Future of Casualty Insurance

At the 2019 Advisen Casualty Insights Conference a panel discussed issues shaping the future of the casualty insurance marketplace. This casualty insurance executive panel is the feature event of the conference. The speakers were:

• Anthony DeFelice – Managing Director, AON (moderator)
• Paul Horgan – Head of North America Commercial Insurance, Zurich North America
• Lori Goltermann – CEO US Commerical Risk and Health Solutions, AON
• David Perez – Executive Vice President Chief Operating Officer, Liberty Mutual
• William Hazelton – EVP Construction Industry Practice, Environmental and Excess Casualty, Chubb
• Jeff Summerville – Head of Casualty Fin Pro North America, Swiss Re Corporate Solutions

Q: Why is your company changing its risk profile and pricing model with regard to liability lines of coverage?

Answers:

We are trying to maintain health in our overall portfolio. Industry loss trends in the commercial auto space have been bad and this has been bleeding over into general liability and umbrella liability. All these lines operate in the same tort system. Losses continue to come in significantly higher than anticipated and these trends show no signs of changing. We have to take action to try and correct our risk portfolio. This means both higher attachment points and higher rates.

We are trying to make our book of business more profitable and reduce volatility in the excess casualty line. This means limiting the size of accounts we will consider. It is very challenging to try to underwrite these larger complex risks as they are constantly evolving. We are trying to communicate this to the marketplace timely.

Q: As a broker, how do you balance messaging to clients in terms of state of the market and the realities of cost drivers with being an advocate for your client?

Answer:

Everyone is trying to manage expectations in the marketplace right now because it is evolving rapidly. Carrier strategies are constantly changing. The biggest thing we try to do with our clients is be as open and forthcoming with them as possible. They are setting insurance budgets based on the information we give them and as these conditions change it leaves them in a budget crunch. Our goal is to try and avoid surprises. Clients need to understand what is being seen in terms of the high liability jury awards.

Q: With the current state of the market how are you educating clients and colleagues on a hard marketplace like they have never seen before?

Answer:

It’s easy to deliver good news but bad news is challenging. We are actually training colleagues in how to have difficult conversations with clients.

We also need to keep in mind that this is the first time we have ever seen claims trends like these also. It’s very difficult for our claims personnel adequately evaluate our exposures in a timely manner in this environment. There is concern that carriers could be sitting on large unrealized exposures because of this.

Q: Why did you pull back your participation in the casualty marketplace?

Answer:

We were participating in excess casualty towers where we felt the pricing was woefully inadequate. It was not in our best interests to continue writing that business. We feel the lead carriers in these towers could be underpricing business by as much as 100%. Long tail business in these evolving risk environments are very risky.

Q: Do you anticipate your approach for underwriting changing to provide broader coverage to a broader marketplace?

Answer:

We do not intend to be all things to all people. That is not in our best interest. We focus on the businesses and lines of coverage that we feel our expertise supports. We are underwriting on an account by account basis and we are trying to get in front of clients early to help them understand the direction we are taking.

Q: Do you think true legal reform to improve the tort environment will occur in the next five years?

Answers:

There is no question tort reform is needed to address these runaway verdicts. Whether it will happen remains to be seen. This has to happen at both the state and federal level. There are other challenges too. We are seeing plaintiffs receive funding to pursue litigation and force cases to trial vs considering a reasonable settlement. The plaintiffs bar wants to get in front of a jury because of the high verdicts being received.

Q: Are clients and carriers moving toward settle the too quickly?

Answers:

It depends on the case, the facts, and the venue. In some circumstances it makes sense to settle quickly. In others it does not. We do not have 100% say in whether cases will settle.

One of the biggest challenges we are seeing is instructions to the juries. Also, with more millennials on juries they seem to be focused on trying to right wrongs by punishing big companies.

We are also seeing claims that used to settle two years ago not settle now for anywhere near that amount.

Taking cases to a jury is very dangerous in this environment. Especially in cases where there is little to no liability but significant damages. We are seeing large awards on such cases all the time out of sympathy for the claimant.