US umbrella and excess liability rates soften despite losses
Strong competition among insurers contributed to a general softening of US umbrella and excess liability rates in the first quarter of 2014, despite ongoing concern among underwriters about large losses in auto, product liability, and other areas.
On average, umbrella and excess rates increased 3.1 percent in the first quarter, which was the second lowest rate of increase in nearly two years, according to a data analysis by Marsh Global Analytics.
Rate changes for most insureds hovered in the low single digits, although results varied significantly for individual clients, depending on industry, loss history, and other risk factors.
It is estimated that insureds experienced rate will increase or decrease as much as 20 percent. Industries most likely to see increases include chemical, energy, life sciences, mining, and product manufacturing. Underwriters have been concerned about costly losses for companies in these sectors as a result of explosions, pollution, and class-action product litigation.
Results were generally more positive for light manufacturing companies, financial institutions, retailers, and real estate companies.
Roughly half of all clients renewing their umbrella and excess liability programs in the first quarter saw rate increases, yet there was not a significant change from prior quarters.
The number of clients seeing rate decreases, however, has steadily increased, from 16 percent in the third quarter of 2012 to 24 percent in the first quarter of 2014. On average, companies across all industries renewing umbrella and excess programs in the first quarter of 2014 purchased limits of $47 million. Companies with revenue of $1 billion or more purchased limits of $127 million; figures that are not substantially different from the previous year, likely due to budgetary constraints.
While in the past incumbent insurers focused on achieving rate increases, insurers are now seeking to retain existing business in this more competitive marketplace. Over the last three years, a number of new carriers have entered the umbrella and excess liability insurance market.
Even as underwriters remain concerned about the potential for large casualty losses, many insureds are able to secure smaller rate increases — and, in some cases, rate decreases — that previously were unachievable. Although market conditions generally are favourable, insureds should continue to differentiate their accounts.
Perhaps insureds that can present more information to underwriters to demonstrate and explain real reductions in exposures typically will be better positioned to secure rate decreases at renewal.
Insureds generally are not purchasing more umbrella and excess liability insurance, although the size of jury verdicts and other tort costs continues to increase. This could leave some organizations underinsured in the event of a catastrophic casualty loss. Insureds should carefully review with their advisors their insurance programs and potential exposures to ensure that they are adequately protected.
