9 minute read
Casualty Update: Market Outlook and Renewal Strategy for 2022
Evan Hessel
Casualty Practice Leader 949.435.7387 | ehessel@woodruffsawyer.com View Bio LinkedIn
Stephen Glazier
Vice President, Casualty Loss Control Specialist 720.593.5409 | sglazier@woodruffsawyer.com View Bio LinkedIn
The outlook for 2022 looks like it will be a difficult environment for most lines of coverage, with some notable exceptions.
Auto, general, and umbrella liability rates remain strained by increasing claims costs and poor underwriting results. By contrast, workers’ compensation and high excess casualty are stabilizing and attracting reinvigorated insurer competition.
The current market, while difficult, provides an opportunity for risk managers to rethink how they manage their overall insurance portfolio, while also refocusing on basic risk management best practices that may have been deprioritized during the peak of the COVID-19 pandemic. In this section, we provide guidance on the rate environment for major casualty coverage, advice on structuring an overall program in the current market, and recommendations for strengthening employee safety and liability controls.
Workers’ Compensation: Best-Performing Line
Heading into 2020, the COVID-19 pandemic and resulting economic uncertainty signaled an inflection point for workers’ compensation. Rates seemed to have bottomed out after five years of decreases. Concerns that huge numbers of workers would contract COVID-19 while on the job terrified insurers. Underwriters sought modest rate increases for the first time in five years.
What’s clear now is that workers’ compensation (WC) remains the most competitive and best performing major property and casualty insurance line. Insurers’ ability to drive rate increases is minimal. According to the Council of Insurance Agents and Brokers Q2 2021 Rate Survey, rates increased by just 0.3% in the beginning of 2021.
Estimated small losses of 0.62%
While the pandemic slowdown cut into overall written WC premium, loss trends remained favorable with only a slight increase in medical and lost wage expenses, partially offset by a decline in loss adjustment expense, per the National Council of Compensation Insurers. COVID-19 losses were financially immaterial to WC insurers, generating an estimated $260 million of losses on $42 billion in premium. While the Delta variant poses serious public health concerns, increasing vaccination rates and employers’ abilities to mandate either vaccination status and/or masks suggest COVID-19 WC losses are under control.
The New Normal: Post-Pandemic Workers’ Comp Claim Challenges and Opportunities >> Get an overview of both the positive and negative developments in WC claims, the impact on employers, and new claim strategies.
Rate Forecast for 2022
Risk managers have an opportunity to use their workers’ compensation renewal as a stabilizing force for their overall insurance program. Fueled by solid underwriting results and recent increases in investment income, insurers are competing vigorously to write workers’ compensation coverage for wellmanaged risks. Organizations with strong employee health and safety programs, comprehensive COVID-19 controls, and proactive, datadriven claims management strategies can expect two perks: they’re able to both negotiate favorable WC rates and leverage the WC program to drive insurer competition for tougher lines of coverage—namely general/products liability, commercial auto, and umbrella liability. We anticipate rate movement of -5% to +3%.
Commercial Auto: Still Rising
Providing auto liability coverage remains a hugely risky proposition for US insurers. At first glance, underwriting results seem to be improving, bolstered by years of successive rate increases. Fitch Ratings calculates that the combined ratio for commercial auto improved 7.8% to 101.6% in 2020.
Combined Ratio Refers to the Percentage of Total Losses and Underwriting Expenses Relative to Premium Collected
Any combined ratio over 100% indicates an underwriting loss.
The overall result is a bit misleading. The volume of auto claims declined 25.6% during 2020, as the pandemic limited driving activity for many businesses. Yet the average payments for auto accidents increased 14.3% over that period. With auto repair and medical treatment costs still on the rise, insurers are concerned that auto losses will surge once driving activity rebounds to prepandemic levels. Insurers obtained a 9% average rate increase for auto in the first quarter of 2021.
Rate Forecast for 2022
We anticipate modestly slower rate increases of +6% to +10% for auto as insurers creep toward profitability.
Commercial General Liability
The continued forces of increasing litigation rates, jury awards, and settlement amounts continue to drive up rates for primary general and products liability. Per CIAB, rates rose 6% on average in the first half of 2021, though increases were steeper for businesses in high-hazard industries: manufacturers of tough products (e.g., kids goods, auto or medical parts, chemicals), habitational real estate owners and operators, sharing economy firms (on-demand delivery or services, home sharing), and companies with material wildfire exposure (utilities and forestry concerns).
Rate Forecast for 2022
We anticipate rates of +4% to +9%.
Umbrella and Excess Liability
The excess casualty market can be characterized by a mix of both good news and bad news.
The Bad News
The frequency of severe ($15 million or greater) liability losses is expected to continue to grow as a result of social inflation, which is the phenomenon of increasing claims costs due to changing societal factors, such as legal advertising, litigation financing, the appeal of class action lawsuits, and growing public distrust of corporations. Westfleet Advisors estimates that litigation financing, in which private investors fund claimants’ litigation against corporations, grew 18% to over $11 billion in 2020.
Woodruff Sawyer’s analysis of Advisen large auto liability claims data illustrates the impact of social inflation. We looked at four-year windows in order to eliminate the impact of year-to-year variability. The number of auto liability claims with settlement and judgment value of $15 million or greater increased 168% from 35 for the 2008–2011 window to 94 from 2016–2019.
Advisen Data Shows Catastrophic Auto Liability Claims On the Rise
Analysis considers US-only Auto Liability cases with recorded settlement or award value greater than $15 million. Losses are sorted by year of settlement or judgment.
Lower Variability Moderate Variability Higher Variability
35 62
2008–2011 2012–2015 94
2016–2019
10 10 9
6 11 17
14 20 19 20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Analysis considers US only Automotive Liability cases with recorded settlement or award value greater than $15M. Dollar amounts are not inflation trend adjusted.
Source: Woodruff Sawyer, Advisen MSCAD 16
2018 39
2019
The increasing frequency of severity has led to huge underwriting losses for excess casualty insurers, particularly in the umbrella and lower layers of an excess casualty tower. Insurers have reacted by demanding significant umbrella rate increases for essentially all risks with meaningful products, auto or premises exposures, while simultaneously requiring higher underlying limits in order to bump up umbrella attachments for certain accounts.
Over the past two years, higher excess layer underwriters have further compounded the pain. Insurers slashed capacity while setting prices for reduced layers at much higher ratios to the umbrella than in prior years
The Modestly Good News on Excess Casualty At least $100 million of new underwriting capacity has entered the US casualty market, chasing newly increased rates and driving competition for layers of excess towers above $25 million.
How should a strategic insurance buyer approach the tumultuous excess casualty market? For the challenging umbrella layer, the key is to develop a data-rich narrative of risk management and safety controls to present to underwriters, while also leveraging relationships with the incumbent umbrella insurer and other insurers represented in your broader portfolio. Consider, say, packaging a profitable workers’ compensation program with more difficult auto and umbrella coverage. For the higher excess layers, seeking to arbitrage different layering structures and engaging an array of incumbent insurers and new market participants is critical in optimizing the overall excess tower cost.
For large companies (revenues of $1 billion), we anticipate rates of +10% to +20%
For small commercial and middle-market firms (less than $1 billion+), we anticipate rates of +15% to +30%
Revisiting Workers’ Compensation Best Practices and Ergonomics
COVID-19 required risk and safety managers to quickly reprioritize employee protections from the virus above other critical risk functions (such as auto fleet safety, product quality control, and other workplace conditions). As employees continue to return
to workplaces and adapt to life with COVID-19 more controlled, risk managers have an opportunity to revisit basic workplace safety and ergonomics policies.
Most employers have experienced some disruption in their workforce and the ways that jobs are done and safety programs function. This is true for manufacturers, processors, financial institutions, technology firms, and almost all other employers. In some instances, the impact on safety programming has been negative.
As you review injury trends and costs from this past year, you will likely see some familiar categories in those losses. Redeveloping or maintaining a focus on those exposures causing loss is important for the future of your programs and their performance, both now and post-pandemic.
Common Disruptions and Their Solutions:
Fleet
Motor vehicle accidents (MVAs) are still the number one cause of work-related fatalities. Auto loss awards are continuing to grow, and the commercial auto liability market is employing tighter underwriting controls in an attempt to control losses. Insurers continue to ask for more and more information and require tighter controls to obtain coverage and favorable terms. Telematics, motor vehicle report (MVR) monitoring, strict electronic device policies, and other controls are, in some cases, being looked at as basic controls. As employees start to get back on the road in owned or non-owned vehicles to conduct business, these types of controls and a way to communicate them to your carrier are advantages.
Hazardous Energy Control / LOTO and Guarding Some shifts have run shorthanded, and production demands have been high on those continuing to produce goods. These pressures can result in shortcuts, lack of training, and a less formal safety effort around machinery.
This is a good time to do an audit of your controls around machine-based exposures.
Ergonomics Ergonomic-based injuries are among the top drivers of workers’ compensation losses for most employers. While COVID-19 forced some employers to create more flexible assessment methods and equipment policies to address at-home work, it also forced other employers to produce goods with fewer available employees.
Investing in engineering controls, ergonomic committees, and leveraging ergonomic expertise can yield larger dividends in this atmosphere.
Safety Meetings If your safety committee meetings have been on hold or focused solely on COVID-19 prevention, you may wish to conduct a trending and mitigation exercise to reinvigorate loss prevention in other areas.
Safety Observations With many employers facing staffing shortages, safety observation programs have suffered in some instances. If you utilize observations to help drive losses down, be sure they are up to date and, if needed, restarted. Post-Injury / Incident Investigations If you have contact-tracing fatigue, you may feel like this topic is a bit torturous—but it is a necessary measure. If your postinjury investigation process has been pushed aside or is a bit behind, be sure it is brought back online. There is no better way to add detail to high-level trends than to dig into your actual losses.
Safety Policy and Procedure Review Periodic review of safety policies and procedures is something many companies do during slower times of the year. If the pandemic has kept your safety team and/or committee busy, you may find that general safety policy and procedure review has fallen behind. Keeping your policies up to date and relevant is one key to staying in compliance and preventing injuries.
COVID Return-to-Work Resource Center >>
Get checklists, templates, and sample plans to help you make your return-to-office program successful for your employees and your business.
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