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Marsh Benchmarking Trends: Excess/Umbrella Insurance Rates Still Increasing

Source: Marsh

Posted on 24 Oct 12 by Annie George

Excess/umbrella casualty insurance rates at renewal rose in the third quarter of 2012, marking the fifth straight quarter of increases. Insureds with difficult risk profiles typically experienced the highest increases in pricing and primary attachment points, sometimes in conjunction with coverage restrictions.
Renewal rates in the quarter—for all clients—increased at an average of 3.0%, with the median increase at 0.6%.

Among the reasons for the continued rate increases for excess/umbrella insurance:

  • The economy shows little sign of interest income relief.
  • Insurers’ ability to release their reserves has slowed significantly.
  • Lawsuits generally continue to bring large awards and settlements.
  • Underwriters are willing to decline certain hazardous risks, despite the potential to assess large premiums for such exposures.
More Large Companies Seeing Excess/Umbrella Increases

Excess/umbrella insurers generally are seeking to raise rates. In the first quarter of 2012, 19% of clients saw rate decreases at renewal; in the third quarter that fell to 15%. Also in the third quarter, 46% of renewals experienced increases, similar to the first half of the year. Still, competition among insurers remains robust and may be helping to mitigate a wider hardening of the insurance markets.

Large clients—those with annual revenues greater than $1 billion—were more likely than others to experience rate increases in the first three quarters of 2012. In each quarter, more than half of all large clients saw rates go up at renewal, with 59% seeing increases in the third quarter.

Small to Midsize Companies Also Face Increases

Small and midsize companies—those with annual revenues less than $1 billion—have been less likely than large ones to experience increases at renewal. The percentage of small and midsize companies seeing increases has been relatively stable throughout the year, between 44% and 47%. Meanwhile, the percentage of small and midsize firms seeing decreases in excess/umbrella rates declined from 20% in the first quarter of 2012 to 16% in the third.

For the remainder of 2012, excess/umbrella insurers likely will continue to seek mid- to high-single digit rate increases, on average. Companies with more difficult risk profiles are likely to experience increases of 10% or greater, while more “vanilla” risks likely will see upticks of less than 5%.

Insureds should continue to differentiate themselves to underwriters, for example by showing that they have tight controls over claims and a consistent claims philosophy. They also should be prepared to increase retention levels, if necessary. Starting the renewal process early allows insureds to look at options that can help optimize the balance between retention and risk transfer.