In a year that has seen more than its share of bad news, there’s one more item to add to our lists:
Excess liability coverage is now more expensive, typically much more so, far less available, takes a lot more work to place – often requiring a full-blown syndicate of insurance carriers for amounts above even $5 million – and will mean having to accept higher retentions than ever before.
As you might recall, we pointed this out in our 2020 Commercial Market Report and Forecast. Here’s some of what we said:
Shrinking capacity – another way of saying carriers are limiting their exposure – is the big problem here. …
(The) trend is on full display in almost all areas of excess liability coverage, although especially in auto risks. The segment feeling the pain most? Trucking. Many carriers have either completely withdrawn from the business of writing trucking companies or reduced their capacity significantly. …
With all of that in mind, it’s no wonder increases in the year ahead are expected to come in from 8%-15%.
There was nothing especially prescient about any of the above. When the insurance industry gets hit by year after year of over-the-top jury awards, devastating natural disasters and distracted driving, something has to give.
The point of bringing this bad news back to your attention now is this: renewals this year have been – and there’s no other way of saying this – dreadful, as in full of dread.
Everyone’s been seeing and feeling it and it’s not one bit of fun, because, of course, no one wants to pay more and your ability to secure business can quickly be threatened without an excess policy in place.
Whether you’re in the construction field, transportation, life sciences, whatever industry, your most important contracts will more often than not include provisions requiring you carry excess coverage.
Insurance makes commerce possible, and without excess liability coverage in place, things become impossible.
For the uninitiated or anyone needing a quick reminder, an excess liability policy protects you above and beyond the standard limits on your primary policies.
It’s like insurance on your insurance.
Say one of your customers slips while visiting your warehouse, breaking their neck. They file a claim, and you lose in court. The injured customer is awarded $1.5 million, but your general liability insurance has a policy limit of $1 million per occurrence. Now say you have an Excess Liability policy of $1 million in place. If so, you won’t have to worry about the $500,000 balance. If not, the difference comes out of your pocket.
At this point, that’s anyone’s guess. The “hardening” of the market has been under way since roughly mid-2018 and, at this point, the COVID-19 pandemic is not helping, except perhaps to keep at least some of us off the road and, consequently, involved in fewer accidents.
The real solution lies in finding ways to cap those multi-million-dollar mega-verdicts so common nowadays. Tort reform, however, seems like a faraway dream, with no end in sight to the clash between business interests, consumer advocacy organizations and the plaintiffs’ bar.
All of that aside, nothing lasts forever, including hard markets. So, as we said in our forecast, expect at least some measure of relief in 12 to 18 months.
Primarily, anticipate and plan.
One of the biggest changes in the excess liability insurance market over the past several months has been the contraction in limits available from individual insurers.
Insurers that previously offered $10 million, $15 million or even $25 million in excess coverage are now only offering fractions of those limits.
In other words, your cost at renewal might be the same but you’ll be getting less for what you pay.
For companies that need those higher limits, the only solution now will mean having to turn to multiple carriers for the “towers” of coverage they can assemble. So think four insurers rather than one or two to obtain the same amount coverage, while, for example, paying 50% more in premium and facing a retention that could be $2 million vs. $1 million.
Aggravating, we know.
Not incidentally, building the “syndicate” of carriers to get that coverage is complicated and takes time. More conference calls, more emails between multiple parties, more paperwork. So make sure to give yourself (and your broker) a head start. Everyone will need it.
Michael Kline is a Vice President in CCIG’s Construction Practice. Reach him at Michael.Kline@thinkccig.com or at 720-212-2042.
CCIG is a Denver-area insurance, employee benefits and surety brokerage with clients nationwide. We do more than make sure you have the right policy. We help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.