Prior policy year losses, increased claim frequency, adverse severity trends in many jurisdictions and concerns in regards to COVID related cases lead the list of reasons cited by underwriters for difficult market conditions.
- We think of auto claim costs in the thousands not millions, but allegations of failing to provide services to an injured party can run out of control if regulators are involved, and enforce obscure laws that may not be sensible to most people. In such cases, we have seen a single auto claim in an unfriendly regulatory state settle for up to $30 million.
- Allegations of bad faith have always existed but severity trends on this claim category have continued to climb for several years now; this impacts the retentions available. Also causing pressure on retentions is insurance companies underwriting higher risk exposures and operating in more difficult legal environments.
- The reason for ICPL claims occurring more frequently is difficult to ascertain – theories include more plaintiff attorneys expanding their practices as tobacco, opioids and other litigation trends abate, and of course the more recent disruption from COVID disputes.
Underwriters continue to differentiate between types of insurers as well as operating jurisdictions. This is evidenced by analyzing minimum retentions across types of insurers (Workers Compensation, Medical Malpractice, Non Standard Auto, and so forth), as well as jurisdictions.
Although insurance companies have historically made relatively good targets for plaintiff attorneys and their clients, the level of activity by the plaintiffs' attorneys has increased in the past decade. Not only has the volume of cases increased, but so has the level of sophistication in which plaintiffs' cases are brought. Meanwhile, underwriters continue to evaluate the changing legal environment in each jurisdiction and make adjustments to counter the impact on their book of business.
The distinctions between risk profiles and the associated underwriting guidelines for different risk profiles vary by carrier. Recognizing and understanding the differences between each carrier's distinctions can lead to significant benefits to the buyer. Your own risk profile remains critical as you approach the ICPL marketplace. Typical key components of your underwriting risk profile include:
- Gross written premium
- Claims history
- Financial strength rating
- Legal environment in states where business is written
- Types of insurance written
- Product diversification
- Geographic diversification
D&O Insurance for the Insurance Company Sector
One interesting aspect of the 2020 hardening market for D&O insurance is that the financial institutions sector in general, insurance companies and healthy regional banks in particular have fared much better than the rest of the marketplace. While 2020 saw average increases in the commercial market often topping 50%, insurance company D&O insurance renewals were most often in the 10% to 30% range. That is expected to continue throughout 2021.
Notably, financial institutions saw increases in price per $million during the financial crisis and thus are arguably starting from a higher level. However, the impact of COVID on insurance companies has been significant in some areas. For example, while D&O has been mostly unaffected, ICPL has been intensely underwritten recently, and life annuity companies are under pressure due to investment portfolio stress and elevated mortality claims. In short, clients need to strategically present their positive positions early and accurately to ensure optimal renewals.