Umbrella and Excess Insurance: Vital Solutions in a Hard P&C Market

July 6, 2022

Protecting yourself or your business with the right insurance requires a good amount of work and a few important questions. Are you paying too much? Are you paying too little? Do you have enough coverage to cover a catastrophic property loss or defend yourself in a liability lawsuit? Does your coverage include an Umbrella policy or other form of Excess Liability Insurance? 

Now more than ever, these are questions you should be asking as you evaluate your personal or commercial insurance program. Fortunately, there are people available to provide the answers and do the complex work it takes to design and implement a program of customized coverage. Working with an expert agent or broker can make the difference between personal or business disaster and financial salvation.  

Now, several years into a hard market for Property and Casualty Insurance, here’s more good news: For some lines of coverage —including Umbrella and Excess — market conditions have begun to abate. Responding to necessary limits for coverages such as Directors and Officers Liability (D&O), Errors and Omissions Liability (E&O) and Cyber Liability may still be especially challenging, but with some creativity involving layers of coverage and multiple carriers, an astute agent or broker can get you the coverage you need. 

Market Outlook Entering 2022 

In December 2021, Alera Group published the Property and Casualty 2022 Market Outlook. At that time, the forecast for Umbrella and Excess Insurance was not at all good. “Pricing will continue to be unfavorable,” we wrote, “increasing on average 14.2%, with no further relief on availability, capacity or underwriting scrutiny.” 

We cited these key factors: 

  • After average rate increases peaked in 2020 at 22.9%, rates began to moderate in 2021. Depending upon underwriters’ perception of risk, pricing will increase between 10% and 50%, considerably less than price increases experienced in the past two years. Insurers are dividing the market into two categories: “better risks” whose characteristics offer lower volatility potential, and “all other.” While all risks will receive price increases, the “better risks” will receive more favorable pricing. 

  • Availability and capacity will remain unchanged in 2022. Placement will continue to depend on attachment points and risk evaluation. Risks requiring limits of $5 million-$15 million will have less difficulty placing coverages. Programs requiring higher limits will find placement and coverage terms more difficult. As a result of lessons learned from the COVID-19 pandemic, infectious/communicable disease exclusions are being added to many new and renewal contracts. 

  • Per-risk capacity continues to be conservatively offered. Many carriers are unwilling to assume more than $10 million layers while also requiring much higher attachment points or increases in underlying limits. Multiple insurers will often be required to complete a high-excess liability program when limits exceed $10 million. 

  • Underwriters continue to be thorough in their risk evaluations at all attachment levels. Increased scrutiny is driven by increased claims costs, the impact of social inflation, litigation funding, increases in the number of class action lawsuits and the unknown impact of COVID-19 on liability coverages.” 

2022, Part 2: Signs of Improvement 

While we’re still seeing rate increases, limit reductions and underwriting restrictions, increases are generally flattening, and underwriters are increasingly receptive to applications — provided the application is well-crafted, detailed and illustrative of both a strong loss history and rigorous risk management program.  

Capacity — the amount of insurance a carrier is able or willing to write — remains tight, which is why Excess Insurance is typically a must, often in multiple layers. Here too, though, there’s a silver lining: Capacity is returning to the Excess Liability market, as Reinsurance News reported in June.  

“Dramatic improvements have been seen in the umbrella and excess liability market; recent renewals have yielded the lowest quarterly rate increases since the onset of the hard market,” the publication said, citing a recent study. “Internationally, the market for US-based insureds remains ‘healthy and competitive,’ and there is sufficient capacity to meet coverage needs.” 

Reinsurance News and the study authors aren’t alone in that assessment. A co-author of the Risk Placement Services report “2022 Q1: Umbrella and Excess Market Update” recently told Insurance Journal that more than 20 carriers have entered the Excess Casualty market since 2020, expanding not only availability but also competition among underwriters. That, of course, is further good news for insurance consumers. 

Underwriting Challenges — and Solutions 

One problem arising from the expanded Umbrella and Excess Insurance marketplace is a shortage of experienced underwriters. New entries to the market have been luring seasoned underwriters, contributing to the Great Resignation while adding new challenges for agents and brokers. If you’re making decisions about business insurance, it’s best to work with someone who understands not only your industry and organization but also the shifting underwriting philosophies that come with changes to an insurance carrier’s personnel. 

Different carriers and underwriters have varying appetites for risks inherent in certain classes and sub-classes of industries. For example, a given underwriter or carrier may be generally amenable to offering coverage for the construction industry while at the same time having an aversion to a construction sub-class that relies heavily on trucking. Having a strong risk management program and claim history helps a company’s marketability to insurers, but only if its broker is able to document those strengths and effectively present the application to the right underwriters. 

Frank Talk About Cyber Insurance 

No line of coverage is subject to greater underwriting scrutiny right now than Cyber Liability Insurance. If you don’t already have multi-factor authentication and other cybersecurity measures in place, your Cyber Insurance application is a non-starter. If you do have such measures in place, it’s still essential to submit your application as soon as possible, given underwriters’ requirements and the volume of work they’re handling. 

Cyber coverage also has undergone some of the steepest rate increases in insurance, in some cases becoming prohibitively expensive, leaving self-insurance as a business’ best option. A good broker will consult with you, and give you a frank and honest assessment as to whether that’s the case. 

To provide businesses with a better understanding of cyber threats and available protections against them, Alera Group recently recorded a frank and honest conversation between two of its foremost Cyber Insurance experts, John O’Connell and Stephen Paulin, and made their discussion publicly available. To listen to the interview, start by clicking on the link below. 


About the Author 

Richard Trippe 

Managing Partner 

Avon-Dixon, an Alera Group Company  

Richard Trippe has more than 35 years of experience in the Property and Casualty Insurance industry, beginning as an underwriter and later serving as an account executive and agency branch manager. Rich became Managing Partner of Avon-Dixon Insurance, an Alera Group Company, when the firm joined Alera Group at the outset of 2019, having served as Avon-Dixon’s President and CEO since 2011.   

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