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Survey Report

Insurance Marketplace Realities 2020 Spring update – Domestic casualty

COVID 19 Coronavirus

May 7, 2020

The commercial liability marketplace has become dramatically more challenging as deteriorating loss trends continue to hurt underwriting profitability.
Rate predictions
  Trend Range
General liability Increase (Purple triangle pointing up) +2.5% to +7.5%
Automobile liability Increase (Purple triangle pointing up) +6% to +12%
Workers compensation Neutral decrease increase (green triangle pointing down, yellow line, purple triangle pointing up) –2% to +2%
Umbrella liability: High hazard Increase (Purple triangle pointing up) +40% or more
Umbrella liability: Low/moderate hazard Increase (Purple triangle pointing up) +25% or more
Excess liability: High hazard Increase (Purple triangle pointing up) +150% or more
Excess liability: Low/moderate hazard Increase (Purple triangle pointing up) +50% or more

Key takeaway

The commercial liability marketplace, particularly for umbrella/excess liability, has become dramatically more challenging since our fall 2019 report, as deteriorating loss trends continue to hurt underwriting profitability. Workers compensation rates remain stable, but development of presumptive legislation could pose material profitability issues.

The umbrella/excess liability marketplace continues to experience significant disruption, with carriers increasing rates significantly, amending underwriting appetites, reevaluating coverage grants and requiring changes to program structures, i.e., reducing available capacity and requiring higher attachment points.

  • The North American liability marketplace continues to be impacted by significant catastrophic liability losses stemming from many sources, including wildfire, active shooter events, concussion/traumatic brain injury (TBI) litigation, auto accidents, opioids and sexual assault and molestation (SAM) claims. The result is unsustainable loss ratios industry-wide — a primary driver of hardening rates.
  • Loss severity is increasing along with the percentage of litigated claims. The median value of the top 50 U.S. verdicts has almost doubled since 2014 (from $27.7M in 2014 to $54.33M in 2018). These numbers have become the benchmark for future claims. They are the result of aggressive litigation, litigation financing, the impact of changing attitudes toward corporate accountability among juries, and a numbness to stratospheric awards in an age of nine-figure pay packages among celebrities, sports figures, and even CEOs. All of this has become known as “social inflation.” Nuclear verdicts and large settlements, even in jurisdictions perceived as conservative, are another major driver of the current market.
  • Underwriting and pricing guidelines remain fluid, with carriers continuously reacting to market conditions and, at times, changing their positions over the course of the renewal process with insureds.
  • Several key insurance carriers have removed their capacity entirely or reduced their offerings for the largest insureds (Fortune 500) and those in high-hazard risk classes. This drop in supply has led to a material uptick in premium, and the most distressed industries (e.g., heavy auto, sexual molestation exposure, Fortune 50 manufacturers) have struggled to maintain limits regardless of premium.
  • The global market hubs, including London and Bermuda, are more important than ever, and buyers are often re-engaging carriers that may have been previously uncompetitive. These carriers have struggled to post sustainable profits, however, and have increased minimum premiums dramatically.
  • Program restructuring, including stretching primary limits, has generated market interest, mitigating rate increases on the umbrella.
  • Some competing umbrella underwriters have coordinated their quotes with their primary casualty underwriters to offer an overall package or to leverage and/or protect their position on either the primary or umbrella programs or both. This has included higher primary casualty limits and use of corridor retentions to manage price and limit deployment in the lead umbrella. In some cases, insurers who have not historically offered umbrella programs are doing so to protect their primary casualty position.
  • Carriers are capping per-project/per-location aggregates and thoroughly scrutinizing or excluding construction/contingent coverages.
  • Claimants will struggle to establish third-party liability for COVID-19-related damages as there will be a vast array of community factors and exposures in play as well. The scope of potential exposure to casualty insurers from COVID-19 will depend on the creativity and entrepreneurial activity of the plaintiff’s bar.
  • There has been an uptick in communicable disease exclusions. For certain exposed industries, e.g., hospitality, retail and health care, it will be difficult to negotiate these exclusions away.
  • One silver lining of COVID-19 is that the state judicial system in the U.S. has ground to a halt. When it resumes, criminal trials will take priority due to “speedy trial” statutes. Pending personal injury matters could face long delays that may incent plaintiffs and their attorneys to settle out of court.

Auto liability continues to be unprofitable for insurers, as claim payments remain on the rise. Insureds are experiencing continued rate increases and potential program restrictions.

  • Numbers are still under review, but 2019 is poised to be the ninth consecutive year with a combined ratio over 100 for auto liability. Loss costs for bodily injury and personal injury protection have increased by 6.7% and 4.8%, respectively.
  • Rate pressure is causing some insureds to reevaluate higher deductible thresholds or implement corridor deductibles. Increasing primary limits has also become a necessary consideration to help offset umbrella/excess pricing demands.
  • For the past five years, underwriting focus has been on fleets with heavy vehicles. That same scrutiny now falls on any corporate fleet, regardless of make, model or weight of the underlying power units.
  • Increased frequency and severity of losses are the result of a multitude of factors, including more vehicles on the road covering more miles, distracted driving, rising medical expenses, commercial trucking driver shortages, legal climate changes and decay of public infrastructure.
  • Sleep apnea/deprivation continues to be a key factor in accidents, with over 43% of the workforce indicating they are sleep deprived. This is a major issue for risk managers as employers have been found legally liable for damages by not properly managing fatigue and sleep issues.
  • Many newly manufactured vehicles include advanced driver assistance systems, such as automatic emergency braking, lane departure warning systems, backup cameras and adaptive headlights. This advanced technology, while proven to reduce the severity of crashes or prevent them altogether, comes at a cost: it’s expensive to repair and replace.
  • With shelter-in-place demands, businesses have been challenged to modify job duties to generate revenue. This has led to an uptick in hired and non-owned exposure. Companies should work with their insurers to report evolving exposures and be mindful of personal auto insurance exclusions.
  • Complex coverage questions may also apply to public livery risks. Since an auto policy requires an accident to trigger coverage, insurers may be asked to address the question as to whether transmission of a communicable disease in an auto constitutes an accident.
  • Due to the COVID-19 pandemic and subsequent stay at home orders, decreased auto traffic has led to an immediate reduction in traffic accidents.
  • The National Safety Council reports a steady decline in fatal crashes. According to council estimates, in 2019, 38,800 people lost their lives in car crashes, a 2% decline from 2018 (39,404 deaths) and a 4% decline from 2017 (40,231 deaths).

Workers compensation (WC) rate decreases are flattening, as we are beginning to see slight rate increases in the wake of high severity excess losses.

  • Despite National Council on Compensation Insurance (NCCI) estimates that total medical and indemnity severity has increased 11.5% over the past five years, workers compensation remains profitable, with the most recently reported industry combined ratio of 83 (2019 industry combined ratio still being calculated).
  • Recent NCCI estimates indicate that private carrier written premium volume in 2019 decreased 3.9% to $41.6B, a significant drop from 2018’s 9% increase over 2017.
  • According to NCCI, the overall reserve position for private carriers at the end of 2018 was at a $5B redundancy. This is the first time we’ve seen a redundant WC reserve position in more than 25 years.
  • While profitable combined ratios and significant reserves will help offset rate spikes that could result from increases in severity and decreases in premium volume, we expect many buyers will see stable rates or modest rate increases in the near term. However, if COVID-19 becomes a major WC/occupational disease event, then the market environment could change rapidly.
  • California’s Assembly Bill 5, effective January 1, 2020, set a new standard for gig/shared economy workers. Many independent contractors could be reclassified as employees covered by workers compensation and by minimum wage, overtime, unemployment and disability rules. The resulting additional expenses will put pressure on shared economy business models and their insurance programs.
  • Medical technology advancements continue to contribute to mega claims, defined by NCCI as claims over $10M. These high severity claims have become more frequent in recent years, with a significant majority arising from motor vehicle accidents and falls from elevation.
  • State supreme courts are challenging insurers who deny reimbursement for medical marijuana. New Hampshire, Connecticut, Maine, Minnesota, New Jersey and New Mexico accept marijuana as a form of treatment for work-related injuries. The courts have found that reimbursement will not cause the insurance carrier to “possess, manufacture, or distribute” a controlled substance, which is against federal law.
  • Telemedicine continues to play a key role in workers compensation by providing more efficient access to high-quality medical care, mitigating medical expenses and lost time from work, and ultimately reducing claim severity.
  • COVID-19 has caused a substantial percentage of the U.S. workforce to telecommute, creating uncertainty over the definition of “the course and scope of employment.” Employers may have to add neighboring states to their policies, modify class codes and establish guidelines and protocols for working at home.
  • Compensability of workers compensation claims due to COVID-19 will be influenced by several factors:
    • Whether there is an elevated risk of contracting the disease due to the type of employment
    • How easily identifiable the transmission and the transmitter of the disease may be
    • How identifiable the disease’s symptoms are with a specific medical condition (“prevailing factor”)
    • State statute wording and case precedent and presumptive legislation
  • Many states have followed the State of Washington by passing presumptive statutes that create an easier pathway for employees of certain identified front-line industries to make COVID-19 workers compensation claims. Depending on the magnitude of these claims, the workers compensation marketplace could be on the cusp of significant disruption.
  • Coverage application for COVID-19 may change rapidly, as seen first in Washington State and subsequently by many other states. New state rules will create an easier pathway for employees of identified front-line industries to secure workers compensation benefits after contracting COVID-19.
  • With heightened economic uncertainty, credit officers likely will take a more conservative approach when establishing security needs on large deductible insurance structures.
  • In-force policies may now have inflated exposure bases, which should be addressed with carriers before the next renewal. A proactive approach to managing minimum premiums and looming audits will yield the best results.


Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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