| Trend | Range | |
|---|---|---|
| General liability |  |
+2% to +8% |
| Auto liability | |
+5% to +10%+ |
| Worker compensation |  |
-5% to +2% |
| Umbrella high hazard/challenged class | |
+10% to +20%+ |
| Umbrella low/moderate hazard class | |
+8% to +15%+ |
| Excess high hazard/challenged class | |
+20%+ |
| Excess low/moderate hazard class | |
+8% to +12%+ |
In the liability arena, the high-rate environment is expected to persist with rising frequency and severity of nuclear verdict trends driven by auto and products liability. Third-party litigation funding is fueling these verdicts with annual investment expected to reach $31 billion by 2028. Capacity is trimming from insurers to reinsurers while rate pressure is climbing across the casualty industry. We continue to trade in a “two-tiered” market whereby challenged risk classes (heavy fleet/transportation, products or loss influenced) and/or lower primary attachment points have experienced greater rate increases. From a forecast perspective, high hazard/challenged classes can expect to see umbrella and excess increases in the double digits, especially where deployed capacity by a single carrier is over $10 million. Rate changes on lead umbrella placements have continued to show increases but can be minimized through restructuring, marketing and reflecting appropriate exposure growth. Additionally, there’s increased utilization of Bermuda and London markets to provide additional excess capacity and enhanced coverage offerings.
The popularity of the supported-lead umbrella continues to dictate movement in the primary casualty lines and provide additional rate relativity savings up-the-tower. If leveraged strategically, clients realize economies of scale and cost savings through portfolio pairing of various lines of business.
WTW’s loss-sensitive clients experienced their 13th consecutive quarter of negative average rate in Q2 2024 per its Casualty Insights & Analytics database. The average rate for Q2 was -5.5% for workers compensation and -3.3% for excess workers compensation.
NCCI’s annual State of the Line Guide evidenced the 2023 calendar year’s combined ratio at 86%, a two-point increase from 2022. This marks the seventh consecutive year of results under 90% and a decade of underwriting gains. WC reserve redundancy grew by $18 billion and net written premium increased by 1%, driven by payroll growth while offset by continued reduction in rate. Workers compensation continues to be the most profitable of all P&C lines. While these results are not carrier-uniform, 40% of carriers had combined ratios under 86% and two-thirds experienced underwriting gains in 2023 per NCCI. Private carriers and state funds have experienced a seventh consecutive year of loss ratios under 50% with the 2% increase in the combined ratio primarily being the result of a marginally increasing loss ratio. WC investment gains on insurance transactions (IGIT) increased to 9% in 2023, below the long-term average of 11.4%, but above the P&C industry IGIT ratio of 8% per the NAIC’s Annual Statement data.
While WC continues to be a very healthy line of insurance for carriers as evidenced above, it does continue to provide a pressure-value for rate increases to general liability and auto liability programs. We anticipate continued rate reductions in WC in 2025 and potentially 2026, however, as combined ratios in WC compress due to rate reductions, there will come a point where it hits parity, and off-sets dissipate.
WTW’s loss-sensitive clients experienced their 32nd consecutive quarter of positive average rate in Q2 2024 per its Casualty Insights & Analytics database. The average rate for Q2 was +6.4% for automobile liability. We are operating in a two-tiered marketplace, where large fleets both in composition and volume are experiencing rate increases in the upper single-digits to double-digits, in comparison to small corporate fleets experiencing rates in the mid-single digits.
Risks and potential liability from automobiles and trucks have dominated conversations between Insureds and insurers over the past decade. Societal dynamics of distracted driving, social inflation and nuclear verdicts, fueled in part by third-party litigation financing, have forever changed the underwriter’s view of excess liability.
A new topic of concern has emerged in underwriting discussions regarding the liability that insureds face from hiring third parties to haul their property and products. At the same time, courts are considering the liability of third parties for accidents arising from the haulers.
We have started to see a number of large auto settlements/verdicts, many in excess of $20 million, due to this exposure.
Some recent cases that settled above the insured retention illustrate the point:
Source: Chubb Insurance Co., 3rd Party Hauling White Paper
What is consistent across the country is that plaintiff counsel is seeking additional recovery from deeper pockets and higher available insurance limits. Therefore, they are suing firms that contracted with a hauling firm, by alleging the contracting party was responsible for directing the third-party hauler, or negligent in properly credentialing the hired hauling firm to haul their property. These cases have included product manufacturers, wholesalers, trucking brokers, natural resource contractors and operators, and chemical companies. During the lawsuits, plaintiffs seek to establish an agency, employee, or control relationship between the contracting firm and the third-party hauler, which would allow them to hold the contracting firm liable and obtain access to its insurance. This is an evolving issue, as litigation strategy and case law progress.
Carriers are also attempting to address this emerging trend by excluding hired auto liability on general liability policies, in an attempt to push coverage solely towards traditional auto liability cover. In addition, some markets are also looking to impose minimum attachment points on third-party hauling exposures or instituting one-time corridor retentions below their capacity.
General liability’s Q2 2024 average renewal rate per WTW’s Casualty Insights & Analytics experienced a +2.6% increase, down from Q1’s +3%. European reinsurance concern over recent GL loss development could influence a firming market for 2024 globally.
Additional focus on coverage with ISO releases pertaining to BIPA (Biometric Information Privacy Act), cyber, PFAS and other exposures continue to restrict and clarify coverage for our insureds (updates below).
The insurance markets are diligently monitoring commercial general liability claims as the average nuclear verdict has reached $89 million with GL comprising 37.6% of cases. Amongst several other GL emerging risks, insurers are monitoring intellectual property and advertising injury litigation, and their underwriting discipline will soon show through rates and coverage restrictions. Lawsuits involving representations on the internet, specifically social media, pose new risks to companies who use social media and user generated content for advertising. Over 90% of U.S. companies utilize social media marketing, with over 90% of marketers using influencers as part of their strategy as of 2023. This means that today's advertising and marketing professionals are relinquishing control to outside parties that are encouraged to use their authentic voices in marketing a product, service or brand. The messaging doesn't necessarily go through the same rigor as traditional advertisements and can trigger CGL personal and advertising injury (Coverage B) in many ways, such as using protected audio, slogans, images, messages and more.
The CGL coverage form affirms narrow coverage for the use of another party’s advertising idea in an insured's "advertisement" and infringing upon another's copyright, trade dress or slogan in their "advertisement." It does not cover infringement of copyright, patent, trademark, or trade secret for insureds in media and internet type businesses, although placing advertisements on the internet is not considered to be in the business of advertising. Some carriers even have proprietary forms to further restrict coverage to omit infringement coverage entirely.
This means CGL policies do not protect against intellectual property infringement liability exposures outside of advertisements. Intangible assets are worth over $57 trillion, of which less than 20% are insured. Generally, CGL personal and advertising injury also does not cover financial loss resulting from non-legal events directly impacting a broader range of intangible assets. Insureds should exercise extra diligence around intangible asset exposures and work with their brokers to articulate their controls to the marketplace. Additionally, clients can best protect themselves by purchasing standalone IP infringement insurance to cover IP infringement liability exposures more broadly. Clients can protect their non-public proprietary intangible assets against financial loss by purchasing Intangible Asset Protection (IAP) insurance. Intangible assets typically comprise 99% of enterprise value for technology companies and 70% of enterprise value for all industries, but CGL insurance does not protect these valuable assets against financial loss.
BIPA: Amendment to Illinois statute
In our Spring Insurance Marketplace Realities, we provided an overview of Illinois’ Biometric Information Privacy Act, including a discussion of key case law developments and relevant endorsements. Since then, insurers continue to apply the new endorsements limiting coverage for losses arising out of BIPA violations. However, a recent relevant development as to the BIPA statute is likely to significantly affect liability, damages and coverage issues moving forward.
On August 2, 2024, Illinois Governor J.B. Pritzker passed Senate Bill 2979 into law, which included major amendments to the BIPA statute. Many commentators see this legislation as a direct response to a judicial decision issued last year. In Cothron v. White Castle System, Inc., 216 N.E.3d 918 (Ill. 2023), the Illinois Supreme Court held that BIPA allowed separate damages for each scan/collection of biometric identifiers or biometric information per plaintiff. Thus, each instance of biometric data collection was considered a separate violation of BIPA. The statute imposes a penalty of $1,000 per violation or $5,000 per intentional or reckless violation.
The August 2 amendment modified BIPA, to provide that where an entity obtains the “same biometric identifier or biometric information from the same person using the same method of collection” from a plaintiff, that plaintiff is entitled to at most a single recovery. The same is true for disclosure of biometric information – the maximum recovery is per plaintiff. Essentially, an aggrieved individual is entitled to a single recovery for the collective violation.
The Amendment also allows individuals to consent to biometric collection via electronic signature, defined as “an electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”
Overall, the Amendment is likely to decrease potential liability for future litigation based on BIPA violations. It remains to be seen whether the Amendment will be applied retroactively to litigation which had commenced prior to the change in the law, since the text of the bill is silent on that issue. There are arguments on both sides as to whether the Amendment will be applied retroactively – on the one hand, some Illinois law applies a general presumption against retroactive application of amendments. However, as this change impacts the damages, and not whether there was a substantive violation of BIPA, it may be applied retroactively under Illinois law. This is likely to be litigated in future disputes and will likely require a ruling from appellate courts before it is finally decided. In the meantime, commentators will keep a close watch on how plaintiffs’ counsel react to this new damages landscape.
We have previously identified various coverage implications around the so-called “forever chemicals” which are increasingly the subject of news reports and studies:
What have we seen?
How have insurers responded?
What should policyholders do?
Products that contact PFAS: Candy wrappers, water resistant clothing, pesticides, fast food packaging/wrappers, paints, sealants and varnishes, firefighting foams, microwave popcorn bags, eye makeup, stain resistant products, pizza boxes, dental floss, cleaning products
In recent months, PFAS has been the subject of a number of regulatory and legislative developments.
In February 2024, the FDA announced that manufacturers voluntarily agreed to a ban on PFAS-containing food packaging, which was previously used as a grease-proofing agent. These containers such as takeout boxes, microwave popcorn bags and fast-food wrappers, now no longer contain PFAS after a phase out which began in 2020.
In April 2024, the Environmental Protection Agency took a number of steps to closely regulate certain categories of PFAS. Two types of PFAS – PFOA and PFOS – were designated as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund, which opens the door to future contribution actions under environmental cost-recovery statutes. Separately, the EPA also issued a memorandum on CERCLA enforcement discretion, which focuses on entities that contributed to the release of PFAS contamination into the environment, including parties that have manufactured PFAS or used PFAS in the manufacturing process.
Also in April, the EPA announced the first regulatory limits on six types of PFAS in drinking water. This national, legally enforceable drinking water standard is aimed at reducing PFAS exposure through monitoring requirements and Maximum Contaminant Levels for PFAS. Within the next three years, public water systems will have to institute monitoring systems and begin reporting results.
In addition to federal developments, states have also enacted laws and regulations directed at PFAS use and sale. For example, in August 2024 New Hampshire Governor Chris Sununu signed a law which will prohibit the sale of certain products if they have intentionally added PFAS. This law will take effect in 2027. Importantly, the law also instituted a strict liability standard for manufacturers, who will be liable to the state “for containment, cleanup, restoration, or other remediation related to the release or threatened release of hazardous waste or hazardous material in accordance with applicable law and departmental rules.” This is just one recent example of states taking a proactive approach to PFAS regulation, in addition to nationwide requirements.
Umbrella and excess liability lines continue to see pressure on both pricing and capacity.
Despite the considerable amount of new capacity that has entered the excess market, largely through the formation of MGAs, we continue to see markets withdrawing or reducing deployed limit creating upward pressure on rates. Unprecedented severity trends continue to bring into question the adequacy of excess rates, despite the increases the market has experienced since 2019.
Note: Total market capacity available is risk dependent
Catastrophic liability losses and exposures impacting carriers:
Some carriers are implementing last-minute exclusions at renewals.
Concerns around loss trends have kept capacity out of the market despite Year-over-year (YOY) rate increases since 2019.
Historically, carriers would grow their portfolios by expanding deployed capacity Year-over-year (YOY), but that trend has reversed and even the newer carriers are reducing lines on the larger and higher hazard placements. Promises of expanded capacity from some of the newly formed MGAs have not materialized as carriers are looking at their more recent loss years as potentially unprofitable as they await the resolution of mass tort and large litigated actions. The excess and surplus Lines market has absorbed some of the additional capacity. E&S premiums grew to over $45 billion in 2023, accounting for 35% of all liability premiums, up from 26% in 2018.
Attractive alternative structures – Structured buffer solutions
The increased pressure on lead umbrella attachment points and pricing due to the rising trends and lack of competitively priced reinsurance has created a gap between the traditional primary liability limits and the lead umbrella market. Carriers are increasingly forcing funding of pessimistic expected loss scenarios.
The structured market is the go-to solution for these situations.
Structured solutions
These multiyear programs blend risk financing and risk transfer into a single policy offering define per event, annual and term limits. They are suitable for distressed layers, such as products/premises liability and auto buffer layers, especially where insurers seek to raise attachments and/or reduce capacity.
This approach is also frequently deployed on a multiline basis across layers or as reinsurance of captive insurance companies allowing clients to explore larger self-insured retentions. The purpose is to reduce volatility in financial statements, protect against erosion of capital & surplus, and leverage a captive to reduce frictional transaction costs. We also implement structural options that allow the Insured to benefit from interest on risk financing funds through the use of corridors or funds withheld features.
Education institutions are facing a broader range of challenges than ever before, from social inflation to active assailant to the statute of limitations expanding in many states for sexual abuse. Over the last year, political tensions related to the war led to donor disputes, executive terminations, increased student discipline, mental health issues, student unionization and increased police scrutiny. Looking forward, carriers are concerned with the potential threat of anti-trust, discrimination and professional liability suits arising from both the new Title IX and the new NIL (name, image and likeness) regulations that took effect on August 1, 2024.
When an institution faces a severe claim, there can be concerns about consistency in excess liability policy language across different layers, including the need to obtain approval from multiple insurers for the selection of counsel, law firm rates, defense costs, settlement discussions, exhaustion of limits and claim cooperation provisions. Overall, these issues have caused many carriers to add additional exclusions, reduce capacity or exit the market all together.
Understanding the headwinds and insurance nuances in the higher education arena is key to avoiding exclusions, insuring broad coverage and defense cost treatment. WTW’s proactive education-focused insurance approach can close gaps and introduce new carrier solutions to our clients’ insurance programs.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
