Carriers and brokers alike repeat the same line when talking about providing commercial clients with Lead- and Excess Umbrella coverage: "One million dollars ain't what it used to be."
The $1 million figure is referenced because it is the standard attachment point for the lines typically bundled together under a Commercial Umbrella policy: General Liability, Auto Liability and Employers' Liability.
The problem—and the reason commercial businesses of all sizes look into purchasing higher limits of coverage via an Umbrella policy—is that the $1 million attachment point has remained the same for decades.
And suffice it to say that, when considering the rising costs of medical care, defense costs and jury awards, it's a lot easier in 2012 to reach that $1 million limit than it was in the 1970s.
NU asked brokers, a wholesaler and carriers—some of which offer limits of up to $50 million worth of extra protection—about the latest trends and products in the Commercial Umbrella market.
NATIONWIDE: IN-HOUSE UNDERWRITING HELPS CRAFT EXCESS COVERAGE
Nationwide's Umbrella coverage piggybacks on its underlying primary policies; the carrier prefers to rely on its own underwriting from the ground up when crafting any excess coverage.
As a result, "our risk appetite [for Umbrella coverage] is based on what we write [for the primary layer]," says Doug Pearson, vice president of commercial products and pricing. "We have a good understanding of the exposures."
Combining the primary and Umbrella coverages also "streamlines and coordinates the process when there is a claim," adds Dennis McGuire, associate vice president of commercial products.
Typically, Nationwide's clients stop buying coverage at the Lead Umbrella stage, with a vast majority served by limits topping out at $10 million.
There is no shortage of capacity in the Umbrella market, McGuire adds, which is keeping rates stable.
Driving the purchase of many Umbrella policies are contractual requirements in the construction and retail spaces.
Contractors are often required to have an Umbrella policy to be awarded a contract. And retail distributors are often told by wholesalers that they must have additional limits in order to protect the wholesaler's exposure.
ACE EXCESS CASUALTY: IDENTIFYING OPPORTUNITY IN COVERAGE GAPS
Ace Excess Casualty provides larger corporate clients custom Umbrella coverage and can provide $50 million in limits for some insured using full blocks as well as what Executive Vice President Carol Laufer calls "ventilation" between layers.
Sometimes, for example, two layers of a company's risk tower provided by Ace, each with $25 million limits, are separated by an additional layer insured by another carrier.
Laufer says Ace "listens very closely to clients and brokers who discover gaps in coverage." The carrier then fine-tunes coverage and drafts endorsements in the Umbrella policy to provide "give-backs," or coverage for risks initially excluded in the umbrella layer of insurance.
There may be a Pollution exclusion in a hotel's umbrella insurance coverage, for example, but what happens when chemicals used for pools and spas are spilled?
"We are drafting endorsements every day to fill these little gaps in coverage within the Umbrella layer," says Laufer.
An additional $250,000 in Catastrophe Management insurance is provided when a corporation is likely to pierce its attachment point following events such as explosions, major crashes or contamination.
Laufer says that payouts for these types of claims can be used for expenses such as hiring a public-relations firm, psychological counseling for victims and funeral expenses.
MARKEL: APPETITE FOR CONSTRUCTION
At Markel, Umbrella rates are slowly starting to creep upward by 2.5-5 percent, says Michael Vought, managing director of Excess & Liability for the carrier's wholesale division.
Vought says submissions are also up. "We've had a lot more opportunities [of late]. Businesses need to protect themselves against the really bad occurrence that can easily exceed the underlying limit."
Most of Markel's accounts are in the Lead Umbrella position, with clients including contractors, manufacturers, public entities and schools.
About a third of its book is comprised of construction risk, Vought says, and a majority of the policies are unsupported business—meaning Markel is not involved in the primary layer.
Vought agrees with his peers' assessment that capacity in the marketplace is plentiful, which means rates are increasing only on "a very slow incline."
But even though capacity is plentiful, "with more pressure on underwriting results for every company, rates may increase more," Vought observes.
ZURICH: 'CRISIS EXPENSE' OPTION ON THE MENU
"Our legal system goes for deep pockets," says Susan Gibson, Zurich's head of Umbrella & Specialty products. "The question is whether $1-$2 million will protect a company when bad stuff happens. Probably not."
Like Ace, which also deals with huge corporate clients, Zurich makes $50 million limits available to its customers, with ventilation between layers.
"I believe most prudent companies do purchase Umbrella coverage," Gibson says, "but how much is enough? It's difficult to make that call as a company. Think about some of the accidents that can happen and how quickly costs can get into the tens of millions of dollars."
That doesn't happen often, and the Umbrella layers aren't supposed to be pierced frequently. But when a major event happens, large corporations need to be prepared for the worst.
Zurich has a "very broad" appetite for classes of business such as construction, real estate, technology, health care and energy, says Gibson. The carrier also offers $250,000 in "Casualty Business Crisis Expense" to mitigate the reputational risk that comes with a damaging incident.
Terms and conditions have remained fairly stable, she adds, and rates are up slightly.
As Gibson points out, however, "We've been giving rate back for a long time. We need more as an industry."
TORUS INSURANCE: SMALL BUSINESS, BIG RISKS
Linc Trimble, senior vice president and head of U.S. casualty at Torus Insurance, says he completely understands the motivation that typically drives the purchase of Lead Umbrella coverage among the small-market clients that are the carrier's focus.
"They tend to buy when they need to buy," he says, referring to a contractual obligation. "Otherwise, small business has less of a perception of deep pockets [among plaintiffs' attorneys]."
This makes small-market Umbrella a rather profitable business, because there is less litigation exposure, Trimble notes.
Trimble says business is picking up in the profitable construction sector for Torus.
The company can apply "class underwriting" to many of the business sectors it targets. For example, "blacktop pavers probably have the same risk throughout the country," Trimble says.
In terms of his assessment of the pricing environment, Trimble is consistent with other industry experts: Rates are moving up no more than 5 percent for the time being.
Losses, he says, tend to come from Auto Liability, due to tort inflation.
ARTHUR J. GALLAGHER: COMPANIES CONSIDERING HIGHER LIMITS
Taking into account the rising costs of litigation and medical care, it isn't easy to determine how much coverage limit is enough, says Robert G. Lohr, vice president of marketing for Arthur J. Gallagher's risk-management services.
"Awards are going up," he says of settlements. "As a result, companies are considering higher limits."
"There is also some upward movement in [pricing] as the economy picks up," Lohr adds, but rate increases for Umbrella coverage have not overwhelmed policyholders, he says.
"You think about what [clients] were paying 10 years ago, and it's very possible they are now still paying less than they were then," he says. "There have been 5-, 10-, 15-percent decreases for so long. Where else can you say you're paying the same price as you were a decade ago?"
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