Despite an environment of economic turmoil, a dismal housing market, payroll and sales reductions, and declining rates, most Florida general liability (GL) carriers continue to battle for market share. With markets generally open and competitive for this line of business, pricing remains soft. However, while double-digit rate decreases were common during 2009 and early 2010, that deep pricing trend appears to be moderating, with rate decreases closer to five percent more the norm today. Carrier balance sheet pressure is building as financial results in the second and third quarters deteriorate, perhaps bringing the soft market closer to an end.
Even with very positive overall P&C results in the first quarter of 2010, results for the balance of the year are likely to deteriorate. The industry's positive first quarter net income was largely driven by a significant improvement in investment results, not underwriting results. It is unlikely that this level of investment gain will be repeated in subsequent quarters as the impact of catastrophe losses (2010 hurricane season forecasts remain gloomy) and the Deepwater Horizon disaster are more fully realized. As capacity is absorbed, pricing for all lines of insurance likely will be impacted.
Notwithstanding this highly competitive and generally open market, a few classes of business do face a more restrictive GL market, including contractors involved in residential multi-unit housing, new ventures, financially distressed businesses, and contractors having exposure to tainted Chinese drywall.
The drywall problem is of particular concern, with potential damages estimated at a staggering $25 billion, according to a recent Munich Re presentation. Although it will take years for various coverage issues to work their way through the courts, GL carriers are already feeling the impact and taking actions to mitigate their exposure by tightening underwriting guidelines and introducing restrictive endorsements. Florida agents must thoroughly review and understand the breadth and implications of these restrictive endorsements and, where alternative coverage is not available, ensure that their policyholders are fully informed.
In addition to restrictions related to tainted drywall, Florida agents should be aware of other endorsements that are becoming increasingly common, including:
- Contractual Limitation: ISO form CG2139 severely limits contractual coverage. Always try to negotiate for its removal.
- Cross Suits Exclusion: Watch for exclusions that preclude coverage for suits by additional insureds.
- Damage to Work Performed by Subcontractors on Your Behalf Exclusion: If your insured uses subcontractors, this type of restriction presents a significant gap in coverage.
- Pollution Exclusions: Where exposures exist that are not covered by the standard commercial general liability or are excluded due to the application of a "total" pollution exclusion, consider quoting a separate pollution policy. Pollution coverage, including coverage for mold, is now readily available in the marketplace and competition among carriers is fierce.
GL is a highly competitive product line and increasingly complicated by emerging coverage issues and restrictive endorsements. Florida agents must stay informed of market changes and be diligent in their review of carrier coverage forms. Agents also should recognize and educate their clients to the reality that the soft market environment will not last forever. As carriers continue to see declining written premiums and deteriorating financial results, excess capacity will diminish.
Gary Grindle is vice president of Colemont Insurance Brokers of Connecticut, an AmWINS Group company. He handles all types of difficult-to-place P&C business. He may be reached at 860-751-7815 or gary.grindle@colemont.com
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