Liability market steadies, but loss costs keep pressure on rates

General and excess liability insurance renewals continued to improve at midyear as increasing competition among insurers moderated rate increases for many commercial buyers, although rising claims continued to prevent the market from softening significantly, experts say.

“The rate of increase is decreasing,” said Bob Greenebaum, executive vice president at CRC Group. “It’s still not what I would characterize as a soft market, it’s a softening market.”

Most buyers with favorable loss experience saw low- to mid-single-digit increases on primary general liability renewals and single-digit or low double-digit increases on umbrella and excess liability programs.

“We’re in a marketplace that’s disciplined and becoming increasingly competitive,” said Matthew Hannon, New York-based U.S. national casualty practice leader at Aon. Insurers are competing aggressively for desirable business while increasingly differentiating accounts based on individual risk characteristics rather than industry class alone, he said.

That shift has produced what Mr. Hannon described as several “micro markets,” in which companies in the same industry can face dramatically different renewals depending on their loss experience, risk management practices and program structure.

“We’ve moved from an era of industry-based underwriting to one of risk-based underwriting,” he said.

Competition has increased even though casualty loss trends remain elevated.

“We can’t get ahead,” said Donna Nadeau, head of large commercial at Axa XL. “We are treading water in terms of trying to keep up with loss cost trends,” as court awards and settlements continue to rise, she said.

Excess casualty renewals continued to generate low-double-digit rate increases in the first half of the year, while primary casualty rates increased in the mid-single digits, Ms. Nadeau said. Construction remained one of the most challenging sectors, with excess casualty rates running several percentage points higher than the broader portfolio.

Actuarial loss trends remain in the high single digits, but competitive market conditions have held pricing below those levels, said Evan Hessel, Los Angeles-based casualty practice leader at Arthur J. Gallagher & Co.

Most primary general liability and auto liability renewals saw low- to mid-single-digit increases, while umbrella and excess liability rates generally rose in the mid- to high-single digits, he said.

Competition is being fueled by abundant capacity, including continued growth in the managing general agent sector, brokers said. Broker facilities also continue to expand. This week, Marsh Risk launched a $30 million lead umbrella casualty facility backed by multiple insurers, the latest in a series of facilities the broker has introduced in the excess liability sector.

The casualty market is also feeling indirect pressure from the sharp downturn in property insurance pricing, Mr. Greenebaum said.

“I think there is some interplay going on between a property market that’s seen the bottom fall out and requiring casualty to pull more weight than it should to bring in premium,” he said.

Although insurers continue to maintain underwriting discipline, capacity has become easier to obtain than it was a year earlier, Mr. Greenebaum said.

“It’s easier to put things together today than it was a year ago, and certainly than it was two years ago,” he said, citing additional insurer investment, new MGAs and a growing number of fronting companies.

Across CRC’s excess liability placements, the average increase was 6% in June, he said.

Even so, the market remains difficult for higher-hazard risks.

Transportation, health care and habitational real estate continue to face the toughest renewals, although those classes are seeing more moderate increases than they did a year ago, brokers said.

“Lead umbrellas for very large loss-exposed risks, like trucking companies or habitational real estate companies, are among the toughest placements in the whole insurance market,” Mr. Hessel said.

Brokers and insurers are also closely watching whether tort reform efforts will improve long-term liability trends.

Mr. Hessel pointed to legislation increasing transparency around third-party litigation funding, while Mr. Hannon cited North Carolina’s recent law banning third-party litigation financing as a positive development. Ms. Nadeau called the North Carolina measure “a tiny first step,” saying broader adoption by other states would be needed to materially affect casualty loss trends.

For some buyers, however, reforms already are making a difference.

Memphis-based Envolve Communities, which owns and manages affordable housing properties, renewed its liability program in April with low-single-digit increases in general liability, despite operating in the challenging habitational sector, said Anthony Krone, the company’s vice president of risk management and insurance and a member of the Risk & Insurance Management Society.

Reforms to premises liability laws in Florida and Georgia have increased insurers’ appetite for habitational business in those states, creating more capacity and improving pricing, Mr. Krone said. Axa XL has also begun to see some improvement from Florida’s reforms, although the effect is muted because most large commercial accounts have nationwide exposures, Ms. Nadeau said.

Mr. Krone also credited Envolve’s results to consolidating its insurance program with a single broker, IMA Financial, after previously using several intermediaries.

“I would tell any of my peers, find yourself a broker that can best tell your story and go with that broker,” he said. Having one intermediary consistently communicate the company’s risk management story to underwriters, combined with regular meetings throughout the year, has helped the company outperform its insurance budget for the past three years, he said.

While underwriters continue to scrutinize emerging liability exposures, brokers said most buyers are not seeing significant new exclusions on renewing policies.

Several sources said that although exclusions for artificial intelligence-related liabilities are available, insurers generally are not requiring them for commercial liability renewals. “We’re not seeing any major exclusions being put forth, and that’s something we are closely monitoring,” Mr. Hannon said.

Despite improving conditions, market participants do not expect liability pricing to follow property insurance into broad rate decreases.

The long-tail nature of casualty claims continues to distinguish the market from property, where insurers know much sooner whether a year was profitable, brokers and insurers said.

“I think we’re going to see some moderation,” Ms. Nadeau said. “But I would be really disappointed if, in the absence of some significant external change, we lost our discipline as underwriters because there’s nothing in sight that would suggest that costs are going to moderate.”