2024 Q3 Umbrella and Excess Market Update

The summer of 2024 saw the continuation of a puzzling Casualty insurance market. Results are mixed, which shouldn't come as a surprise if you've been keeping informed with our quarterly updates. The market can be summarized as "predictably unpredictable." There are results spanning from placements that beat marketplace expectations significantly and then there are placements that are extremely arduous, leaving all parties involved feeling lukewarm. How does this continue happening, and most importantly, why?

Continued Claim Uncertainty

In markets of years past, costly and unpredictable claims settlements were typically reserved for large national or even global casualty accounts. Complex risks usually meant complex claims, and the brokering and underwriting community understood that.

In the current legal environment and with inflation continuing to push medical pricing up, however, carriers are continuing to see an increase in complex and costly claims for what they would refer to as "middle-market" business, resulting in a chain reaction of the following:

1. Continued displacement from standard and package carriers. Historically, on lower-hazard or even general middle-market business, standard carriers could write all lines and achieve economies of scale. With increased verdicts on this historically well-performing middle-market business, standard carriers are now taking a more critical look at that tranche of business. They aren't afraid to move on from risks that have sustained a single severe loss or even multiple less-severe losses as they push to continue to achieve profitability and lower combined ratios.
2. An influx of business to the Excess and Surplus (E&S) marketplace because of the aforementioned displacement. However, pricing in the E&S marketplace is dramatically different from what a standard and/or retail carrier can provide. Carriers can deposit more premium on a single account by writing multiple lines, where the E&S space typically focuses on one or maybe two lines of coverage with a single carrier. With the pricing discrepancies, middle-market insureds who for years have obtained premiums much lower than the E&S marketplace are now experiencing pricing fatigue and continued sticker shock. Difficult conversations continue to be had, and insureds are now forced to look at insurance as a larger part of their overall balance sheet.

Auto Claims Are a Cause for Concern

It's not a well-known secret by any means, but Auto insurance claims continue to plague the legal landscape and force Excess and Umbrella carriers to further manage capacity, attachment point and pricing. Markets are continuing to see evolving claims stemming from auto losses, which can be explained by:

• Long-tail auto claims. Auto insurance is a coverage that, like Property insurance, has a fairly short open-and-closed claim window. Discovery periods are typically shorter and not as drawn out as, say, a complex General Liability case. More recently, carriers have started to see auto claims from older policy terms appear on their historical excess loss runs, which is not common. Could it be that courts are finally getting through the backlog of losses from the COVID years, or is it a newer trend? Time will tell, but this trend is something to keep an eye on.
• Plaintiff attorney innovation. The insurance marketplace has been disrupted by the increased settlement values and nuclear verdicts of the last five years. With attorneys spending almost $1 billion collectively on advertising alone,* lawsuits are more prevalent than ever.

Most importantly, the information, funding and data helping these claims (that historically would settle for much less or not even make it to trial) continues to improve. For auto claims specifically, plaintiffs' attorneys are now not only getting a better understanding of a defendant's hiring practices after an auto claim, but they're also drilling down on the defendant and demanding proof of pertinent information like driver safety documents and employee handbooks; motor vehicle registration information and how often the defendant obtains it; telematics information in vehicles; and maintenance records for the vehicles in the defendant's fleet. If this information doesn't match what the defendant's carrier has on file for their Auto Liability and Excess Liability insurance coverage, plaintiffs' attorneys are instantly looking to increase demands and settlement values.

A constant theme in the current Casualty insurance marketplace is that accuracy and thoroughness of submission information — along with constant communication between insureds, agents, brokers and underwriters — is crucial to curating the most competitive programs for your clients. The current legal environment hasn't changed and doesn't appear to be going anywhere soon, so it's important to continue to partner with an expert in the Casualty space who can explain the "why" behind the market and leave no stone unturned when securing the optimal solution for your insured's Casualty program.

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