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Personal Umbrella: A Look at the Volatile and Growing Market

The harsh reality of unprecedented losses and unprofitability in homeowners and auto insurance means the extra protection provided by personal umbrella coverage is growing more and more necessary.
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personal umbrella: a look at the volatile and growing market

The outlook for the personal insurance market for 2024 is discouraging, according to the “2024 Property & Casualty Market Outlook" by Alera Group. Unprecedented industry losses and unprofitability in homeowners and auto insurance will significantly impact pricing and availability in catastrophe-prone areas and in states where regulation currently impedes rate adequacy, according to the report.

These unprecedented losses are having a knock-on effect on the personal umbrella market, which “is not immune to some of the trends that are being seen in both the auto and home markets," says Jamey Alwood, director, distribution and strategic partnerships, RLI Corp. “Generally, personal umbrella follows the underlying insurance regarding losses. Health care costs, social inflation and an overall litigious society are impacting the personal umbrella market the same as they are for underlying carriers."

The harsh reality is that, in today's unsettled environment, the extra protection provided by personal umbrella coverage is growing more and more necessary. Offering that additional layer of liability protection and peace of mind when it comes to coverage for unforeseen events—such as paying for outstanding expenses if a client's bodily injury liability insurance limits or property damage liability limits are exceeded—provides independent agents with opportunities to tailor coverage to meet their client's needs within their budget.

Simultaneously, as consumers become more aware of the potential liabilities they could face, the umbrella segment has seen an increase in demand, pushing growth in the market. In 2021, the global umbrella insurance industry generated $72.5 billion and is estimated to reach $170.7 billion by 2031, according to a report by Allied Market Research.

Nevertheless, the current industrywide hard market is putting pressure on the personal umbrella segment as carriers seek rate increases from the severity of losses from auto accidents, attorney involvement and litigation.

The results of the losses in the personal auto market have led to “more pricing adjustments to address concerns with motor vehicle accident frequency and severity trends that have subsequently increased the number of claims reaching the umbrella layer of coverage," says Trina Meeks, assistant product manager, home product—specialty, Progressive. “Recently, we've also seen more changes around the underlying policy eligibility such as increases to the required underlying limits, no-stacking and acceptable carriers."

Despite the challenges involved with meeting growing demand, personal umbrella coverage continues to provide an opportunity for agents to serve their clients better as carriers continually reassess their portfolios.

“Due to the struggles auto and home carriers have experienced in recent years, many carriers are refocusing their efforts on profitability by large rate increases or, as we have seen more recently, withdrawals from certain lines of business," says Daniel Husser, director of sales and marketing, RLI Corp. “The auto and home withdrawals mean standard carriers may no longer write the personal umbrella policy, and thus more opportunities in the standalone umbrella space have popped up."

As a result, agents can take the lead in detailing the benefits of a personal umbrella policy for their clients, explaining a client's potential exposures and following up with a solution that is within budget, demonstrating to the client that an umbrella policy can be the security they're looking for.

“Accidents happen, and in our litigious society, we do not foresee claim costs reversing trend and decreasing in the near future," Husser says. “What a client may assume to be a minor fender-bender can turn into a six- or seven-figure demand seemingly overnight. Without an umbrella policy, clients could lose the assets they have worked hard for in the blink of an eye."

Yet, “as consumers experience increasing rates, they may elect to remove products to help offset changes in their costs," Meeks says. “It's important that the value of products, like personal umbrella, continue to be delivered upon to ensure a customer's assets are properly protected."

It is important to recognize that “by spending less than the cost of a cup of coffee per day, a client can obtain a million dollar—or higher in some cases—umbrella policy to give them peace of mind," Husser says.

Olivia Overman is IA content editor.

Monday, June 3, 2024