Local governments and institutions have been among the most involved with the coronavirus pandemic, adding fuel to the fire in an unsettled market.
Local governments and institutions have been among the most involved with the coronavirus pandemic. Not only have they been forced to close, lay off workers and face the trepidation involved with reopening, many have also been on the front lines of making decisions and sculpting policies to somehow keep Americans safe while simultaneously protecting the economy, leaving them particularly exposed.
Moreover, in the past few years, social inflation has caused the frequency and severity of loss cost to rise and has substantially changed the landscape, explains Bradley York, president of OneBeacon Government Risks.
“We all hear about the effects and impact of social inflation, but the reality is trust in local governments has eroded in recent years as well," he says. “This trend may wane somewhat with local governments stepping up in the wake of COVID-19, but years of low or moderate rate increases have particularly exposed insurers and pools alike, compounding the impact of underestimating inflation."
“Local government goodwill earned by supporting pandemic responses may be offset by citizen objections to economic and social restrictions," York says. In addition, the death of George Floyd and the ensuing public outcry may have caused “a significant erosion in the public's trust of law enforcement," York adds.
“While there are many good and qualified officers, their reputation as a whole has been tarnished by these events. It is too early to project the impact these events will have, but expect the underlying uncertainty to have a negative impact on the cost and availability of insurance for local governments," he says. “As a result, a perfect storm has emerged with primary and reinsurance costs escalating."
In the post-COVID-19 world, markets are taking into account whether or not they have a coronavirus exposure in their current portfolio, whether it's by policy wording or by lack of exclusions.
“What we are seeing now is that markets are adding a communicable disease exclusion to all programs," says Harry Tucker, executive vice president, national property practice leaders, AmWINS Group. “Many markets are willing to walk away from a program if they cannot have this exclusion on their policy. Others will not accept the exclusion wording provided in some manuscript forms, agreeing only to their company wording."
Losses have caused a retraction in capacity while another trend in the public entity space is that “the property market looks to continue the firming," says Jeffrey K. McNatt, executive vice president, Florida region leader, AmWINS Brokerage of Florida, Inc. “One should expect pressure on pricing, capacity and terms and conditions as we move further into 2020."
“Discuss the current market with your insured, make sure to break out account 'wants' versus 'needs,'" McNatt recommends. “It is important to have clarity around what needs to be in place to protect the insured and be prepared to give back coverages in order to off-set capacity and pricing restraints."
Accounts with large CAT exposures, particularly ones with poor loss history, can expect to feel this pressure more than others. “Combined with what the National Oceanic and Atmospheric Administration is predicting to be an above-average storm season, we expect these conditions to endure through the remainder of the year," Tucker adds.
In the current environment, we could also easily see increased exposure to employment liabilities based on “the manner and method of managing furloughs and layoffs," York says. “This area is more sensitive to certain types of government, with schools and local governments that are heavily reliant on tourism likely the most immediately impacted."
What about advice for agents navigating this tricky environment? “One word resonated with me in the current marketplace: Communicate, communicate, communicate," says Mark McCrary, president of Glatfelter Public Practice, a division of Glatfelter Program Managers.
“Given all that everyone is facing, I believe we all need to be more and more focused on having mutually beneficial conversations to achieve the best results possible," he says. “You can help take some pressure off clients by knowing their coverages inside-and-out and serving as an invaluable part of their risk management strategy by providing resources and tools."
Moreover, the pressure isn't just on prices and capacity, it's on agents, too. “It is likely your local public entity is considered high profile within the agency, which means your reputation is at stake," York warns. “Look to a partner with a long-standing history, deep industry knowledge, and appropriate coverages."
“They must command a strong knowledge of the nuances of preventing and managing risk but also appropriately leveraging those needed protections from liability when a claim arises," he adds. “You and your public entity client should know their partner, not just hear from them once a year."
Will Jones is IA managing editor.