Reinsurers call for casualty rate hikes and overhaul of claims practices

Reinsurers are calling for further casualty rate increases and a renewed focus on claims settlement practices to counter the effects of social inflation in the US.

Social inflation, which is driving ever-larger jury verdicts and settlements in the US, is expected to be a major talking point of casualty reinsurance renewals in January. So-called nuclear verdicts have been driving increased loss costs for general liability and commercial auto, resulting in significant price hikes and reductions in limits. However, the industry needs to do much more if it is to mitigate the effects of social inflation, according to panellists on an Aon-hosted online debate.

“Social inflation has been with us for some time. The last five years [insurance] companies have been very successful by mostly reducing limit and increasing rate, and that was a good way to fight social inflation. But going forward, we need another playbook, which will involve claims settlement practices and underwriting approach,” said David Marra, executive vice-president and group chief underwriting officer at Bermuda-based Renaissance Reinsurance.

The combination of aggressive plaintiff attorney tactics and litigation funding that is driving up settlements for large personal injury cases requires a different approach to claims departments, build around 100 plus years of insurance industry history, according to Marra.

“The proper claims practice to fight social inflation is evolving and we have to work together as a market to figure out how to best do that. What we have seen is that the plaintiff bar is very aggressive and successful. They not only have the ability to collude, they have a playbook that has figured out how to take settlements that previously were $1m, and get $10m, or $10m gets $20m, and $20m can be $100m. Combatting that takes more than just what we have always done,” he said.

“The winners in the next cycle will be those that figure out how to tool their claims departments around anticipating where the biggest risks are, figuring out what to settle, and figuring out what to take to court. Even if there is a possibility of a larger settlement, we still have to find ways to fight things and get precedents to avoid the flood of social inflation we are seeing,” said Marra.

Further rate increases and adjustments to limits are also required to combat social inflation, according to Philippe Meyenhofer, CEO of PartnerRe, the global reinsurer owned by French insurer Covéa.

“The key here is that we continue to see [insurers] really willing to keep pushing, even accelerate, the rate increases they are getting, and importantly reduce the limits they are deploying. The one thing we don’t believe is that the loss trend will subside. What we have been seeing in the actual vs the estimate numbers coming through every quarter is that it is excessive. So we do need an acceleration,” he said.

Meyenhofer also believes that claims practices need to change, including the trend for insurers and insureds to settle cases before they get to jury trial.

“To echo David’s comments, I do think we need to see some changes in claims practices. These early settlements can’t just be the industry caving in and fuelling social inflation,” he said.

Partner Re and RenRe say they remain committed to the casualty market, but they will need to work closer with insurers in the future to understand trends in social inflation and losses.

“For us, it’s not running away from the risk. [Casualty] is a very important risk pool in the market, and for us as well. We do believe we have partnered with the right clients, in the sense they are people that have their eyes wide open to what is going on. What is going on is profound, and the reactions we need are first and foremost in the insurance market,” said Meyenhofer.

Marra also wants to see greater dialogue between reinsurers and insurers.

“Our approach to this [January] renewal is to tee-up that dialogue with better data to start with. The claims triangles are showing a lot of volatility and we are seeing claims settling faster, we are seeing cases of reserve adequacy probably increasing. In the normal process of placing a quota share renewal, it doesn’t give us enough insight to really understand that and have the next phase of conversation with the [insurer],” said Marra.

“The goal is to say what the loss cost will be in 2025 and 2026, and how the insured is going to navigate that, so we can differentiate and make sure we put our capacity in the right place and get the right price for each customer,” he said.

Casualty insurers typically rely on traditional quota share to protect casualty portfolios against catastrophe losses, but the product makes it harder for reinsurers to establish the clearing price and react to trends, explained Marra.

“Casualty went through a cycle where there were more global programmes placed than individual class of business. It was efficient for the client, the broker and the reinsurer, but something was lost in the process – the partnership dialogue about what is going on in a class of business,” he said.

“We want to get back to where we are more engaged with the clients and claims department about what trends they are seeing and how they are navigating them. We can ask the right questions, but its up to the insurer to figure out how to navigate a lot of these tough dynamics. Dynamics that are very real,” he said.

Meyenhofer also called for greater transparency at Casualty renewals. “We are trying to be factual and rational, and importantly, predictable. We want to be predictable based on facts and shared views. We have been asking for more data at the last few renewals, and we are hoping that this year will be a marked change on that front so we can sit down and understand what is happening in the portfolio,” he said.