No Personal Umbrella? Legal Fees Could Bury Your Client

The personal umbrella market tends to be a stable one.

But as the U.S. legal environment becomes more plaintiff-friendly, that could change in the coming years—especially in light of upcoming technology and lifestyle trends that will impact how important it is that your personal lines clients secure an umbrella.

“We look at [personal umbrella] loss cost trends and we think they’ve been increasing at about a 3-5% pace,” says Craig Kliethermes, executive vice president, operations at RLI Corp. “We consider these trends to be fairly stable in the short term, although over a longer time horizon, we expect the loss trends will likely go higher.”

Here’s a look at what’s driving slow but steady increases for personal umbrellas.

Defense Costs Mount

“The world is becoming more and more litigious,” Kliethermes says. “The U.S. has more lawyers per capita than any country in the world. It’s important that carriers keep their rate levels on pace with theloss trends so that the product remains available for customers.”

Brett Woodward, senior vice president at NFP’s property-casualty division, believes this litigious environment has led to an increase in frequency and severity for personal umbrella claims. “When these claims occur, they are usually large and/or catastrophic,” Woodward says. “It used to be $10 million could cover most claims, but in the past few years, we’ve seen personal injury awards in the multi-millions.”

That’s one of the biggest reasons it’s a huge mistake to buy in to the myth that your wealthy clients are the only ones who need personal umbrellas. “You go back 20 years ago, a $250,000 auto accident was a big auto accident,” says Mike Bradley, president and co-founder of PersonalUmbrella.com. “But you think about a $250,000 auto accident now, you injure somebody and they miss work, you can blow through $250,000 in the primary real fast.”

For example, “a typical working middle-class family member causes an accident where someone is seriously injured,” Woodward points out. “Depending on the state in which the accident occurs or the level of your coverage, you could end up paying for the rest of your life to settle the claim.”

And whether or not the courts find your client responsible, the defense costs could be devastating. “Even if you’ve done nothing wrong, if you get sued, the legal cost will bleed you to death even if you’re found not guilty,” says Bill Gatewood, associate vice president of excess casualty at Burns & Wilcox.

“We see a lot of times just frivolous lawsuits that we spend $25,000-$30,000 defending,” Bradley agrees. “An insurance company knows all the defense counsel around the country and has the experience weeding out the bad ones from the good ones. With a personal umbrella, you’re going to get that counsel and it’s all going to be done for you.”

On the Horizon

In addition to the mounting legal costs associated with personal umbrella claims, here are five new exposures that have the potential to shake up the market:

1) Technology.
While new and improving automotive safety devices like adaptive cruise control and driver-assist have the potential to reduce loss frequency, they could also drive up the cost of repairs, Kliethermes notes. Meanwhile, the use of mobile phones and other devices in the car has led to “an increase in distracted driver claims,” he says.

2) Firearms.
“‘Stand your ground’ and ‘concealed weapons’ laws have increased the visibility of liability resulting from the use of firearms,” Kliethermes says. “Personal umbrella coverage may be available for certain situations, provided you have secured underlying coverage for firearms.

3) Social media. Kliethermes cites more personal injury claims based on customer reviews or defamation. “Before the Internet became prevalent, it used to be harder to reach a mass audience to defame others,” he says. “Now all you have to do is start typing on a blog. We’ve seen attempts to claim damages as the result of posting a negative review on sites such as Yelp."

4) Workers compensation.
Workers compensation for domestic employees is a growing PUP issue, Woodward says. “Even an average individual with a dual income and a full-time nanny should be concerned about having workers compensation coverage,” he says.

5) Cyber liability.
A personal umbrella may cover cyber liability including personal injury, libel, slander and defamation of character, Woodward says. “There have been some prominent cases involving online bullying where substantial awards have been paid to the other party,” he notes. “You’re responsible for your kids. This should be a concern to every parent.”

What are the top 3 ways to sell a personal umbrella to a reluctant client? Keep an eye on
IAmagazine.com and upcoming issues of the Markets Pulse e-newsletter to find out.

Jacquelyn Connelly is IA senior editor.