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Survey Report

Construction Marketplace Realities 2019 – Umbrella / Excess Liability

Insurance Consulting and Technology

March 29, 2019

Construction Umbrella and Excess Liability placements are expected to have challenges in 2019 as underwriters are scrutinizing rate, capacity and attachment points.

Rate predictions

  Trend Range
Umbrella Liability Rate Forecast: Increase +5% to +10%
Excess Liability Rate Forecast: Increase 0 to +5%

Key takeaway

Construction Umbrella and Excess Liability placements are expected to have challenges in 2019 as underwriters are scrutinizing rate, capacity and attachment points.

Construction Umbrella and Excess Liability placements are expected to encounter challenges in 2019. As with the Umbrella marketplace across industries, construction underwriters are increasingly scrutinizing rate, capacity and attachment points and often taking action to adjust one or more of those parameters, resulting in disruption to existing program structures and pricing. Generally, market appetites for Umbrella carriers are narrowing. We expect these market challenges to have a greater impact to programs with unsupported Umbrella programs (e.g. where the Umbrella market does not also write the primary casualty program).

  • Auto Liability fleet exposure and attachment points have been a focus for Umbrella underwriters for some time. While the construction Umbrella market has been slower to respond (in part due to the lower per-unit mileage exposure), changes are happening to underlying attachment points and pricing, and this is expected to continue. It is essential for underwriting submissions to present fleet details, usage and, where possible, mileage figures, to put this exposure in the right perspective vs. true transportation risks. Minimum underlying limits for fleet sizes over 100 units have generally moved to $2M. As fleets approach 1000+ units, we are experiencing pressures to increase to $5M. Fleets in excess of 5,000+ may be forced to look at $7.5M or even $10M, without regard to loss experience. In response, buffer auto liability programs are an avenue to fill gaps, if the primary carrier is unable to address; however, the buffer marketplace is highly limited and pricing is rather uniform, passing on reinsurance costs effectively.
  • Typical capacity deployed in the Lead Umbrella position is decreasing. Many carriers prefer to offer limits of less than $25M in the Lead position, as has been customary in the past. Shorter umbrellas of $10M or $15M are common and $15M xs $10M and $25M xs $25M are seeing increased competition. This phenomenon is in direct correlation to the increase in severity on primary auto and general liability losses – carriers view a $10M hit as much easier to absorb across a portfolio in comparison to $25M.
  • For New York risks, excess capacity remains limited below $5M per occurrence with only a select number of carriers willing to participate. Higher excess liability capacity remains plentiful with carriers from New York, London, and Bermuda pursuing excess business.

Disruptors on the horizon:

  • Wildfire – a “burning” issue. In 2018, several areas of the western U.S. were burned by historic wildfires for the second year in a row. Estimated insured losses from the 2018 Camp Fire could be between $7.5 billion and $10 billion. This is not just an attachment or pricing concern, but rather anxiety around complete vertical exhaustion for those carriers exposed to construction operations that support utilities in the Western and Southwestern geographies of the United States. As reinsurance treaties are being negotiated, whatever capacity carriers are willing to extend will be offered with discretion and monitored closely to avoid stacking of limits. This translates into intense underwriting data requirements, a need for formalized fire prevention/mitigation strategies, and ultimately the risk of wildfire exclusions in the lead umbrella or excess tower.
  • A contracting domestic marketplace. Some key U.S. insurers with significant market share are walking away from Umbrella renewals or are expected to significantly reduce capacity – all done with intent to right the course on underwriting profitability. One major Lead Umbrella market in particular shifted their platform to only entertain construction risks via non-admitted paper or through alternative access points overseas. Another insurer that distributes through both a traditional and specialty channel is carefully managing the capacity available on any given risk. It is important to note that the total capacity available from incumbent markets on Umbrella / Excess program may be reduced.
  • London and Bermuda. The London and Bermuda marketplaces remain a key source of capacity for the construction industry on Umbrella and Excess and will be essential to solving capacity challenges, particularly on large Excess placements. However, these markets are placing increasing value on Excess liability capacity, so replacing capacity may come at a cost. With more than 20 markets and $800M in capacity to lean upon, direct engagement overseas will be imperative to ensuring effective renewal outcomes.
  • Aggregate Exposure vs. Premium – Carriers, even in high excess positions, are placing increasing value on their total aggregate limit exposure. This is resulting in a push for rate across excess programs above what has been customary over the last several years, particularly where per project aggregates are required on practice placements and per project and/or annually reinstating limits are required on project business.
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