mutual.

That’s because higher jury awards have forced many carriers to re-evaluate their position, he said.

“We have seen a significant increase in nuclear verdicts as a result of the shift in presumption of negligence by juries,” Dolan said.

Carriers have already started reacting in the wake of COVID-19, with several recently announcing they would be placing communicative disease exclusions on their comprehensive general liability and excess policies for public entities.

There’s also talk within the industry that hospitality sector insurers might follow suit.

COVID-19 Fallout

Bresnahan said rate increases have ranged from single digits to hundreds of percentage points. However, he added that some lines most affected by COVID-19 will be even higher.

Matt O’Malley, head of E&S casualty, AXA XL

“There are some products where COVID-19 and its aftermath represent a catastrophic-sized event,” said Bresnahan.

Rates on excess layers, particularly in casualty, are also now outstripping those on primary layers, according to a recent AmWINS Group report. That has resulted in buyers reducing limits and retaining more risk.

Cavaness said insurers are also having to consider whether they need to adjust coverage for businesses that have had to change their delivery model because of COVID-19.

Therefore, it’s imperative for risk managers to update them of their changing situation on a regular basis, he added.

Robert Raber, associate director at AMBest Rating Services, said another consequence of COVID-19 is E&S carriers are likely to introduce additional exclusions and/or clarify coverage available during pandemics.

But he added these revisions would most likely be brought in at renewal rather than straight away.

“An unknown in the future is demand for broadened coverage for pandemics and, if that can be priced appropriately, to be added to future coverages,” said Raber.

“It’s possible it would reach a cost-prohibitive level.”

Broader Coverage

Some carriers have already expanded their coverage to include COVID-19. Ironshore, for example, has added a coronavirus expense reimbursement coverage to its hospital professional liability policies.

However, a great number of unknowns still remain, particularly in the property market.

These include whether policy extensions are required, if the vacancy/unoccupancy clause applies and if carriers will provide premium payment extensions.


To mitigate against these issues, Matt O’Malley, head of E&S casualty at AXA XL, said insureds should focus on producing a quality submission that’s straightforward for their underwriter to understand. They also need to start the buying journey earlier.

“That gives them plenty of time to have those conversations,” he said. “By getting out ahead of the game, they stand a much better chance of securing a good renewal.”

James Drinkwater, president of AmWINS Group, added insurance buyers need to reach out to their broker  and discuss all options with their incumbent insurer, including premium payment extensions, policy extensions and exposure base relief.

“Companies should work with their insurance broker to review loss trends, and to develop loss control and safety programs,” said Tom Jurgens, senior vice president, brokerage E&S at Nationwide.

“Potential insureds need to show carriers that they are being proactive regarding risk management, loss control and safety.” &

Alex Wright is a UK-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.


Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.


As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.


Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &


Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]