As another quarter passes with the world in the grips of COVID-19, the impact on the commercial insurance market can be summed up in one word: Uncertainty. In this 3rd Quarter Commercial Lines Insurance Market Update, we look at the sources of this uncertainty, from COVID-19 to ransomware, in an effort to help you prepare for increasing premiums and other impacts on your business.
Market Trends You’ll Find in the Report
The uncertainty of the ultimate impact of COVID-19 is prolonging an increasing premium environment in the D&O and Casualty segments of the market. Premiums were increasing in both D&O and Casualty for several quarters before the onset of COVID-19 due to severe losses in both segments. D&O litigation frequency dipped somewhat in the first half of 2020, but most believe that was due to the disruption in the courts arising from the pandemic. D&O insurers are concerned that the longer the pandemic continues, the more private companies will fail and public companies will have more financial problems that were not adequately disclosed, leading to even more D&O litigation.
Market-leading carriers continue to seek large premium increases and upward adjustments on retentions, while in some cases simultaneously cutting limits; increases are generally more severe on excess layers. The coronavirus outbreak has exacerbated these trends.
The economic uncertainty created by the COVID-19 shutdown is resulting in more D&O litigation due to factors such as misleading statements about the outbreak, deceptive claims regarding potential vaccines and treatments, and privacy concerns; some underwriters are testing COVID-19 exclusions.
As a result of the March 2018 Cyan decision, IPO pricing and retentions have skyrocketed, though the March 2020 Sciabacucchi ruling on federal choice of forum in the Delaware Supreme Court may provide some relief.
Cargo & Stockthroughput Market Update
Cargo-only policies with good loss history are seeing single-digit rate increases. Stock Throughput policies are seeing rate increases from 12% to 50%; companies with significant losses are seeing even larger increases.
Companies with transit exposures in Mexico are seeing warranties that require special security procedures. Most Lloyds markets are excluding losses from strikes, riots or civil commotion.
The following occupancies are seeing the largest rate increases: Pharmaceuticals, Food, Wineries, and Retail.
In the property segment, rates continue to increase not due to COVID-19, but rather due to catastrophe losses coupled with years of inadequate rates. Also, the civil unrest in Q2 has resulted in significant property losses. The second quarter of 2020 marked the 12th consecutive quarter of premium increases in the property segment of the market.
Insurers are continuing to quote rate increases:
- +4% to +25% rate increases for standard renewals.
- +20% to +50% rate increases, or non-renewal, for problematic accounts.
Problematic accounts are being classified as loss-driven, no demonstrated commitment to risk improvement, or catastrophe-prone. Many carriers are putting increased emphasis on verifying reported values following losses revealing undervaluation. Retail occupancies are seeing increased deductibles and premiums due to looting losses.
Insurers continue to quote rate increases.
- +9% to +30% increases for standard renewals
- +30% to +90% increases or non-renewal for problematic accounts (loss-driven, no commitment to risk improvement, or significant natural catastrophe exposures).
Many carriers are putting increased emphasis on verifying reported values following losses undervaluation.
Retail occupancies are seeing increased deductibles and premiums due to looting losses. Many Lloyd’s Syndicates now exclude strike, riot, and civil commotion losses.
Casualty insurers have been adding communicable disease exclusions to programs in industries in which they believe liability litigation arising out of the pandemic is likely (i.e., hospitality, education, etc.). Furthermore, we’ve noted a change in the Workers’ Compensation market. Workers’ compensation has been the bright spot for many commercial insurance buyers over the last two years because premiums were decreasing in this segment while they were increasing just about everywhere else. This changed in Q2 as COVID-19 took hold and workers’ compensation insurers became concerned about the impact of the pandemic on losses.
Insurers have broadened disciplined risk selection and pricing strategies to smaller companies. Adverse development on historical auto and general liability claims continues to drive rate increases
After years of a soft market in workers’ compensation, insurers are seeking and obtaining modest single-digit rate increases to address concerns over Covid-19.
Excess Liability underwriters applying increased minimum prices per million of capacity for most risks and seeking to restrict coverage for liability claim drivers such as assault, communicable disease, and wildfire.
Cyber Liability Market
Cyber is another segment of the market where premiums are increasing but not as a result of COVD-19. Ransomware has been a problem for years but losses being paid by insurers are becoming more frequent and more severe. In our last Quarterly Update we reported that premiums were up. That trend continues along with more scrutiny around underwriting with underwriters asking more detailed questions on controls and utilizing network scanning technology.
Sweeping regulatory changes around consumer privacy rights is driving increased concerns over more costly losses on the horizon. Board oversight of cyber and privacy risk is increasing as a result of changing workplace dynamics such as remote working.
Experts from Woodruff Sawyer, Littler, and Llarena, Murdock, Lopez & Azizad will do a review of California’s recently passed AB 685 and SB 1159, both of which place mandatory COVID-19 reporting requirements on the employer.
IN THE NEWS
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Gavin Newsom recently signed Assembly Bill (AB) 685, which sets new requirements for employers to notify their employees and their unions about a potential COVID-19 exposure in the workplace.
On September 17th, Gavin Newsom signed into law Senate Bill 1159, establishing three rebuttable presumption labor codes for employees contracting COVID-19 and puts substantial reporting requirement burdens on employers and claim administrators.