Umbrella Capacity Available, Though Appetite Often Lacking

Umbrella Capacity Available, Though Appetite Often Lacking

By Gary S. Mogel

Although umbrella capacity is available, insurers are avoiding the distressed industry segments, according to underwriters specializing in the market.

Capacity is “generous” and there is normally no problem obtaining the first $25 million excess layer for most risks, said Michelle Middleton, senior vice president and worldwide excess umbrella manager for Chubb & Son in Whitehouse Station, N.J.

But Ms. Middleton pointed out that there continue to be difficult classes, including transportation firms, contractors and any risk involving care of patients or the elderly.

Chubb has been increasing umbrella premiums “17 percentish,” with some larger clients seeing increases of 20 percent or more, she said. “Premiums have been rising, but at a decelerating rate compared to last year. There is more competition this year,” she added.

Chubb has introduced an umbrella form that includes an Internet liability exclusion, Ms Middleton said. She noted that Chubb will add a mold liability exclusion endorsement “only where the exposure is inherent,” such as for certain real estate accounts and risks located in humid climates.

David Perez, president of New York-based American Home Assurance Company, a subsidiary of AIG, agrees with Ms. Middleton that there is no capacity problem for most types of risks.

“The capacity is there, but sometimes the appetite isn't,” explained Mr. Perez. “It is an industry-specific issue–the distressed industry segments may find it tougher to buy the limits they want.”

As for premiums, Mr. Perez said they will continue to rise, but increases will not be as drastic as in 2002, when the umbrella line was seriously underfunded for expected losses. “Jury verdicts and the evaporation of investment income” require firmer pricing, but increases will not generally be massive, he pointed out.

Among the difficult sectors are clients with large auto fleets or hazardous product liability exposures, some of which are being hit with increases of up to 75 percent, on top of the up to 100 percent they received last year, said Linc Trimble, senior vice president of specialty excess and umbrella for The St. Paul Companies in New York.

For other types of risks, Mr. Trimble said that increases are generally “single-digit to 40 percent.”

Mr. Trimble noted that the reasons for the increases are “loss trends, reduced investment yields, reinsurance costs and litigation, especially the greater frequency of verdicts in excess of $1 million.”

“Capacity up to $100 million is there for most risks, although there has been a reduction in capacity for the largest and toughest risks,” he pointed out.

Regarding coverage, Mr. Trimble sees neither relaxation nor tightening in terms and conditions. “Mold exclusions have become typical for habitational and other risks with this exposure,” he said, noting that exclusions for electromagnetic fields and radiation may also be added to some polices.

Mr. Trimble advised risk managers to meet with their underwriters and tell their story.

Opening a dialogue between clients and carriers can streamline the renewal process, especially in those “pockets of the marketplace” that Mr. Trimble noted “continue to see high increases despite previous increases during the last renewal cycle.”

Tom Grommell, senior vice president of casualty syndication for Aon Risk Services Inc. in New York, agreed that it is important for clients to “meet the markets” and make personal visits to underwriters. He also noted that the underwriting process has become much more painstaking and deliberative. “A clean, organized submission is critical,” he stressed.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, May 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.