North American energy casualty update 2023

Primary liability

The Primary Liability marketplace, covering Workers Compensation, General Liability, Auto Liability, continues to find itself in a stable position overall from both a pricing and capacity standpoint in most Natural Resources sectors. This is due to a combination of manageable limits, which have helped to reduce the impact of increased claims severity, an increased focus on risk-transfer attachment points and an abundance of available capacity.

As many Primary Liability insurers have aggressive new-business growth goals overall each year, which we suspect will continue in 2024, clients should have the ability to choose between various options provided by competing carriers, and we predict that this combination of stable market capacity and growth-focus will most likely prevent the Primary Liability market from hardening in any meaningful way in 2024.

Auto liability

The COVID-19 pandemic had caused a significant backlog of court cases, which is now abating and, as a result, auto liability judgements and settlements continue to come in at pace trending in a troubling direction for both prior years and the 2022-23 policy years. A well-funded plaintiff’s bar continues to focus on commercial auto litigation and accident frequency is increasing because of heavy activity and distracted driving. Jurisdictions that used to be considered neutral are now leaning towards being plaintiff-friendly venues for example in places like the Permian Basin.  It has been reported that the 2022 Combined Ratio for Commercial Auto insurance rose to 105.4% in 2022, a clear indicator of continued social and economic inflation in the sector. As a result of these aforementioned factors, pressure remains on carrier profitability for Primary US Auto Liability insurers despite 7 to 8 years of steady rate increases.

Incumbent insurers are still requesting mid to high single-digit rate increases on their Auto Liability renewals, with some carriers even seeking low double-digit rises, as they attempt to return to profitability in a continuously challenging environment. We have seen an increase in Hired Auto claims in which the failure of the hired carrier to maintain or certify sufficient insurance limits has resulted in large judgements against the hiring company’s corporate programs and attorneys have begun targeting “deeper pockets” in recent years. Looking forward to 2024, we expect incumbent insurance companies to continue to seek rate increases on renewal programs, with an ongoing focus on risk transfer attachment points as well as efforts to “right-size” their portfolios. It is vital that insureds in all sectors highlight controls in place to differentiate their programs in a market challenging environment.

General liability

Incumbent insurers in the Midstream and Downstream segment are currently seeking low single digit rate increases for General Liability renewals for historically profitable business and in certain cases are offering flat-rated renewals to incumbent insureds. The Offshore Operating segment was severely disrupted with the exit of the a large London-backed US wholesale facility, with many insureds moving to the London market for Primary General Liability coverage. In many cases this has resulted in large premium increases while also increasing the focus on stricter adherence to Marcel Exceptions regarding the Louisiana Oilfield Anti-Indemnity Act. Domestic Onshore Operating capacity remains plentiful, with multiple carriers in both the US and London willing to offer General Liability coverage at competitive pricing for profitable insureds with proper controls in place. The Oilfield Services sector has seen a troubling uptick in the severity of “Action Over” claims amounts and carriers are beginning to scrutinize certain classes within the sector to combat the rising claims costs for litigated workplace injuries. Whilst ample capacity remains in the sector at this time, it does bear monitoring this development as we move into 2024. 

Workers’ compensation

Workers’ Compensation has remained a consistently profitable line of business for Primary Liability insurers for Midstream/Downstream/Chemicals and Upstream and has subsequently remained stable from a rating standpoint, with flat renewals and potentially small rate decreases offered by incumbent insurers. Oilfield service companies and industrial contractors are receiving larger rate increases if they have negative loss records as the sector is seeing an uptick in the severity of workplace injuries. However, for most energy sectors, Workers Compensation continues to be a major driver of overall profitability which is helping to offset the challenges faced by the US Auto Liability marketplace. 

As wage-inflation has been considered during the 2023 renewal cycle, we do not foresee larger payroll exposures impacting renewals again in 2024. 

We expect the 2024 year to mirror the current environment, with ample capacity remaining and insurers offering flat renewals and even small decreases on profitable programs for most industry segments

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