Historically, if a liquor liability client wanted to secure insurance through an admitted market, liquor sales had to comprise less than 40% of total sales.
But today, many admitted liquor liability carriers have increased their appetites for higher-risk liquor establishments—and the result is “an incredibly soft marketplace,” says Sandra Haley, senior vice president of underwriting and marketing at Hospitality Insurance Group. “People are able to find the product cheaper, because the admitted market’s going up to 50% liquor sales or even higher.”
As always, the insured gets what they pay for, Haley notes: “If you buy a $1-million liability policy from me, you’re going to get $1 million of assault and battery. Many of our competitors say, ‘You don’t have to get $1 million—we’ll sell you $100,000.’ And the premium difference is obviously significant.”
But in addition to sacrificing coverage, many insureds may not realize they could also be hitching their wagon to an unstable insurance solution in long-term. When new carriers enter the liquor liability space in an attempt to grab premium, they’re unlikely to have the underwriting and claims expertise that’s necessary to stay viable in such a volatile line.
“For the past 10 years, we’ve seen entrants come into the market like gangbusters with very aggressive pricing and terms,” says Bill Turner, vice president and solutions leader, BerkleyReSolutions. “But they have questionable practices, and they don’t really seem to understand the book.”
A carrier’s lifespan in the liquor liability market often “follows the tail on liquor business, which is a little bit longer than other lines,” explains Thomas Gillingham, managing director of EverGuard, an NFP-owned company. “The statute of limitations varies by jurisdiction, but 24-36 months is usually where that tail starts to come in, because it’s a very common practice of plaintiff attorneys to wait until the day before the statue runs to file a claim against the insured.”
By that point, “there’s no evidence—the staff has turned over eight times in two years, and no one’s there to actually refute anything,” Gillingham points out. “So some of these carriers wake up two years down the road, and suddenly they’re getting bombarded with claims on a book they thought was pretty much in the clear.”
After that, it’s “like clockwork,” Turner says: “They significantly pull back on their guidelines, and they increase their pricing and start non-renewing, especially on the tougher classes like bars and taverns. Or, they exit the market altogether.”
“When these companies start getting some severity, they have a change of heart, and they have to increase their rates,” Haley agrees. “Just like every other line, when you’ve got a bad loss ratio, suddenly pricing goes way up.”
Turner believes many carriers are confronting that wake-up call right around now. “The market’s still soft, but there are signs that we may be heading toward a transition, if not already entered a transition,” he says. “We haven’t been able to identify what we would call ‘bad apples’ in the market for a while—carriers that are offering overly aggressive pricing. We can’t label any specific carrier as being consistently naïve or doing something foolish.”
“There are always going to be pockets of the country regionally or even a price-specific city or zip code where you’ve got a competitor who thinks they can go in and do something no one else has ever been able to do before,” Gillingham points out. But liquor liability will always be a severity-driven line: “People still get drunk, they still crash their cars and they still cause a lot of damage, and it’s expensive when it happens.”
By early 2019, Gillingham expects modest price increases for liquor liability insurance nationally. “The increasing reliance and availability of data is certainly making underwriters smarter about how they approach the business,” he says. “That’s not to say there aren’t still folks out there who we think are a little fast and loose with their pricing, but I think most carriers are starting to realize the line has been pretty significantly underpriced for a long time.”
“We’re keeping our fingers crossed,” Turner agrees. “This is the most positive change we’ve seen in a number of years.”
Jacquelyn Connelly is IA senior editor.