Overall Market Trends

As the pandemic continues to run its course, one thing is becoming crystal clear: the loss impact on the market will be profound. In May, Lloyd’s reported that it will pay at least $3B and as much as $4.3B as a result of the far-reaching impacts of COVID-19. In comparison, this amount is approximately equal to 9/11, or the combined impact of hurricanes Harvey, Irma and Maria. The estimated amount our industry as whole will pay in covered claims varies widely, with projections ranging from $40B to $100B; however, losses could rise further if the current lockdown continues into another quarter. In addition to impending losses, the overall state of the U.S. economy, possible resurgence of COVID-19 in the fall and winter, property damage from riots, and predictions of a higher than average hurricane season (with reduced time to prepare as a result of the pandemic) will continue to impact market conditions. Finally, a significant market shift is being seen in reinsurance treaty renewals. June 1 renewals, a key date for Florida-focused Property and CAT Property business, saw an average increase in excess of 25%.

Insurers are also concerned about long-term impact of the pandemic on claim activity that was not accounted for in their rate development or policy wording. Though communicable disease exclusions and other policy form modifications are being added on policies in almost every segment, there are lawsuits and legislative measures proposed to provide coverage to anyone who purchased business income insurance regardless of policy language. “If successful, this would have a devastating impact on our industry,” says Harry Tucker, AmWINS’ National Property Practice Leader. “Our industry’s leaders are actively working both individually and through association groups to educate regulators on the issues this would cause, including potential bankruptcy for our industry.” State regulatory bodies are also looking to enhance eligibility for workers’ compensation, especially for frontline employees. These enhancements include requirements to cover COVID-19 testing and, if and when available, immunization. We feel confident that the carriers will prevail, but this will be a distraction and likely entail legal battles in a number of states.

According to the Council of Insurance Agents and Brokers (CIAB), Q1 2020 marked the 10th consecutive quarter of increased premium pricing by account size. As we near the end of Q2, the market hardening seen over the past 18 months has not slowed and carriers are taking ongoing and additional steps to improve profitability.

Market Updates by Risk and Industry

The following section presents a holistic view of highly impacted risk and industry segments. Select a segment below to read the latest market updates.

Summary

The hard market is here and likely not going anywhere for a while. However, just because the standard market is demanding large premium increases and cutting limits does not make it easier to move business to the E&S marketplace. With capacity restrictions creating placement challenges and causing the need to create additional layers to obtain equivalent coverage, accounts need to be marketed earlier, especially for larger placements. To succeed in this environment, retailers need to partner with a wholesale broker who understands the market, has established relationships with the right underwriter at each company, and who can help provide the best, most comprehensive submission in order to achieve the most favorable result.

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• Overall Segment Trends: “The potential of future litigation in the healthcare sector due to COVID-19 has many carriers taking a wait-and-see approach to Healthcare accounts,” says Don Tejeski, Senior Vice President with AmWINS Brokerage in Newtown, PA. For nursing home accounts, most carriers have developed and are requiring the completion of an infection-control protocol application.
  
  
• Exposure Changes: “There have been numerous emerging or changing exposures resulting from the pandemic. These include reductions in staff levels, reinstating retired or inactive staff and increasing the number of volunteers,” says Matt Wasta, Program Manager of AmWINS Program Underwriter’s Senior Care Program. At the same time, a reduction in non-emergent office visits and procedures, and a continued reluctance by some to seek care for non-pandemic illness during the crisis, has had a significant negative revenue impact on many facilities.
  
  
• Capacity and Pricing: Pricing in the healthcare segment, in general, continues to rise. However, this is driven by losses and market conditions prior to COVID-19. “Markets have become more restrictive on classes such as home healthcare, hospice, physicians and hospitals,” Phil Chester, Senior Vice President with AmWINS Brokerage in Farmington, CT. “Excess capacity continues to firm up, with markets cutting limits at renewal for many classes.”
  
  The long-term care (LTC) market continues to be the hardest hit sector of healthcare. “There are only a handful of markets that are currently writing and looking at new business,” says Chester. “The market overall is very conservative with expensive pricing and very restrictive terms and conditions. Some LTC markets have begun to convert all occurrence-based professional liability accounts to claims-made coverage.”
  
  
• Exclusions: In the early stages of the pandemic in the U.S., most carriers’ forms did not have a communicable disease exclusion. “Today, most markets have added pandemic-related or communicable disease exclusions, especially on new business,” Wasta updated.

Click here for an in-depth look at emerging exposures and how to get the best results for your Healthcare and Senior Care clients during the pandemic.

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• Overall Segment Trends: Multi-family accounts are currently among the most challenging to place in the Property sector, with the impacts of COVID-19 further complicating such placements. We therefore anticipate firm market conditions extending into 2021. “Throughout 2019, we experienced carriers requiring a combination of rate and deductible improvements in an effort to achieve underwriting profitability in the class,” says Bob Black, Executive Vice President and AmWINS’ National Real Estate Practice Leader. “So far in 2020, and particularly in March, April and May, we experienced upward rate movement in conjunction with greater scrutiny of manuscript policy forms and the coverage provided within a given program.”
  
  Accounts which have avoided percentage wind/hail deductibles in convective storm states are likely to see this issue addressed by their primary layer carrier(s) at their upcoming renewal. “Additionally, proposed rate matrixes for mid-term additions and deletions are more heavily scrutinized by the carrier panel,” says Mike Wood, Executive Vice President with AmWINS Brokerage in Edison, NJ.
  
  "Retailers can help position themselves to retain existing clients and win new ones by providing comprehensive and fully updated SOVs and loss summaries, appropriately setting rate/deductible/coverage expectations for their clients well in advance and partnering with true experts in the space who have full market access,” added Black.

• Exposure Changes: The chain reaction of stay-at-home orders, high unemployment rates and tenants unable to make rent payments has resulted in some insureds requesting mid-term return premium. However, a request for return premium may not be granted for several reasons. First, accounts are generally rated based on unit count, rather than revenue. Second, in an underwriter’s eyes, exposures may increase with many unemployed tenants at home. “There is the potential that having tenants idle in their apartments will lead to increased claim activity,” says Jack Reid, Senior Vice President with AmWINS Brokerage in Los Angeles. “Also, loss of revenue from tenants’ inability to pay rent could lead to the building owner or manager not maintaining the property appropriately."
  
  "While strip shopping centers and malls, for instance, are generally simple and very desirable classes of business for our carriers, the recent riots and looting have resulted in increased underwriting scrutiny,” Black added.
  
  
• Capacity and Pricing:
  • Property – The primary and low buffer layers within large Multi-family placements ($250M to $500M+ TIVs) are now moderately to heavily syndicated. Smaller line sizes are being provided by certain carriers, resulting in more carriers needed to fill the particular layer. “The amount of syndication is many times directly proportional to the TIV size, with the largest of multifamily accounts requiring the most syndication,” added Black.
    
    While AOP deductibles ranging from $5K to $50K were commonplace in the Multi-family space years ago, much of the marketplace is now requiring $100K or larger AOP deductibles to meaningfully reduce the amount of attritional losses impacting a program. Aggregate deductible structures are commonly being utilized for larger programs, also to minimize loss activity within a program and for premium containment.
    
    "Unlike in years past where blanket limits were many times granted without pushback, each account is now being reviewed on its own merits,” says Black. “Nearly every carrier is scrutinizing the valuations being utilized.” Scheduled limits (applied via an Occurrence Limit of Liability endorsement) and margin clauses are making their way back into the equation for those insureds that are unwilling to increase their valuations to the point where the market is comfortable providing blanket limits.
    
    "For Multi-family accounts with a relatively clean loss history, appropriate valuation and a stable carrier panel, a rate increase between 15% and 22.5% is a common outcome currently,” says Black. “To the extent an account has meaningful losses during the policy year, a string of problematic years of loss history, important incumbent markets exiting the program, and/or undervaluation, a rate increase between 25% to 40%+ is a common outcome currently.”
    
    
  • Casualty – On the Primary side, due to an increase in claims severity and frequency, admitted carriers and programs are no longer writing risks with losses or those in undesirable classes such as senior living, Section 8 or student housing. “These accounts, which two or three years ago would have been written guaranteed cost, are now in the E&S market having to take large SIRs,” says Reid. “Retail agents should prepare their insureds that they may have to accept larger SIRs between $50K and $500K.” On the Excess side, admitted direct markets and programs are losing their paper or drastically cutting back capacity. Historically, these accounts on a lead Umbrella/Excess basis were severely underpriced, making the new, more realistic pricing a difficult pill to swallow for insureds.
    
    "At the previous rates, carriers would have needed to write accounts for 100 years claim-free in order to make up for one limit loss,” Reid explains. While limit losses are rare in real estate, we have seen an uptick in major single bodily injury events such as drownings, shootings, assaults, fires and serious slip & falls. These have bled into the Excess, making these accounts unprofitable. “It’s very rare to see anyone writing the full lead $25M anymore and it often takes three to six carriers to replace it,” Reid adds. “This leads to a significant increase in layering, similar to what has been seen in Excess Auto, and rate increase at three to 10 times expiring. However, for the right broker with strong carrier partnerships, layering could be used as a strategic tactic to reduce costs and ensure towers remain filled.”
  
  
• Exclusions: “As a part of carrier renewal offers, many Property carriers are meaningfully reducing or eliminating coverage for anything that doesn’t have a direct physical damage trigger associated with it,” Black shared.

• Purchasing Behavior: On the Casualty side, increased pricing is causing many insureds to buy less limit. “Some are simply looking to buy limits that would cover litigation and settlement should a serious claim occur, such as a fire or death on-site,” Reid added.

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• Overall Segment Trends: A positive development arising out of stay-at-home orders is that less traffic has led to a significant reduction in accidents, deliveries being made on time or ahead of schedule, settlements on claims happening quicker than ever, and the amount of money needed to settle those claims trending downward. The biggest challenge facing the sector going forward is economic uncertainty. “Business impacts vary depending on the contracts insureds have in place and the commodities they haul, with some motor carriers busier than usual and other faring worse,” says Kevin Pollard, Executive Vice President with AmWINS Brokerage in Chicago, IL.
  
  In the Cargo and Logistics space, trade disruptions have wreaked havoc on shipping volumes and timetables. “It will take time for volume and speed to recover, and losses stemming from shipping delays are unlikely to be insured,” says Alex Rosas, President of AmWINS Specialty Logistics Underwriters.

• Exposure Changes: Motor carriers that have lost shipping contracts are faced with the difficult choice of parking part of their fleet or even selling it altogether. If retained tractors are no longer on the road and those units are being stored at terminals or yards, motor carriers may have increased exposure. Most Auto Physical Damage policies provide $1M per occurrence physical damage limits, which may not be adequate for fleets if multiple power units are parked at a single location. “A long-term concern is whether the driver shortage seen prior to the pandemic will actually worsen because training schools have been shut down, or whether experienced drivers who have been laid off will fill the gap elsewhere,” Pollard added.
  
  Additionally, one of the hardest hit areas has been livery business. The reduction of bus, limo, and executive car fleets was dramatic and happened almost overnight as a result of the state and local quarantine requirements. “We look for many insureds to slowly return to work as travel requirements are lifted,” says Andrew Brown, President of AmWINS Transportation Underwriters. “However, the livery business is highly tied to both corporate travel and the entertainment industry, including concerts and sporting events, which may not fully return until a vaccine is discovered.”
  

• Capacity and Pricing:  
  • Inland Marine – Somewhat immune to the dramatic hardening of the market due to an abundance of Inland Marine markets, specialist underwriters are becoming more sophisticated in their approach to Transportation, leveraging both experience and technology to deliver profits. “However, Auto Physical Damage premiums have steadily increased due to higher values of units, low interest rates leading to more units purchased, and fewer qualified drivers,” says Zach Bowling, Senior Vice President with AmWINS Brokerage in Chicago, IL. “Underwriters are on heightened alert regarding theft and temperature sensitive commodities, with some specialty carriers considering higher deductibles schemes for Fire and Vandalism due to a recent uptick in claims activity.”
    
  
  
  • Excess Casualty - The excess trucking market was hardening coming into the pandemic, thanks in large part to nuclear verdicts. In the first quarter of 2020, rates began to stabilize, and increases became more realistic and predictable at an average of 15% on lead $10M to $15M layers, compared to the 50%+ rate increases seen in Q4 2019. Layers above $15M are still seeing severe rate increases due to lack of capacity and market availability.
    
    “Capacity is still not easy to come by,” Pollard says. “Insurers are reducing their exposure by offering a fraction of the limit they historically provided, which requires utilizing additional markets to complete or fill a layer that a single market would have offered in the past.”
    
  
  
  • Cargo/Logistics – Motor truck cargo is where the most extreme rate increases are being experienced due to the departure of key market players and remaining insurers seeing significant losses. “For the first time in many years, premiums for all lines of business covering loss to merchandise in transit, forwarders’ legal responsibilities and warehousemen’s liability premiums are on the rise,” Rosas shared.

• Purchasing Behavior:  Insureds are looking for premium savings by reducing excess limits or cancelling towers outright. Insurers are more willing to lower exposure estimates mid-term or move to adjustable base excess policies. Although these adjustable policies can benefit motor carriers experiencing significant revenue decline, if the economy shifts into overdrive, those carriers could be facing significant post-renewal audit bills. “To protect their bottom line, many insureds are also removing tractors from service,” Bowling added. “This is aimed at reducing their Auto Liability premium, which is allocated on a per unit basis.”

   

• Exclusions: In addition to communicable disease exclusions, some excess carriers are developing required supplemental applications that must be completed prior to binding.

Click here for an in-depth look at the State of the Logistics Market and here for how COVID-19 is impacting logistics and cargo insurance. 

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Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.

(c) 2020 AmWINS Group, Inc.