RPS: Habitational is hardest area of “unpredictable” casualty market

US casualty rate increases are lower in 2021 but the market remains unpredictable with habitational the hardest sector, according to a new report from Risk Placement Services (RPS).

Average rate increases of 15-25%, compared with 30% or more in 2020

  • For low-hazard, well-performing accounts, increases of 5-10% available
  • In energy, casualty rates up 10%-15%, GL up just under 5%, auto 15-25% and excess 10-20%
  • Religious sector excess rates up 15-25%, carriers cutting sexual abuse, molestation coverage
  • Sports/entertainment and bars/restaurants rates up 5-7% for well-performing accounts

Following “the most challenging and erratic casualty market in 30 years” in 2020, RPS said the excess market is not as painful now but “remains unpredictable and rates continue to firm”.

The rate increases are not as large as last year. RPS said they currently average 15 percent to 25 percent, compared with 30 percent or more in 2020 for high-hazard segments such as sexual abuse and molestation, assault and battery (A&B) and cyber.

“In addition, fewer carriers have non-renewed business or cut their capacity in 2021 to the extent they did on 2020 renewals, depending, of course, on the industry and exposures involved,” said the report from Arthur J Gallagher’s E&S wholesale broker and MGA subsidiary.

Pricing is “consistently inconsistent” as you move up the excess tower, RPS added, with more upward pricing pressure in a tower than there is in the lead layer.

Whereas two years ago it was possible to secure a $5mn xs $5mn excess layer for 25 percent of the cost of the lead $5mn, by the end of 2020 that same layer was averaging 60 percent of the lead $5mn with three or four carriers needed in certain segments to make up the tower’s overall limit.

New entrants are helping to temper price increases, however, RPS noted.

By line, second quarter 2021 rate changes ranged from 0.3% to +17.4%

“In the last three months, we have seen eight to 10 new entrants with no legacy issues and the ability to hold rates,” said Bill Wilkinson, president, national casualty practice at RPS.

“The new entrants are being strategic in how they build their books of business, looking to establish a long-term footprint with the accounts they choose to write. Those with legacy issues, however, will continue to push rate increases.”

The report characterised the E&S lines market operating on two different levels this year, with good risks finding better rates and terms and conditions while others are facing steeper rate increases.

“For low-hazard, well-performing accounts, competitively priced renewals – with anywhere from 5 percent to 10 percent year-over-year increases – are available,” said Adam Mazan, RPS area president, Southern California.

“The biggest challenge in the marketplace is with mid- to high-hazard accounts, where carriers continue to push rates and have changed their underwriting philosophy.”

Carriers are assessing whether they want to write some exposures such as heavy auto, sexual abuse and molestation, A&B, liquor, cyber and wildfire at any price, or focus on low-hazard accounts. They are also imposing restrictive coverage terms and conditions for high-hazard accounts.

“The sexual abuse and molestation exposure is where you see the biggest change, with only a handful of carriers offering coverage and those offering it doing so on a claims-made basis,” said Mazan.

“In the past, coverage was typically addressed on a silent basis following the occurrence coverage trigger of the policy.”

Nuclear verdicts continue to impact rates. RPS noted that in 2019 and 2020 there were three verdicts ranging from $35mn to $81mn in A&B settlements where negligence was attributed to the insured.

Top premises liability verdicts

Habitational the hardest casualty market

RPS said habitational is the hardest casualty market at the moment as a result of the rise in A&B claims.

Some carriers are no longer writing general liability and excess coverage in the sector due to the influx of losses, including abuse claims, pool drownings, shootings and a rise in habitability claims.

Carriers are quoting renewals with restrictive terms that exclude sexual abuse and molestation, A&B and habitability. RPS noted that A&B exclusions are common in certain areas of Florida and Texas because of crime codes and the legal climate, while habitability exclusions are common in California due to the state’s civil code outlining tenantable living space standards

Auto buffer placements more common

Construction casualty rates continue to increase as a result of social inflation, nuclear judgments, third-party litigation funding, higher medical expenses and state laws.

RPS said low-risk accounts are seeing some relief on the general liability side, while there are still double-digit increases on the excess side in some cases, particularly where there have been losses or accounts with a large auto exposure, habitational construction risks and street/road construction.

The use of auto buffer placements is becoming more commonplace as a result of many carriers requiring general liability limits and auto attachment of $2mn, $5mn or more.

“A lot of carriers are competitive on the primary package, but on a supportive excess basis they’re looking for a $2mn auto attachment,” noted Russ Stein, RPS senior vice president.

Underwriters are also scrutinising more closely risks in states like New York, South Carolina, Florida, Texas, Nevada, Colorado and California because of their laws and litigation environments.

CPL still relatively inexpensive

In the environmental sector, RPS noted contractors pollution liability (CPL) term limits have tightened and capacity decreased in the past five years.

“You have many carriers/MGAs ready to put up $5mn, but gone are the days of the $50mn/$100mn limits from a single carrier,” said Nick Langham, RPS area vice president and environmental specialist.

“Although capacity has decreased, CPL coverages are still relatively inexpensive.”

Energy better than in 2020

RPS said the energy market “is in a much better place than it was at this time last year”, when the pandemic halted travel and slowed down manufacturing. This is the result of oil prices and demand increasing, and consultants returning to the workforce and on job sites.

Losses continue to be steady in the energy casualty market, particularly for auto exposures.

“Currently, we are looking at an average 10 percent to 15 percent rate increase across the board on the casualty side,” said Grant Bryant, RPS Area senior vice president, energy and environmental.

Bryant added that general liability is experiencing the least amount of rate pressure at just under 5 percent, compared with auto rate increases of 15 percent to 25 percent and excess rate increases of 10 percent to 20 percent and higher.

RPS noted that “a great deal of capacity” exited from the troubled London insurance market, resulting in greater dependency on the US domestic market.

“Lloyd’s is just starting to get back to work,” said Bryant.

“Two or three years ago, for example, a $20mn to $25mn excess tower was built with two or three carriers; today you need five insurers to create a tower over a tough primary risk, particularly if it’s auto-driven.”

RPS also noted that pollution is a driver of losses in the energy market.

Tort reform may help to stem the nuclear verdicts seen on the auto liability side within the energy sector. Texas’s governor has signed into law a bill that makes it more difficult to sue trucking companies, including in the oil and gas sector.

In addition, the Colonial Pipeline ransomware attack has highlighted cyber exposure in the energy industry. “There are a great deal more inquiries for cyber insurance,” said Bryant.

Pulling back sexual abuse and molestation coverage

In the religious sector, the most stress is being seen for sexual abuse and molestation coverage, with many domestic carriers unwilling to provide the coverage or cutting back limits.

Most insurers that still offer coverage have moved from an occurrence form to claims-made for sexual abuse and molestation, with minimum premiums increased from at least $100,000 to upward of $200,000.

Primary carriers have struggled to keep their loss ratios below 100 percent.

“On the excess side, we’re seeing 15 percent to 25 percent rate increases and, in some cases, even more if there are unrated carriers below them in the tower,” said Shawn McCall, RPS area senior vice president.

Sexual abuse and molestation settlements are surpassing previous high benchmarks. One of the largest recent verdicts was $40mn for a victim at a New York school, while many others are more than $10mn.

Many states have enacted so-called “reviver” statutes allowing otherwise time-barred claims for sexual abuse to proceed. This has led to a wave of new lawsuits across the country against religious institutions that employed the alleged abusers.

For sports/entertainment and bars/restaurants, excess rate increases are not as high as in 2019 and 2020.

RPS said rates are up an average of 5 to 7 percent for well-performing businesses and entities. The double-digit increases of last year are not being seen in 2021 unless the account has a poor loss history.