The US casualty insurance market is entering a complex phase, characterized by rising claims inflation driven by escalating litigation costs and increased severity of claims. Tightening capacity, particularly at the lead level, is further complicating the landscape.
According to Risk Placement Services (RPS) area executive vice president Russ Stein (pictured above), while capacity is constrained at the lead level, it becomes more available at higher attachment points.
Stein noted that opportunities exist for agents who explore non-traditional markets, as new entrants contribute to rate stabilization and improved pricing options.
In the firm’s report, Stein explained that in recent years, securing a single carrier to write a lead layer, such as a $5 million attachment, has become increasingly difficult.
“Now, you might need to secure a lead two and build from there. Once you reach a certain attachment level – often five or ten, depending on the class and exposures – competition picks up. But really, there are not a lot of people that want to jump in and play on a lead,” he said.
He also highlighted opportunities for agents to find better pricing by approaching prospective markets, which may offer alternatives to the rigid rate increases often imposed by incumbent carriers.
RPS area vice president Adam Wood noted the value of looking to the London market for certain risks, particularly excess auto coverage.
“We’re seeing London becoming a bit more aggressive than domestic carriers, especially on large deals. They can offer a three-year guaranteed policy with a return premium if there are no claims after that period, along with an additional premium if there are losses in the excess. This approach provides a three-year rate lock in a very uncertain rate environment,” Wood said.
The rise in nuclear verdicts – jury awards exceeding $10 million – continues to impact the casualty market. RPS executive vice president Mike Mulvey said that carriers are often less inclined to defend large claims when their limits are lower.
“When a carrier had $25 million in limits, they were more aggressive in defending a claim. But now, with only $5 million in limits, from a cost-benefit analysis, carriers might be more willing to settle rather than go through the cost of fighting it. So, market dynamics and regulatory factors are definitely contributing to the rise in nuclear verdicts,” Mulvey said.
Stein added that exclusions in habitational coverage are also becoming more common. “We’re definitely seeing an increase in habitability exclusions, weapons exclusions, and difficulties in securing assault and battery coverage. Some carriers are even limiting certain animal breeds in apartment complexes.”
He noted that what was once a regional issue, particularly in California, is now expanding across the country, with nuclear verdicts emerging in areas that historically had not experienced them.
Mulvey emphasized the importance of early communication between agents and insureds to address the challenges posed by market changes.
“You need to speak to your insureds early on in the renewal process to understand their needs, some of which could be very specific. You need to make sure you provide the coverages they are required to have, as well as options for insureds that are more price sensitive – that’s particularly important for accounts that might be coming out of the standard market and into the E&S channel,” he said.
Stein agreed, highlighting the need for proactive discussions with carriers. “You need to be starting conversations with carriers well in advance — 120 or 90 days out — asking about their outlook and expectations for an account. If a carrier that’s been on a good-performing risk for years suddenly mandates a significant rate increase across their book, you need to communicate that early and explore alternatives with the insured.”
The trend toward offering smaller limits, such as $5 million or $10 million, is also making it easier to manage capacity constraints, according to RPS vice president David Pezzi.
“Having smaller limits brings more predictability and sustainability to the insurance market. It makes it much easier to replace or introduce competition compared to larger limits, such as $25 million. When you need to swap out a $5 million limit, the insured feels the impact far less than if you were replacing a larger one,” Pezzi said.
The evolving dynamics in the casualty insurance market underscore the need for agents to anticipate changes, communicate effectively with both carriers and insureds, and explore diverse market solutions.
What are your thoughts on this story? Please feel free to share your comments below.
