18% Spike in Professional Lines Pricing Leading the Global Insurance Premium Increase

With prices rising, experts advise insurance buyers to start the renewal process early, and to be prepared to differentiate their risk mitigation strategies.

By: Alex Wright | March 5, 2020

Global commercial insurance rates jumped 11% in the fourth quarter of 2019 — the largest rise in eight years — according to Marsh’s Global Insurance Market Index.

The pricing increase was the ninth consecutive quarterly rise since the fourth quarter of 2017, driven primarily by advances in rates for property, and financial and professional lines.

The biggest climber was financial and professional lines, which soared 18%, followed by property (13%) and casualty (3%), in the wake of the hard market that began back in August 2019.

Dean Klisura, president, global placement and advisory services at Marsh, said, “the impact of natural catastrophe losses and increasing concern about litigation trends have led to price increases for many insurance buyers. Global pricing has now increased every quarter for two years, and while capacity largely remains strong, there has been tightening in certain product lines and regions.”

Composite pricing also increased across all geographic regions for the fifth consecutive quarter, mainly as a result of growth in directors and officers and property rates.

All of the regions reported average price rises of 5% or higher for the first time since the index began in 2012.

The Pacific region climbed the most, by 21%, continuing a three-year quarterly trend, largely due to increases in D&O and property rates, followed by the U.K. (14%) and the U.S. (10%).

U.S. Rates Rising

Broken down, U.S. property rates increased 18%; the highest level since records began.

U.S. casualty was also up two percent, fueled by the excess liability market, where prices rose by almost 10%, and auto (5%).

In addition, U.S. financial and PL lines climbed 15%, driven by D&O prices, which were up more than 20%, with the majority of clients seeing a rate increase.

The report found that pricing in this area also continued to be affected by an uptick in litigation, with event-driven lawsuits related to #MeToo, cyber breaches, social media and safety issues as insurers tightened their terms and insureds increased retention levels.

“The main issue, however, is the lack of far-sightedness on public D&O, with many underwriters not entering into long relationships or thinking about what happens when the hard market ends.” — Peter Taffae, managing director, Executive Perils

By contrast, workers’ compensation declined four percent for the fourth quarter and was also down for the full year.

It’s been a tough year for PL and D&O, in particular for companies involved in initial public offerings and M&A deals as well as those in highly-exposed sectors such as pharma, tech, life sciences and health care.

This is mirrored by the findings from Willis Towers Watson’s Commercial Lines Insurance Pricing Survey, which reported that commercial insurance rate increases exceeded four percent in the third quarter of 2019.

The most significant price rises were in commercial auto and property, excess/umbrella liability, D&O and specialty lines, and they were most pronounced for large accounts.

“This quarter we saw the largest overall price shift since 2013,” said Alejandra Nolibos, senior director, insurance consulting and technology at Willis Towers Watson. “Price increases for D&O liability are well into the double digits, with employment practices liability and medical professional liability also showing sizable upward shifts.”

D&O Under Pressure

Aon’s Quarterly D&O Pricing Index also found that the average price for $1 million limits for public D&O liability coverage was up 69.7% on the previous third quarter in 2018.

Peter Taffae, managing director, Executive Perils

Furthermore, D&O rates increased for 90% of primary policy renewals with the same limit and deductible, with the overall price up 12.1%.

A new A.M. Best report released this week has also concluded that the profitability of D&O insurance underwriting was likely to remain under pressure in the near term, due to factors including multiple years of inadequate pricing and widening risk exposures.

The study found that an increasingly litigious environment has given rise to an “onslaught of claims” in the segment, with allegations of sexual misconduct involving people in powerful positions spurring loss creep from employment practices liability to D&O.

D&O insurers are also becoming increasingly more exposed to cyber-related claims because of senior management’s wider remit for cyber security and protecting personal data from potential breaches.

And as a result of all these complexities, D&O perils present clash potential, with companies potentially ending up paying out on EPL or cyber on top of initial D&O claims.

Peter Taffae, managing director at Executive Perils, said that the big increase in public D&O rates has been driven by years of losses and under reserving, with some renewals up by as much as 30% to 60% as carriers look to scale back capacity.

He added that such has been the amount and size of claims in EPL that many markets have stopped writing monoline EPL altogether, while some have pulled out of California and others will only offer a minimum retention of £100,000.

“In general, the market will last another 12 to 14 months,” he said. “With that said, we are seeing cracks already on the private side.

“The main issue, however, is the lack of far-sightedness on public D&O, with many underwriters not entering into long relationships or thinking about what happens when the hard market ends.”

Starting Renewals Early

To mitigate against these price increases, Klisura said: “In today’s market, we’re advising our clients to start the renewal process early, be prepared to differentiate their risk, meet with their underwriters, highlight their approach to risk mitigation, and understand their loss history and status of any current claims. They also should explore the entire market and be prepared with options.”

Christopher Lang, global placement leader, U.S. and Canada at Marsh, added that it was important for insureds to provide the carrier with as detailed underwriting information as possible and present it effectively. In addition, he said that it was key for them to understand what constitutes an acceptable renewal program.

“Develop a high-quality underwriting submission tailored to industry trends and challenges,” said Lang.

“Your risk will be differentiated based on the underwriting submission and on the quality and nature of the conversations you have with (re)insurers.” &

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].

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.