US casualty insurance costs rising for multinationals

Multinational companies with US casualty exposures face higher insurance costs, as insurers and reinsurers react to persistently high loss ratios and social inflation, experts have told Commercial Risk.

Peter Linehan, executive director for US casualty at broker Gallagher in the UK, said companies with US liability risks should expect a harder insurance environment.

As a result of US claims impacting global programmes, most insurers are placing US casualty risk under closer scrutiny, he said. In general, they are increasing the overall premium, or increasing the premium allocated to the US portion of the risk, added the broker.

Renewals have also seen insurers reducing overall limits, or US specific limits, and increasing their attachment on a global programme with US exposure. In some cases, insurers have not renewed US casualty risk, said Linehan.

US commercial P&C lines insurers have reported robust underwriting results through the third quarter of 2023, according to AM Best. However, several key casualty lines have performed poorly, despite several years of rate increases and underwriting actions, the ratings agency said.

Commercial auto liability, for example, has been plagued by costly claims attributable to poor driving habits and climbing medical costs, said Alan Murray, associate director at AM Best in New York.

“Although renewal pricing increases have averaged around 7%, these have proven insufficient to keep pace with rising loss costs. Average loss severity has consistently exceeded economic inflation, with little sign of slowing. Unfavourable loss development has also shaved more than $2bn off earnings in 2022, in part reflecting the adverse impact of social inflation and the unwinding of pandemic-related court backlogs,” he said.

US general liability net incurred losses grew by almost 25% year-to-year in 2022, reflecting larger underwriting losses, including adverse reserve development of more than $3.5bn, according to AM Best. At the same time, premiums have grown by double digits, according to Murray. “Social and medical inflation have contributed to higher claim costs, while the number of claims has increased for virtually all casualty lines involving claimant-attorney representation for several years,” he said.

Persistent inflationary pressure is the most notable adverse trend facing US commercial insurers, explained Murray.

According to Swiss Re, US liability claims costs have risen an average 16% annually in the last five years, well above the 4% average rate of economic inflation. The gap indicates that social inflation is a persistent challenge for commercial casualty insurers, which will need to remain intensely focused on underwriting discipline, said Murray.

“Social inflation is not a new phenomenon. The US liability crisis of the mid-1980s was the first episode of runaway social inflation, in part a response to corporates and their insurers being retroactively held liable for environmental damage, as well as huge asbestos-related claims. Another episode of social inflation, in the early 2000s, was driven by an expansion of mass torts. The current wave is characterised by a rising frequency of large, single-claimant events, often based on ballooning non-economic damages. At the same time, the number of claimants in multi-district litigation cases has risen to a historic high,” he said.

Commercial casualty insurers will need to remain vigilant about inflation when it comes to pricing and reserving, said Murray.

AM Best views the market as being reasonably disciplined. But Murray said casualty rates in most classes will need to rise at an accelerated rate, or the industry will fail to keep pace with losses.

Following a multi-year peak in late 2020/2021, premium rates for most of the major US commercial lines of business have continued to rise, albeit at a slower pace than in prior years, explained Murray.

The US casualty outlook is challenging, particularly for large corporates where third-party litigation funders are focused, according to Lisa Williams, global head of Casualty at Zurich Insurance in Switzerland. “It is becoming more expensive to insure liability for large corporates in the US,” she said.

The main consequence of deteriorating loss ratios in the US has been higher rates and more risk sharing among insurers, explained Williams. “There is more of an appetite now within the market more broadly to provide capacity to companies, but not to over capitalise on any one company,” she said.

While overall limits are being maintained, individual insurers are reducing limits per risk, requiring more insurers to participate on the programme, explained Williams. Where a primary insurer may have put out a $100m limit five years ago, now that is much smaller, she said.

“Clients that can demonstrate good safety records and discipline can maintain large towers, but we are seeing an increase in risk sharing among insurers. Where there is a US exposure, large single primary limits have been shortened, and the tower completed with excess or quota share. The market continues to provide customers with capacity, but is spreading the [potential impact of adverse litigation] more widely,” she said.

While there has been a lot of talk of splitting global casualty programmes into separate US and international programs, few companies have gone down this route, according to Williams.

“For some customers with large US exposures, however, it has been more difficult to purchase in the traditional way of a single programme, and some have chosen to divide their programmes into separate US and ‘rest of the world’ towers. Despite what we saw in the casualty market in 2023, that is not something being pursued by many,” said Williams.

Back to top button