Excess and Umbrella Markets Continue to Change in 2020

Excess and Umbrella Markets Continue to
Change in 2020
The first quarter of 2019 saw the excess and umbrella markets start to move toward tighter underwriting, and each
quarter since has seen the market get firmer. The second half of the year brought greater capacity restrictions, higher
prices, and significant challenges around program structure, due in large part to nuclear jury awards that have hit excess
and umbrella lines like never before. Brokers that succeed in 2020’s changing market will depend on creativity, proactive
strategic planning, and strong carrier relationships to help clients weather the storm.

While property lines were the first to be hit with limit cutbacks after two years of significant wildfire and hurricane
activity, policyholders are now facing higher rates and reduced limits in a changing excess and umbrella market.7 All
across the country, a renewed focus on underwriting profitability is creating significant challenges around program
structure as limits drop and rates rise.5

Several factors have come together to produce the market changes now facing the excess and umbrella markets. Over
the last decade, excess and umbrella coverages were consistently underpriced even as healthcare costs rose and societal
issues such as opioid addiction, gun litigation, increased hurricane activity, and wildfires became more prevalent.7 In
addition, constant improvements in technology and science have enabled the development of tools widely used to detect
losses and evaluate their causes. Consumers’ technology has also granted greater access to business information such
as trucking fleet CAB reports or corporate safety records. Through the power of social media and a constant stream of
online news, such information is often used to build anti-corporate sentiment and drive up jury awards.10

LARGE JURY AWARDS DRIVING UP COSTS FROM COAST TO COAST
While many factors are playing a role, those with an eye on the market point to higher-value jury awards as the primary
driver of the hardening market.7 It’s no longer unusual for a jury award to reach more than $10 million - or even billions -
as jurors often double the requested award amount.8 In early 2019, a jury in California awarded more than $2 billion to a
couple alleging that Roundup weed killer caused their non-Hodgkin’s lymphoma.3 Judgments that may have been worth
$100,000 a few years ago, are worth $300,000 in today’s litigious environment, and it isn’t uncommon for an attorney
to immediately demand payment up to the policy limit.3 This means that underwriters are carefully evaluating areas
that are notorious for large jury awards or are considered hostile operational environments because they can drive up
rates nationwide.3 For example, over the last 12 - 18 months Georgia has become a place where the claims environment
has shifted regarding judgements, and that trend is making its way into other southern states such as Texas and Florida,
where placing defense outside limits is becoming more of a challenge.

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Today’s juries generally perceive big corporations to be unethical – willing to do anything to increase their bottom line.
Stories of corporate malfeasance, true or not, often spread across the internet like wildfire, creating an atmosphere of
mistrust that works in favor of plaintiffs because all large organizations are viewed as overly privileged entities with
deep pockets.8 As stories of the individual versus big corporations have become more accessible, juries’ tendencies to
side with those they view as “the little guy” have grown, and any error made by the defendant becomes enough proof
for a jury to side with the plaintiff even if the defendant did everything right.8 In 2018, Werner Enterprises, Inc., one
of the country’s largest trucking companies, was shocked by massive jury award for a 2014 fatal car accident in Texas.
According to Werner, the commercial vehicle could not avoid the collision when a pickup crossed over into oncoming
traffic. Werner’s truck was operating below the speed limit and did not lose control. In addition, authorities did not find
the Werner driver at fault for the accident.9 However, the plaintiff’s attorney argued that Werner’s truck should have
pulled off the road completely due to inclement weather, and the jury agreed - to the tune of $89 million dollars.

       Rates Increase
                                                             Excess liability and umbrella markets
                                                             are leading the way in the casualty
                                                             arena as rates increase and limits
                                                             decrease.2 Insureds can expect to see
                                                             double or triple-digit premium increases.
       Limits Decrease

The cost of colossal jury awards, like Werner’s, are hitting excess and umbrella lines like never before. Combined
with other market factors, the result is considerably higher premium rates in 2020. In 2018, most policyholders saw
single digit rate increases, but 2019 mid-year data reflected premium increases ranging between 5% and 20% in the
excess and umbrella spaces, with 9.8% being the average as insurers strive to improve profits through more careful
underwriting.2,6 Challenging classes are seeing prices rise at least 20%, with some seeing triple-digit price hikes as
big losses cause rates to skyrocket. Habitational classes seeking general liability insurance are being hit hard as risk
purchasing groups (RPGs) fall away, and the commercial auto and property sectors are seeing large premium increases
as market-leading carriers adjust policy limits downward.1 Even after multiple years of premium increases, commercial
auto rates increased 9.1% in the third quarter of 2019, and they’re expected to continue rising in 2020 due to inadequate
reserves and large transportation losses.2,6 Finding excess coverage for construction in New York is more difficult than
ever as commercial auto losses hit excess lines. The East Coast is seeing carriers increase deductibles from $25,000
to $100,000, making it difficult for insureds to obtain affordable insurance. Many smaller New York contractors are
attempting to ride out the hard market with general liability only, while others are merging or closing their doors
because they can’t afford to stay in business. In the West, and especially in California, customers can expect to see
premiums reach at least 20% of wildfire coverage limits, if the coverage is obtainable at all.

PRESSURE ON CAPACITY RISES
Rising premiums are only part of the challenge facing brokers and policyholders. As rates have gone up, capacity
limits have continued to shrink. While the changes in limits have mainly been felt by larger policyholders, the market
changes are also trickling down to affect mid-market accounts.2 As insurers take big hits from jury awards, some have
chosen to leave the market, but new carriers aren’t entering, causing limits to keep dropping and driving up attachment
points.2, 4 In the past, $1M was generally the rule when it comes to personal umbrella coverage, but today’s markets are
pushing attachment points to $2M or higher. In the commercial sector, $10M - $15M lead umbrella limits have replaced
$25M lead limits without any corresponding drop in premium. Commercial auto will also continue to be a difficult area.
Policyholders with a mid-size auto fleet may only be able to renew up to half of their previous program limit, requiring
several carriers to reach previous aggregate limits. Agents should expect difficulty assembling the umbrella if the auto
premium is larger than the general liability premium or if an auto fleet is small but heavy.

Although limits are dropping, there’s still plenty of market capacity – carriers are just selling that capacity in thinner
layers in an effort to utilize capital judiciously.4,7 Thinner layers are making it difficult for policyholders to maintain the
program structures they’ve had in the past. In prior years, carriers would often put up limits in separate tower layers,
but in the current market environment, carriers aren’t willing to come back in above their initial limit even if there’s
a gap in the tower.2,4 Brokers are now building excess programs using $5M and $10M layers when only a year ago it
was possible to fill out a $100M tower with just 4 or 5 insurers.7 In 2020 it will be increasingly important to try to get
as much lead limit as possible in the first $25M of a tower. Then, once the market feels that the price is appropriate
for a certain layer, carriers will start to compete for the business. When it comes to excess coverage in 2020, brokers
and agents will need to be more creative to help stretch that capacity. One solution may include exploring quota share
options when building a program tower above $50M. Carriers aren’t always willing to take on a full layer, but providing
them with a partner to share in the risk builds confidence and may make them more willing to do it at the right
premium. Finding the creative solutions this market demands will require that brokers and agents start collaborating
earlier and with a proactive mindset.

         Tips to Create the Best Outcomes
         Putting together the best deal will require agents to start talking to policyholders 3 - 4 months ahead
         of renewal to confirm attachment points, strategize about how to approach the markets and design
         program towers. Clients need to create complete submissions that clearly break down 7 - 10 years
         of loss history, include supplemental applications, and provide a 5 - 7 year breakdown of historical
         vehicle counts and mileage for transportation submissions. Brokers and agents can also help create
         a better risk profile for accounts by understanding and outlining the steps clients have taken to
         mitigate risk, such as vehicle maintenance programs, new safety measures, and additional employee
         training. Underwriters want to see that insureds are willing to invest in their own stability by addressing
         potential risks, and policyholders are looking for insurance partners that can help them use business
         intelligence data to drive the risk differentiation that underwriters are looking for.5

BOTTOM LINE
The excess and umbrella markets are changing rapidly, and the potential impact on policyholders includes double or
triple-digit premium increases and tighter coverage conditions. This current atmosphere of more selective risk taking,
tighter underwriting, and less competition is expected to be more intense and last at least 18 months, if not longer.4,7
Wholesalers will continue to play a major role as more business is pushed out of the standard markets due to escalating
jury awards that are upending claims loss ratios. Already, underwriters are reporting substantial increases in submission
flow.7 Agents need to be proactive in setting appropriate pricing and limit expectations with clients and ensure that
submissions include all pertinent data.

A strong relationship is more critical than ever before. Agents that partner with CRC Group can assure policyholders
that they’ve scoured the excess wholesale market and explored all options to secure the best possible deal. We have
amassed the largest collection of actionable data and analytics in today’s wholesale industry, and our teams put that
information to work, consistently delivering better outcomes for agents and policyholders through our REDY platform.

Contact your CRC Group producer to discuss how we can best help your clients when it comes to their excess and
umbrella coverage needs.

Contributor
     Josh Chassman is a Senior Broker with CRC’s San Francisco office and member of the Casualty Practice Advisory
     Committee. He has been part of the wholesale insurance business for more than 20 years and focuses specifically
     on Casualty.
     Frank Dias is a Senior Vice President in the CRC Seattle office and a National Casualty Practice Leader. Frank
     specializes in Construction and Environmental Insurance.
     Craig Nettles is a Broker in CRC’s Atlanta office, handling a large portfolio of General Liability, Casualty, and
     Environmental Insurance business all across the country and a member of the Casualty Practice.
     Jake Scott is an Associate Broker in the CRC Dallas office where he focuses on Casualty Insurance and is a member
     of the National Casualty Practice Group.
     Rina Visconti is a Senior Broker with CRC’s New York office where she specializes in Casualty Insurance and is a
     member of the National Casualty Practice Group.

ENDNOTES
1.   	
     Surplus Lines Premium Grows in Response to Weak Results; Top 15 E&S Writers: Fitch, Insurance Journal, October, 7,
     2019. https://www.insurancejournal.com/magazines/mag-features/2019/10/07/544541.htm

2. Casualty
   	        Rates Rise As Capacity Tightens, Business Insurance, June 25, 2019, https://www.businessinsurance.com/
   article/20190625/NEWS06/912329204?template=printart.

3.   	
     What’s Responsible for Firming Personal Umbrella Rates, IA Magazine, July 22, 2019. https://www.iamagazine.com/
     markets/read/2019/07/22/what-s-responsible-for-firming-personal-umbrella-rates

4. What
   	    to Expect in Commercial Insurance Market Conditions Heading into 2020, Insurance Journal, November 12,
   2019. https://www.insurancejournal.com/news/national/2019/11/12/548130.htm

5. Upward
   	      Pricing Predicted for Most Lines of Business in 2019, Property Casualty 360, May 10, 2019,
   https://www.propertycasualty360.com/2019/05/10/upward-pricing-predicted-for-most-lines-of-business-in-2019/

6.	Insurance Rate Hikes Accelerated in Third Quarter: CIAB, Business Insurance, November 25, 2019.
    https://www.businessinsurance.com/article/20191125/NEWS06/912331882/Insurance-rate-hikes-accelerated-in-third-
    quarter-CIAB-report

7.	Limits Shrink, Rates Harden Across Surplus Lines Market, Business Insurance, October 1, 2019.
    https://www.businessinsurance.com/article/20191001/NEWS06/912330921/Limits-shrink-rates-harden-across-
    surplus-lines-market

8.	5 Reasons Why Juries Are Awarding Billion-Dollar Verdicts, Risk & Insurance, June 11, 2018. https://riskandinsurance.
    com/5-reasons-why-juries-are-awarding-billion-dollar-verdicts/

9.	‘Nuclear Verdicts Take Toll on Insurance Firms Appetite to Underwrite Trucking Risk, DC Velocity, July 2, 2018.
    https://www.dcvelocity.com/articles/201872--nuclear----verdicts-take-toll-on-insurance-firms----appetite-to-
    underwrite-trucking-risk/

10.	Challenging Headwinds in the Excess Casualty Market, Aon, 2019. https://www.aon.com/getmedia/08b09136-e850-
     4df1-98fc-c49d08e39119/Aon-2019-Mid-Year-Excess-Casualty-Market-Whitepaper.aspx