Today’s Market: Update on July 1 Renewals
In June, EPIC published a short report assessing the impact of the coronavirus pandemic on our clients’ insurance programs, as well as on carriers. For many Insureds, July 1 is an important renewal period. This brief update provides additional observations on changes that occurred in markets from June until now. Many areas remain unchanged, therefore only markets with additional comments are called out below.
Accountants Professional Liability
The general trend toward flat to higher rates that began earlier in the year continued through mid-year renewals. Firms with losses saw more severe rate increases and/or retention changes, while firms with favorable claims history and a significant increase in revenues achieved only minor rate adjustments. Due to higher revenue growth, any firms renewing at flat to lower rates were also paying significantly increased premiums. Risk selection and capacity placement also continued to be scrutinized by insurers, with the London market acting much more conservatively than domestic markets.
Architects & Engineers
The market is continuing to firm, following a relatively stable, but hardening, trend. Recent renewals continued to span a broad range of outcomes. In one example, there was a non-renew attempt by a market on a workers’ compensation program with a zero percent loss ratio. Overall, underwriters are requesting more in-depth information at renewal.
Professional Liability renewals with international risks are firming as well, led by the London markets. Virus exclusions are beginning to emerge.
The Aviation insurance market continued to tighten significantly, following a hardening market throughout the first half of 2020. Carriers refused to write certain classes of business, such as piston engine overhaul shops and commercial helicopter operators, and most renewals saw increases of 20% to 30%. Coverage continued to be limited, with liability limits cut by 50%+ on some risks, such as owner-flown aircraft and helicopters.
Greater underwriting scrutiny across all lines of Aviation coverage has increased further with minimum increases of 20% to 25%, and up to 50% to 100% for high-risk operations. The rotorcraft sector has been hit particularly hard, with high-profile losses a contributing factor.
Although many airlines have returned to some level of operation, demand is still very low. Most aviation-related businesses continued to experience a significant bottom line impact. Many ancillary coverages and no-claims bonus clauses, as well as excess auto liability and excess employer’s liability, are being eliminated from Aviation policies. Pricing is expected to escalate through the rest of 2020 and well into 2021 across all lines of Aviation insurance.
Despite the slowdown in court proceedings, there has been an increase in pandemic-related putative class actions (not yet certified) filed across the country. Industry sectors hit hardest by class action litigation include education, entertainment, financial services, hospitality, insurance, sports, transportation and travel.
Shelter-in-place orders have led to a reduction in automobile accidents, but higher fatality rates per miles driven due to speeding and reckless driving on open roadways. Rates, which remain unchanged from June, are still rising in the Automobile and General Liability lines; Workers’ Compensation pricing remained relatively soft; and capacity is contracting in the Umbrella and Excess markets.
The impact of the COVID-19 pandemic on the Construction insurance market is still largely unknown. It has introduced a number of dynamics that will potentially put additional stress on an already challenging marketplace for contractors. Due to its classification as an essential business in virtually all geographical regions, the Construction industry has sustained employment surprisingly well thus far (just -4.4% year-over-year in June, second lowest among all industries). The overall volume of construction starts is down, however, almost 23% over the first six months of 2020 compared to the same time period a year ago. While contractors continue to perform on existing contracts, the reduction of available “new” work to replace it will inevitably lead to demand in excess of supply, a loss of jobs in the sector and the potential of financial challenges for contractors. This is particularly true for builders focused heavily in those industries hardest hit by the pandemic (e.g., hospitality, office, industrial, transportation, retail, etc.). If past history is an indication of the future, these factors will negatively impact claims experience and the resources contractors have available to control and mitigate operational and work-product related losses. An increase in rates and a reduction in capacity seems likely.
Access to excess liability limits for annual programs and project policies has continued to harden, and the areas of participation for those carriers who have stayed in the market is continually shifting. With the loss of capacity are expected increases in costs and a more restricted appetite for risk from carriers. Reduced risk appetite is not limited to the excess liability market. Outside of Worker’s Compensation and some specialty lines, the current environment is pushing contractors toward higher deductibles and more restricted coverage. Increased underwriting scrutiny has also reduced the number of participating carriers on what previously may have been considered a benign risk.
As a high-risk class of business, construction companies are likely to be among the first buyers to experience high levels of underwriting scrutiny from carriers as they seek to write only best-in-class risks. Recent loss experience on annual renewals will likely be weighed more heavily than ever before, as will the attention and resources committed to loss control and safety, quality assurance/quality control (QA/QC), contract and litigation management, operational audits, employee training and investments in technology.
Insureds should understand what current carriers can and cannot offer on renewal (in terms of limits, coverage and options) well in advance of renewals. It is important to communicate investments in operational and safety technology with carriers at the time those investments are made. This highlights a commitment to continually managing risk, increases dialogue with carriers and allows for market feedback relative to the investment.
As underwriters become more selective, so does the time frame over which they need to become comfortable with a new risk and acquire needed information. It is advisable to partner with carriers’ loss control professionals in conjunction with in-house safety and brokers. Positive feedback from those in the field who are respected by underwriters is a differentiator.
Despite the business interruption and disinfection expense claims that have already been reported for pandemic-related losses, some markets have not yet broadly implemented new language (especially those not already excluding viral or communicable threats). Some early coverage positions are actively being challenged. Many Environmental Insurers are avoiding the healthcare industry entirely, which may significantly limit competition.
Generally speaking, Insureds with favorable loss experience have not experienced notable coverage or price changes. Those with poor loss experience are often re-underwritten, with all aspects of the policy potentially subject to added restrictions. Insurers evaluating new business are disciplined and less interested in gain share or market share. It is still far too early to reliably predict the ultimate impact of the pandemic on any one Insurer, or the overall market.
Since the start of the pandemic, premiums have continued to rise across the Hospitality sector. Underwriter referral processes continue to be backlogged. Hardening conditions have continued to accelerate. Insurers remain fearful of Business Interruption claims, empty restaurants and hotels, and that the return of guests could spark a new wave of claims. All accounts are underwritten individually and risk management accounts may experience some dislocation in rates. With Workers’ Compensation rates continuing to harden, the months ahead could continue to be difficult for Hospitality sector.
Prior to the arrival of the coronavirus, the global Medical Professional Liability marketplace was under siege after years of soft pricing and escalating losses across the U.S. Overnight, underwriters seemed to focus on profitability rather than growth. The uncertainty created by the coronavirus and lack of a unified Federal response resulted in some underwriters putting a moratorium on new business. Other carriers delayed quoting on renewals. Healthcare immunity orders were issued by certain states, which provided a bit of comfort to the market, and resulted in the easing of some underwriting restrictions.
At July 1, underwriters selectively deployed capacity. Limits of $25 million were slashed; in some cases, to $10 million or less. Significant market tightening resulted in 5% to 15%+ minimum rate and premium increases, depending on venue, for accounts without losses; and 15% to 30%+ increases for accounts with large losses impacting excess layers. Excess layers were more affected due, in part, to batch claims and an increase in claim severity. Self-insured retentions required an actuarial evaluation, but clients with no excess losses, or reserves, were able to maintain their expiring retentions (except for batch claims). Batch claims were subject to higher self-insured retentions. Insureds with large losses impacting excess layers evaluated the benefits of increasing their retentions to mitigate any premium increase. Aggregate retentions continue to be more difficult to obtain and if offered, are multiples of expected losses.
In order to address potential “batch” claims, some markets added sexual misconduct and controlled substances exclusions. Similarly, some added a pandemic exclusion. The inclusion of the pandemic exclusion was not universal, however, and was determined on a case-by-case basis.
Underwriters’ return to profitability translated to increased scrutiny on all submissions with a particular focus on managing coronavirus exposures, opioid policies, plans for managing growing physician populations, technology and litigation management.
Zurich’s recent announcement that it will no longer write medical professional liability insurance as of November 1, 2020 will add to the turbulence of the market. This announcement will create opportunities for other domestic markets, as well as London and Bermuda, to increase market share. An evolving and challenging Medical Professional Liability marketplace is expected for the next two to three years. The market can change quickly though, depending on progress toward containment of the pandemic, the potential for national tort reform, control of medical cost inflation and, perhaps, the introduction of new capacity. Until then, clients should be prepared for a rocky road ahead.
Technology & Life Science – Middle Market
Middle Market Technology and Life Science are better equipped to handle a remote work environment than most industries, which has allowed many to remain open during the pandemic. Still, some industry segments, such as lab and medical device companies, have experience reduced revenue. The market, which was already beginning to harden, has hardened further for Directors and Officers (D&O) insurance. Pricing varies widely from one carrier to the next. Carriers on these lines are cautious on renewals and, in many cases, cutting back significantly on capacity. It is critical for Insureds to allow plenty of time to push underwriters for coverage offerings. While there have not been significant, systematic changes in coverages or terms and conditions, underwriters are requesting much more information related to coronavirus issues, business continuity and employment practices. Companies that cannot answer questions to underwriters’ liking are seeing denials to offer coverage proposals, or proposals with higher retentions and limitations of coverage.
|Line of Coverage||Rate Change|
|Rotorcraft/helicopters||+20% - 50% (+100% for high risk ops)|
|Light Aircraft||+20% - 30%|
|Corporate Aircraft||+20% - 50%|
|Fixed Base Operators||+20% - 25%|
|Component Product Manufacturers||+20% - 30%|
|Aircraft Manufacturers||+50% or more|
|*All based on no loss history past 10 years|
|Auto Liability||+10% - +30% or more for higher hazard risks
|General Liability||+10% - +15%|
|Workers’ Compensation||-2% - +5%|
|International Casualty||-5% - +5%|
|Umbrella Liability||+25% or more for higher hazard risks
|Excess Liability||+50% - +150% or more for higher hazard risks
|Cyber||0% – +10%|
|Directors & Officers Liability*|
|Private Company||+5% - +25%
|Public Company||+25% - +50+%|
|* Certain industry classes are experiencing higher rate increases in addition to retention increases|
|Employee Benefits||+40% possible on renewal|
|Employment Practices Liability||+5% - +25%|
|No Losses and Low or Medium-Risk Industry (class-A office; warehouse risks); most CPL business||0% - +5%
|Moderate-Risk Class or Complex Risk (mold/habitational; large portfolios; tougher CPL risks)||+5% - +10%
|Losses (frequency or severity) and/or High-Risk Class (heavy industrial; PFAS or other emerging risks)||+20%+; coupled with coverage restrictions
|General Liability||+10% - +15%
|Property||+25% - +30%|
|Umbrella||+25% - +30%
|Cargo including STP||+10% - +20%
|Excess stock/warehouse ||+15% - +30% (when capacity is available)
|Hull||+5% - +15%|
|Primary P&I ||+10% - +15%
|Primary MGL ||+10% - +20%
Excess of $1 million
|+15% - +25% (very limited capacity)|
Excess of $5 million
|+5% - +10%|
|Medical Professional Liability||+5% - +15% + minimum
+15% - +30%+ for loss impacted and difficult jurisdictions
|Accountants Professional Liability||0% - +15% depending on claims/revenue growth
|Lawyers Professional Liability ||+2% - +10%
|Overall Professional Liability||0% - +15%
|Property||+10% - +25% no losses; not CAT-exposed
+15% - +50% CAT-exposed
+25% - +60% losses; CAT-exposed
|Surety (Construction and Commercial)||Flat|
|Technology & Life Science – Mid Market|
|Product Liability, E&O/Cyber||+3% - +10% no losses|
|D&O and EPLI||+10% - +30% (clean, private company)
+15% - +50% (clean, public company)
Important disclaimer: the ranges above are macro observations only. Every risk is comprised of its own characteristics (such as industry, loss history, geography, etc.) that may impact renewal pricing.