US habitational casualty rates surge after carrier exits

Rates for habitational coverage for insureds with worse-than-average loss records are at least 30 percent to 50 percent higher for general liability and sometimes doubling on excess layers, according to wholesale broker CRC.

Habitational apartments
  • GL coverage rates up 10-15% for average risks; 30-50% up for loss-affected
  • Excess layers price 30-50% higher for average risks; 100% increases in some cases
  • NYC GL hab prices have climbed 200-300% in three years
  • Hard market driven by carrier exits and significant shortening of limits
  • Carriers excluding claims for Labor Law, action-over, assault-and-battery, firearms
  • RPGs significantly impacted with few capacity options available

In a report, the firm noted that after a decade of worsening losses, a number of carriers have stopped offering general liability and excess coverage in the habitational casualty market.

Many of those that have stayed in are significantly shortening limits or adding exclusions to coverage in a bid to stem the flow of losses.

The capacity crunch has been particularly severe for risk purchasing groups (RPGs), which have historically represented a significant share of the habitational market.

The report said that former RPG members are now being underwritten as individual risks for excess liability coverage.

RPGs allow groups of insureds with similar businesses – such as real estate owners – to pool risks and purchase insurance coverage together.

Commenting on the broader habitational casualty market in the US, CRC said that the average risk is facing - at a minimum - rate increases of 10 percent to 15 percent for general liability coverage.

Those schedules that have significant amounts of subsidized housing with worse-than-average losses are a minimum of 30 percent to 50 percent higher.

The broker noted that some major carriers have stopped writing monoline general liability for apartments, ceased writing new apartment business, are non-renewing apartment business, or limiting schedules to 1,000 units or 2,500 units.

Exclusions are being added to coverage as insurers look to limit losses. In New York City, Labor Law exclusions are being added as well as those for action-over claims and limitations or exclusions for assault-and-battery claims.

CRC said that general liability rates in NYC are 200 percent to 300 percent higher than three years ago.

Elsewhere, assault-and-battery and firearms exclusions are becoming more common in Florida as well as in Harris County, Texas.

Excess pricing even harder

The impact of tighter capacity is arguably even greater in the excess liability market for habitational business.

The report said that average risks are experiencing rate increases of 30 percent to 50 percent. Loss struck accounts or those with a significant number of subsidized units may see increases of 100 percent.

“There are few options for the RPG market,” said the broker.

The shortening of limits that has been a feature across several segments of the US commercial insurance market is evident in habitational excess casualty.

“Insurers are scaling back limits significantly for lead umbrella or excess coverage. Many carriers have reduced their lead capacity from $25mn to $10mn and in some instances to as little as $5mn.

“As a result, brokers must broadly expand their marketing efforts to renew the expiring umbrella or excess programme limits,” said the report.

It added that some markets will no longer entertain accounts that have more than an incidental amount of subsidized housing, with others only considering risks excess of $5mn in limits.

Some are exiting the market for excess casualty altogether, while others are not considering new businesses or are adding mandatory assault-and-battery and molestation exclusions.

The report highlighted the impact of courts that are proving more favourable to plaintiffs in actions brought against apartment owners, driving verdicts with higher settlements in jurisdictions such as Mississippi, Georgia and South Florida, as well as in Harris County, Texas.

In New York, loss inflation is being driven by action-over claims, when claims against building owners seek settlements above a workers’ compensation claim. The state’s Labour Laws assigning strict liability on contractors and building owners for falls from height are also driving losses and rate increases.

An emerging source of claims facing apartment and building owners is so-called habitability claims, relating to the status and living conditions of a property. The claims do not require an actual instance of bodily injury of property damage and have largely impacted California property owners so far.

Property continues to harden

Habitational property is also turning significantly harder as losses have led to reduced capacity and tighter underwriting.

As previously reported, mounting attritional losses have resulted in carrier exits, most notably in Lloyd’s.

“Some insurers that had been participating in primary now offer only excess capacity. Other carriers have stopped writing hail coverage in areas such as the Midwest, north Texas and Colorado,” CRC observed.

The firm added that as rates have climbed, traditional excess and surplus lines (E&S) carriers are getting interested again at the higher pricing on offer.

“New insurers are also creeping into the market, but they do not have the capacity to fill the void. Through the end of the year, coverage options may become scarcer, particularly if big catastrophes cause large losses in the US.

In the report, CRC said that for a broker and its clients, understanding both the models and carrier appetites is key.

“In short, it’s a market that calls for executing the basics well. That begins with starting early with a strong sense of urgency and providing quality submissions backed by the right account analytics. Underwriters are increasingly demanding better data to evaluate and price multifamily risks,” said the firm.

It added that it is important to identify locations driving property PMLs and to take steps to manage the impact on premiums, such as bringing engineers to a site to evaluate the risk, and helping underwriters determine the optimal programme structure and pricing.

Higher deductible options and deductible buydowns can mitigate increased insurance costs.

“Many underwriters have received direct mandates from senior management banning rate cuts on current placements and may be held accountable if an account does not perform.

“Restructuring placements may help work around this directive. In particular, stretching or compressing coverage layers allow underwriters more room to improve terms,” the broker said.