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Today’s Market: Gauging the Impact of Coronavirus
The impact of the coronavirus pandemic on insurance markets is undeniable. It has pushed policyholders, underwriters, claims professionals and brokers out of their respective comfort zones. It is uncharted territory for everyone.
A crisis of such magnitude triggers change and transformation. Nearly all markets have moved toward higher rates, decreased capacity and more conservative risk selection. While there is a lack of certainty as to how insurance markets will ultimately respond, it is clear that things are different now and may be for a long time.
From a renewal perspective, it is important to start discussions early. It is unlikely that ‘as-is’ renewals will happen. As such, there should be realistic expectations established for all stakeholders. The process is taking longer than normal, with underwriters both working remotely and being inundated with submissions. Overall, submission clarity and quality will be increasingly critical going forward. It will be important to demonstrate how risks are being proactively mitigated through comprehensive safety and quality controls.
Over the past three months, some clients have experienced significant exposure reductions. This should be reviewed at renewal for possible adjustments to minimum earned premium requirements. For insurance programs subjected to previous underwriting scrutiny, renewals may be challenging. In this case, it may be necessary to identify alternative Insurers to add to the program. The best way to be prepared is to remain open to options, which may include increased retentions, a reduction in sublimited coverages and/or alternative terms and conditions that differ from expiring policies.
Managing today’s risks requires knowledge, experience and creativity. EPIC has assembled some of the best insurance brokers in the business, whose talents have positioned it as a highly respected brokerage and risk consultant. The EPIC team has the acumen and flexibility to create solutions for the full range of issues facing this dynamic business climate.
Accountants Professional Liability
At the end of 2019, there was increased pressure by select Insurers to maintain flat to slightly upward rates (“rates” are the amount of premium paid per dollar of revenue earned by the firm). This was driven by poor profitability, which stemmed from the combination of a long-term decline in rates and higher claims costs. At the start of 2020, rates remained flat to slightly higher. Firms with losses saw rate increases as high as 10% to 15%, while firms with favorable claims history and a significant increase in 2019 revenues achieved slightly lower rates. Due to the revenue growth, any firms renewing at lower rates were also paying significantly increased premiums.
As the pandemic took hold, the pressure toward generally flat to higher rates gained momentum in terms of market breadth. Domestic markets have become more conservative on risk selection and placement of their capacity, regardless of loss experience or growth. This is true also in the London market, but with the added challenge of a more significant rate requirement.
Clients should continue to monitor market developments and communicate regularly with their brokers.
Architects & Engineers
The insurance marketplace for design firm Professional Liability remains relatively stable in the U.S., but a more challenging market for international risks, led by London-based Lloyd’s of London, persists. The result of these divergent trajectories has led to a wide variety of renewal results over the past two quarters, compounded by Insurer uncertainty over the impacts of COVID-19 and heavily influenced at the individual firm level by claim activity. There are increasing signs of broader market hardening with several Insurers reducing capacity as of January 1. At the same time, coverage remains robust, and some Insurers have sought to expand their appetite for risk and attract long-time London clients to re-engage the U.S. marketplace at a primary level.
Professional Liability renewals for architects and engineers during the first two quarters of 2020 spanned a broad range of outcomes, from significant rate decreases for growing firms and larger firms repatriating coverage to the U.S. from London, to sizeable rate increases for firms with recent notable claims or large international risks in the project portfolio. COVID-19 has quickly become a major discussion point for underwriters but has yet to markedly impact renewal rates across the market.
Architects and engineers procuring Professional Liability through the London marketplace have seen a significant market shift since late 2018, driven by Lloyd’s of London corporate mandates and increasing international claims activity. Foreign-domiciled and U.S. firms with large percentages of international work have seen dramatic rate increases, capacity reduction, retention adjustments and the introduction of new coverage restrictions – largely related to cladding, wildfires and specific project types.
In the U.S., the continued presence of many Insurers writing Professional Liability for architects and engineers, including expansion of certain underwriters’ appetites with respect to firm size and type, has maintained the relatively soft market conditions for firms insuring primarily through U.S. domestic carriers. Firms who are stable in growth or increasing in size have generally seen flat renewals and rate decreases, absent notable claims activity on an individual firm basis. Some Insurers have cut capacity to $10 million per firm or per project on project specific placements – reflecting some market hardening spillover from London and the collective claims experience and loss ratios of these Insurers.
Over the next year, we expect continued market divergence between U.S. and international Insurers and risks, with a major asterisk related to the potential for COVID-19 related claims. While our clients do not foresee substantial liability or exposure in connection with coronavirus, the reality is that project delays and cost pressures will surely generate claims from which architects and engineers must defend themselves. This uncertainty has already caused some conservatism in the market and more can be expected until the longer term impacts of COVID-19 on the economy, construction activity and architects and engineers is better understood. Market capacity and competition, however, remain high and we expect some upward pressure on individual renewals can still be mitigated effectively for the next six to twelve months.
The Aviation insurance marketplace was already hardening and by 2020, had tightened significantly. Carriers were refusing to write certain classes of business, such as piston engine overhaul shops and commercial helicopter operators, and most renewals saw increases of 15% to 30%. Coverage was also limited, with liability limits cut by 50%+ on some risks like owner-flown aircraft.
High-profile losses have contributed to rotorcraft and helicopters being hit hard. Most carriers refuse to underwrite commercial helicopter operations entirely and approach non-commercial helicopter risks with extreme caution. Greater underwriting scrutiny has increased further with minimum increases of 15% to 20%, and up to 50% to 100% for high-risk operations. Underwriters may non-renew or refuse to underwrite helicopters and companies in the supply chain for major aircraft manufacturers.
When travel restrictions forced airlines to take entire fleets of aircraft out of service the ripple effects were quickly felt. Most aviation-related businesses experienced a significant bottom line impact. Airlines seeking return premiums have put additional pressure on the profitability of Aviation Insurers. Price increases are expected to continue across the board, along with the continued consolidation and/or exit of Insurers from the Aviation market. More risks are moving from single carrier placements to quota share placements, while liability limits continue to be reduced. Many ancillary coverages and no-claims bonus clauses, as well as excess auto liability and excess employer’s liability, may be eliminated from Aviation policies.
As Aviation losses tend to be catastrophic, underwriters have not been willing to offer meaningful premium relief, even for six- or seven-figure deductibles. Pricing is therefore expected to escalate throughout 2020 and beyond across all lines of Aviation insurance.
Uncertainty around the pandemic has strained the market, with lower exposures and the potential of government intervention likely impacting pricing throughout 2020. Clients in financial distress requested mid-term exposure reductions; requests may have been met with underwriter reluctance. Higher policy minimum earned premiums have hampered premium relief.
Businesses providing essential services are being underwritten with a greater level of scrutiny. Due to the financial instability of some Insureds, Insurers are taking a more conservative approach to collateral requirements on primary casualty “cash flow” program structures.
The economic downturn and slowdown of court proceedings impacted claims. New claims have decreased, allowing adjusters to focus on closing out open claims’ backlogs. Claimants have been more willing to settle because of the uncertain economic environment; somewhat surprising is the improved partnership between Plaintiff and Defense attorneys, due to law firms’ cash flow issues. The impact on third-party liability claims due to COVID-19 remains unknown, as it will be challenging to establish causation due to the insidious nature of the virus.
Shelter-in-place orders have led to a reduction in automobile accidents, but higher fatality rates due to speeding and reckless driving on open roadways.
- Automobile Liability rates are rising, with increased scrutiny of hired and non-owned auto exposures. Automobile Liability has seen the highest increase in attachments, varying by the size and scope of fleets as well as loss experience. Automobile attachment requirements can range from $2 million to $10 million.
- General Liability rates are gradually rising. The current litigious environment will have an impact going forward and a market correction is anticipated. General Liability attachments are also on the rise, with $2 million attachments becoming more common.
- Workers’ Compensation pricing remains relatively soft; it is uncertain how long this will continue in light of medical inflation, the aging workforce and evolving presumptive legislation relative to the pandemic.
- Umbrella markets continue to carefully scrutinize attachment points. In spite of the contraction in capacity on umbrella and excess layers, there has been little to no corresponding reduction in premium. Pricing of excess towers is no longer driven by rate relativity, but rather by a minimum cost for capacity. For distressed classes of business, it is not unusual to see double the premium for half of the limits. Some Insureds are electing to retain more risk or purchase fewer limits in response to rising premiums.
- Excess markets are restricting capacity to $10 million to $15 million per risk as a result of deteriorating loss trends. This is particularly the case for global/brand name corporations due to increasing anti-corporate juror sentiment and social inflation. Capacity remains available but it is becoming increasingly difficult to complete larger excess programs due to constricted capacity and rising minimum premiums. This has made it necessary to tap into global capacity that was previously uncompetitive.
Transportation, habitational real estate, hospitality and wildfire risks are experiencing the highest increases. Industries with higher or elevated sexual misconduct or chronic encephalopathy (CTE) exposures, such as public entities and educational institutions, are experiencing decreases in capacity.
The market is tightening coverage by limiting coverage enhancements and adding Occupational Disease and Communicable Disease exclusions on General Liability and Excess programs. Classes of business most impacted by these exclusions include healthcare, retail and hospitality. There is also a trend of adding Human Trafficking exclusions on hospitality risks.
In an effort to mitigate premium increases, clients are beginning to explore the impact of higher retentions and corridor deductibles. Continued firming is expected throughout 2020 and beyond.
Almost overnight, the world moved to cyberspace. Public and private entities quickly transitioned employees to a remote work environment, schools implemented virtual learning, and healthcare providers began relying more heavily on telemedicine. Not everyone was completely ready, from a security standpoint, to move to cyberspace. Dispersed and distracted employees are being supported by IT resources that are stretched thin. While cybersecurity is still a priority, the pandemic created new vulnerabilities. Cybercriminals are exploiting those vulnerabilities as well as preying on panic and fear.
The Cyber insurance market evolved and transformed in line with the rapidly changing risk landscape. It remains strong, with ample capacity and active competition, although some markets are applying small premium increases. Capacity remains strong, but there is some hesitation related to primary or low excess positions on large towers. Carriers are treading lightly with high-risk classes of business such as retail, transportation, hospitality, healthcare and financial institutions, especially in light of the current crisis.
Privacy issues and compliance concerns are causing many underwriters to be more conservative and detailed in their analysis of risk. Some markets are introducing sublimits or other coverage restrictions around Business Interruption Coverage – both Direct and Contingent. Others are restricting coverage for employee-owned devices. Overall, the process has lengthened considerably, as it has for many other markets.
Chaos creates disruption and there has never been a more chaotic time than now. When the pandemic hit, the employee benefit marketplace shifted abruptly. Compliance became an urgent priority as federal and state government regulations were being passed almost daily with significant action required by employers. Employers were balancing cash flow concerns, struggling with compliance complexity, and trying to find ways to stay connected with vital employees. Interestingly, unemployment supplements often made it punitive for an employee to return to work and give up government-provided job loss pay.
The dual impact of quarantine, which forced the discontinuance of non-essential medical care, and fear of exposure, caused a material suppression of medical expenses. Some clients have seen medical costs as low as 30% of the expected cost. In particular, dental care has been near zero for the past few months, and it will be interesting to see when these somewhat discretionary services resume.
The pandemic has had a curious impact on large claims, as even those with material medical conditions sought care at significantly reduced levels. The most severe COVID-19 claims result in smaller expenses than the costs associated with large claims for other chronic and acute conditions. Yet some studies indicate that coronavirus-correlated, long-term organ damage may significantly impact future claim cost.
There has been a shift to more efficient care, as the rate of adoption of telemedicine for routine care and 90-day drug supplies increased and will likely be a permanent cost-lowering shift.
While pricing trends are difficult to predict, Insurers have warned that renewal increases might be as high as 40%. Claims activity thus far has not validated those outcomes. A big variable will be medical advancements in diagnosis, testing and immunization, as well as the cost of these advancements.
Employers have focused on voluntary products to provide needed benefits without adding expense. Telemedicine, especially for mental health (which has significantly increased in focus), other mental health initiatives, EAP plans and paycheck lending have become increasingly important. Employers seem more willing to ask employees to assume responsibility for controlling healthcare costs by encouraging more cost-effective care alternatives and following proper preventive protocols. The focus remains on creating cost efficiencies without impacting benefits.
Moving forward in this dynamic market, captives, purchasing groups and alternative risk arrangements such as direct contracting and referenced-based pricing will be given more consideration. Individual Coverage Health Reimbursement Arrangements, which were new to the market as of 2020, will be evaluated by many employers. The focus will be on data transparency and data analysis.
The Environmental/Pollution market began experiencing a firming trend in early to mid-2019. Insureds experienced rate increases across the board, including those with loss-free risks and those investing heavily in loss control. Rate increases have become more regular in the second quarter of 2020, particularly for large and complex risks, and of course, loss-impacted risks. This year, underwriters are pursuing rate increases and pulling back on certain coverages, particularly mold coverage. The pandemic has contributed to unfavorable conditions for Insureds with large portfolios of locations, and/or diverse service-based exposures. The result is an increasingly firm, yet not hard, market.
The specific coverage changes in Pollution policies directly related to COVID-19 involve Communicable Disease restrictions/exclusions, both on policies that are silent with respect to viruses, and on those with affirmative coverage. In addition, many Environmental Insurers avoid the healthcare industry, which may significantly limit competition.
While the underwriting process has slowed down, key underwriters remain accessible and are not traveling. Many Insurers are unwilling to offer their maximum stated capacity (e.g., $25 million limits), and some cut back capacity offered at renewal for risks having a perceived mold exposure. Large limits can be maintained through excess layering; however, there were relatively few high-quality excess forms available.
Some Insurers will avoid non-traditional and emerging risks entirely (e.g., mold/renovation exposures, polyfluoroalkyl substances (PFAS), hospitality, habitational and/or healthcare classes) in addition to traditional higher-risk groups that were already constrained (e.g., nuclear, mining, pipeline, oil/gas exploration, rail, waste management, coal power-gen and storage). Where insurable, these industries experienced the most severe restrictions/reductions in Insurer capacity, and simultaneous deductible and rate increases.
Generally speaking, Insureds with favorable loss experience have not experienced notable coverage or price changes. Those with poor loss experience are often re-underwritten with all aspects of the policy subjected to restrictions. Insurers evaluating new business are disciplined and less interested in gain share or market share.
The Executive Risk insurance market has been steadily firming since mid- to late-2019. Nearly all Executive Risk products (e.g., directors and officers (D&O), employment practices liability (EPL), Fiduciary, and Crime) are feeling the impact, with some industry verticals and product lines experiencing the effects to a greater degree. The pandemic and resulting shelter-in-place orders accelerated the hardening of the market across the board and it is now braced for unprecedented risk, economic uncertainty, social change and corporate transformation.
Significant premium increases are being seen on all products, in all industry verticals, regardless of business size or geography. Public Company D&O is experiencing the most significant increases.
- Many carriers are cutting back significantly on capacity; reducing limits or shying away from primary or low excess positions on large towers. Some carriers have stepped back from writing new business or are pulling away from specific industry classes, such as retail, hospitality and transportation.
- Most markets have introduced COVID-Questionnaires for policyholders to complete at renewal or in connection with a new business application. Questions posed relate to the expected impact of the crisis on business operations and financials, business continuity planning and remote work environment. Additionally, many underwriters are being more conservative and detailed in their processes, which now takes longer than it has in the past.
- Some markets have introduced broad COVID-19 exclusions or other terms or conditions intended to limit exposure under a particular product. Bankruptcy-related exclusions or trustee/creditor exclusions are being proposed and carriers offering EPL are tightening terms and conditions related to Reduction in Force activity as well as privacy exposures.
- Retentions and deductibles are increasing significantly across most classes of business; in some instances, doubling or even tripling.
For the foreseeable future, the ‘new normal’ for Executive Risk lines of business will involve steep price increases, capacity decreases, enhanced underwriting and coverage restrictions.
The worst and third-worst loss years for the Hospitality insurance market were 2017 and 2018, respectively. Entering 2020, underwriters were working to recapture premiums to offset those loss years. Since the start of the pandemic, premiums have continued to rise across the hospitality sector.
Underwriter referral processes are backlogged. Hardening conditions have accelerated. Many insurance carriers cut back significantly on capacity and many pulled out of the Hospitality space altogether. The Council of Insurance Agents and Brokers reported the following average percentage increases across the sector in total over three quarters: Property increased 27%; General Liability increased 13.6%; and Umbrella increased 29.1%.
Insurers remain fearful of Business Interruption claims, empty restaurants and hotels, and that the return of guests could spark a new wave of claims. With Workers’ Compensation rates hardening, the months ahead could be difficult for the Hospitality sector.
Lawyers Professional Liability
The Lawyers Professional Liability (LPL) market closed 2019 with rate increases of 2% to 10%, the extent of which was largely dependent on size of firm and loss history. Firms with adverse loss development faced even greater increases. Rate increase momentum of 2019 was driven by a combination of a long period of historically low rates and an ever increasing frequency of severe losses.
Despite demonstrable rate gains last year, 2020 began with continued concern over the ability to achieve an underwriting profit at current rates. Large firms with 200 lawyers or more faced another round of 7% to 10% rate increases. Midsize firms were able to access more abundant capacity to keep rate increases in the 2% to 5% range. Lloyd’s rate increases are ranging from 10% to 15% this year.
As the COVID-19 pandemic took hold in the first quarter, the pressure toward higher rates has maintained momentum in the LPL segment for Errors & Omissions and ancillary lines of Management Liability, Employment Practices Liability and Cyber Liability. Lloyd’s, Bermuda and Domestic markets have become more conservative on risk selection and continue to restrict limit offerings in an attempt to manage their exposure to severe loss. Self-insured retentions and deductibles have also been subject to scrutiny. The scope of coverage offered remains broad.
Although the recent economic interruption is like no other downturn in our history, LPL underwriters are bracing for an increase of professional liability claims which typically follow economic downturns. Firms renewing in the second half of 2020 should be prepared to answer questions intended to provide underwriters an understanding of what firms have done during the shutdown to avoid related claims, preserve business continuity and communicate with clients.
The Ocean Cargo market has been hardening since the beginning of 2019 and the pandemic has only fueled this trend. The London market already desired change after several unprofitable years that included significant catastrophic (CAT) losses (e.g., warehouse fires/thefts, California wildfires and misappropriation claims).
Cargo rates are up nearly 10% on average in 2020, with CAT-exposed risks and accounts with poor loss experience up well over 20%. Static risks (goods in warehouse/retail inventory) are experiencing substantial increases this year while underwriters reduce limits on stock exposures. In addition, several major carriers have reduced their line on stock to $10 million, down from $25 million. This is resulting in the need for more quota share policies amidst increased retentions and more restrictive terms and conditions.
Cargo exposures are expected to drop by at least 25% in response to the coronavirus.
Insureds will not see commensurate relief in premiums as rates will continue to rise. In addition, depending upon the duration of the pandemic, there are important policy clauses to closely watch, including: Accumulation, Deviation and Voyage Frustration/Extra Expense. The latter, which would normally pay extra expenses in the event of frustration, interruption and/or termination of the voyage, may be limited. The Coronavirus Exclusion clause now being used by several Cargo markets would limit recovery if the proximate cause of the extra expense was a result of the virus.
Hull & Machinery/Protection and Indemnity/Excess Marine Liabilities
There has been some major carrier movement in the Marine market, but U.S. market capacity remains strong, albeit with increased pricing overall. London continues to retreat and Caribbean-based business is more difficult to place. A Communicable Disease exclusion is now required by several markets on Protection & Indemnity (P&I) polices. This will have serious implications, in particular, for the passenger vessel industry (e.g., ferries, sightseeing, dinner boats). More carriers are expected to jump on this bandwagon over the next several months. P&I Clubs have not imposed such restrictions under their wording and they are unlikely to do so in the future.
The Excess Liability market is in transition. The traditional ‘$4 million, excess $1 million market’ has become a thing of the past for all but a few markets that are willing to put up capacity—and it comes at a price.
The Marine markets will continue to drive rate, tighten terms and impose geographical restrictions as they seek to improve results.
Healthcare organizations have been acutely affected by coronavirus. They are facing spikes in costs in treating patients coupled with reduced income due to cancellation of elective procedures and lower patient census as potential patients avoid treatment. There is also a risk of increased professional liability claims for alleged failures to test, treat or diagnose. Organizations must now be prepared for detailed underwriter questions about their coronavirus response, financial losses and predictions for long-term impacts.
Since the beginning of 2020, the global Healthcare insurance industry has been under significant pressure to return to profitability. This represented a change from the past, when the focus was on increasing market share. Numerous factors negatively affected underwriting profitability including years of ‘soft market’ pricing, consolidation in the Healthcare industry and an increase in loss severity. Combined loss ratios for most Medical Malpractice carriers exceeded 100% from 2014 to 2019, with numerous jury verdicts over $10 million. A.M Best released its 2020 combined loss ratios estimate for the industry in the 110% range.
Underwriters are selectively deciding where to deploy their capacity. Many are capping limits on programs at $10 to $15 million. Significant market tightening has resulted in 5% to 10%+ minimum rate and premium increases depending on venue for accounts without losses; and 15% to 30%+ increases for accounts with large losses impacting excess layers. Excess layers have been more affected due in part to batch claims and an increase in severity. Self-insured retentions will be driven by actuarial evaluation yet accounts with no excess losses or reserves should maintain current retentions. Insureds with large losses impacting excess layers are considering increased retentions to offset significant premium increases. Aggregate retentions are more difficult to obtain and if offered, will be multiples of expected losses.
Markets are reducing limits, increasing retentions for some Insureds and adding specific exclusions on renewals (e.g., Communicable Disease and Pandemics). Incumbent partnerships will be more valuable during the upcoming months as markets assess the impact of the pandemic on their risk portfolios.
Increased scrutiny is being applied to all submissions, with focus being placed on managing coronavirus exposures, opioid policies, plans for managing growing physician populations, and technology and litigation management. Some markets have moved to strict pandemic exclusions to limit losses in the future. Driven by responses on Property programs, most markets are viewing COVID-19 claims as a result of one event, thus limiting potential exposure on a given program.
Additional data and reliance on analytic and coverage teams will be necessary to navigate the new underwriting and market landscape.
Things have changed in the Property marketplace unlike any time in the past. COVID-19 has brought into question how Property policies should respond to ‘black swan’ events and impacted how underwriters approach renewals and new business. An increasingly difficult market has quickly accelerated from a firming market to a hard market.
The impact of the pandemic is evident in renewals underway, despite the uncertainty of how Property policies will respond to physical damage and business interruption. The specific coverage changes in Property policies directly related to coronavirus have included a tightening of contamination exclusions, the addition of specific exclusions for communicable disease, or a significant lowering of limits for those policies that do provide some coverage.
Many carriers are cutting back significantly on capacity being offered at renewal, and some carriers have pulled out of the Property market completely. Others are exiting industry classes and/or occupancy types. The lowering of line sizes in shared and layered programs has created gaps that must be filled with new capacity. This cutback in capacity directly impacts renewal pricing.
Some industries, including food, wineries, high-tech, school districts, waste and recycling, frame habitational, auto dealerships and chemical risks, are seeing the most severe restrictions in carrier capacity, deductible increases and rate hikes. There has also been a significant cutback by many carriers on the first party cyber coverage that gradually made its way into Property forms over the last decade. Contingent Time Element coverage, as well as coverage for convective storms and communicable disease, continues to draw increased scrutiny and restriction.
Pressure exists to increase deductibles across most classes of business. Some carriers are imposing minimum deductibles in certain classes and converting flat dollar Time Element deductibles to a number-of-days multiplied by a daily Time Element value. Underwriters are seeking to increase deductibles to eliminate attritional losses, such as water damage, especially in the real estate sector. High hazard wind and flood percentage of value deductibles are now being tested. Convective wind deductibles for events like tornadoes and hail are being looked at with percentage deductibles similar to named storms, as is wildfire.
Accounts are experiencing rate increases across the board. Carriers looking at new business are approaching it with technical, modeled pricing and profitability is now the mantra. Capacity too expensive in the past is now often needed to complete a program.
Historically, the first quarter of any year has been a quiet period for construction, and general Surety activity in the first quarter of 2020 was no different. With the combination of numerous gross domestic product (GDP) components ceasing operations and a limited number of construction projects deemed essential, the second quarter has been flat in comparison to the first; and less than the results for the second quarter of 2019.
In the current environment, essential public works projects are still being bid and funded by previously approved budgets. Privately funded work has slowed down, with many owners taking a wait-and-see approach to publishing any bid schedules for future projects. Housing projects already in progress have continued, but with some limitation on the number of laborers onsite. There has been very little new project construction.
Construction Surety is down from the same period last year. A recent survey from the Associated Builders and Contractors showed that over 30% of respondents were anticipating a downturn in total revenue for 2020. At the same time, many contractors in essential categories have been able to reap substantial returns. Various constraints to job site access have become almost nonexistent. In some instances, highway contractors have been able to take advantage of not being limited to specific working hours and less active highways. These construction companies have been able to complete their work in half of the time from their initial schedules.
Commercial Surety revenue is expected to be flat in the second quarter. Many compliance requirements met by Surety bonds have been suspended or, in some cases, waived, during the pandemic. It is anticipated that the waived bond requirements will be fully put in place once all facets of the economy are up and running. It is not known how many of these businesses will be able to start up and return to previous levels of operations. Large companies are filing for bankruptcy, which could be a precursor to other companies ceasing operations.
Larger commercial clients may use surety bonds to protect their cash holdings with better credit terms from surety companies than what they currently have with banks. Anecdotal evidence shows many companies have been asking for terms and conditions for Surety programs. This level of inquiry is encouraging; however, the full effect of new programs will most likely be seen later in the year.
Surety business has always been defined as a relationship business. During this pandemic, no truer words have been spoken. While no one can predict what will happen to the economy as a whole or the Surety industry specifically, knowledgeable customers and brokers should use this time to enhance and expand their relationships with their bankers, CPAs and especially their Surety underwriters. A proactive approach must be taken with underwriters as this is the only controllable action clients and brokers can take to be unaffected by any general changes in rate and capacity.
Technology & Life Science – Middle Market
Middle Market Technology and Life Science are better equipped to handle the work-at-home environment than most industries. Many technology companies are allowing their workforce to remain remote through 2020 following the trends set by larger technology companies, such as Twitter. Life science companies, depending upon stage, have been able to stay open, although some industry segments, such as lab and medical device companies, have experienced reduced revenue. Clinical stage companies have slowed trial enrollment or ceased trials completely. Clinical trials that were expected to launch in the near term have been pushed to later dates. Commercialized pharma companies have seen their business continuity plans tested in order to continue delivering critical drugs to patients. The importance of an effective business continuity plan cannot be over-emphasized.
The market was already beginning to harden and it continues to become more difficult, particularly for D&O, Employment Practices Liability (EPLI) and Property insurance. Carriers on these lines are cautious on renewals and, in many cases, cutting back significantly on capacity. Some Insureds are seeing D&O and EPLI limits cut by primary underwriters, requiring more layers to secure preferred limit towers. Many underwriters are declining new business.
Product Liability, E&O/Cyber and low Total Insured Value (TIV) property retentions for mid-market companies are holding relatively steady. D&O and EPLI underwriters are seeking higher retentions wherever possible, and higher TIV insureds are seeing a push toward higher deductibles.
Clients with no losses are generally seeing increases of 3% to 10% on all but D&O and EPLI. Clean, private company D&O and EPLI pricing is trending towards 5% to 15% increases. Clean, public company D&O and EPLI clients are experiencing 15% to as high as 50%, depending on the risk.
While there have not been significant, systematic changes in coverages or terms and conditions, underwriters are requesting much more information related to COVID-19 issues, business continuity and employment practices. Companies that cannot answer questions to underwriters’ liking are seeing denials to offer coverage proposals, or proposals with higher retentions and limitations of coverage.
|Line of Coverage
|+15% - 50% (+100% for high risk ops.)
|+15% - 30%
|+15% - 50%
|Fixed Base Operators
|+20% - 25%
|Component Product Manufacturers
|+20% - 30%
|+50% or more
|*All based on no loss history past 10 years
|+10% - +30% or more for higher hazard risks
|+10% - +15%
|-2% - +5%
|-5% - +5%
|+25% or more for higher hazard risks
|+50% - +150% or more for higher hazard risks
|0% – +10%
|Directors & Officers Liability*
|+5% - +25%
|+25% - +50+%
|* Certain industry classes are experiencing higher rate increases in addition to retention increases
|+40% possible on renewal
|Employment Practices Liability
|+5% - +25%
|No Losses and Low or Medium-Risk Industry (class-A office; warehouse risks); most CPL business
|0% - +5%
|Moderate-Risk Class or Complex Risk (mold/habitational; large portfolios; tougher CPL risks)
|+5% - +10%
|Losses (frequency or severity) and/or High-Risk Class (heavy industrial; PFAS or other emerging risks)
|+20%+; coupled with coverage restrictions
|+10% - +15%
|+25% - +30%
|+25% - +30%
|Cargo including STP
|+10% - +20%
|+15% - +30% (when capacity is available)
|+5% - +15%
|+10% - +15%
|+10% - +20%
Excess of $1 million
|+15% - +25% (very limited capacity)
Excess of $5 million
|+5% - +10%
|Medical Professional Liability
|+5% - +10% + minimum
+15% - +30%+ for loss impacted and difficult jurisdictions
|Accountants Professional Liability
|0% - +15% depending on claims/revenue growth
|Lawyers Professional Liability
|+2% - +10%
|Overall Professional Liability
|0% - +15%
|+10% - +25% no losses; not CAT-exposed
+15% - +50% CAT-exposed
+25% - +60% losses; CAT-exposed
|Surety (Construction and Commercial)
|Technology & Life Science – Mid Market
Product Liability, E&O/Cyber
|+3% - +10% no losses
D&O and EPLI
|+5% - +15% (clean, private company)
+15% - +50% (clean, public company)
Important disclaimer: the ranges above are macro observations only. Every risk is comprised of its own characteristics (such as industry, loss history, geography, etc.) that may impact renewal pricing.