What’s Responsible for Firming Personal Umbrella Rates?

Earlier this year, a California jury awarded a couple more than $2 billion in a lawsuit alleging that they contracted non-Hodgkin’s lymphoma from Roundup weed killer.

The jury awarded each individual $1 billion in punitive damages and an additional $55 million in collective compensatory damages—making it the third recent court decision ruling that Roundup, a product of Monsanto, causes cancer.

These types of large verdicts are one of two factors currently driving slight rate increases in personal umbrella insurance. “Pricing for umbrella policies does tend to go up a touch every year, and that’s due to loss experience,” says Daina Kawchack Smith, chief marketing officer, PersonalUmbrella.com. “Maybe not every year, but at least every couple of years, there’s going to be an increase. It’s not likely to go down.”

Eric Raudins, vice president, Specialty Personal Lines, RLI, has also noticed personal umbrella rates have hardened somewhat in 2018-2019.

“There certainly has been some rate activity in the market, which has firmed slightly since this time last year,” he says.

One factor that typically drives rate changes in the personal umbrella market is the auto exposure, says Raudins, who notes that 80-85% of RLI’s personal umbrella losses originate from auto. “For years, negative trends in the auto business have been impacting the personal umbrella market,” he points out. “We fully expected those trends to flow through, and while that hasn’t materialized as severely as we anticipated, we have seen some of the expected residual impact.”

Kawchack Smith agrees that auto losses are driving rate increases for personal umbrellas, adding that as distracted driving continues to cause upticks in auto losses, umbrella carriers are “tightening their underwriting” on both senior drivers and youthful drivers.

“Some carriers are implementing an age limit for senior drivers, some are offering lower umbrella liability limits to those drivers, and some of them are asking for a medical questionnaire,” Kawchack Smith explains. “They’re still writing senior drivers, but they’re making subtle changes and tweaks to capacity—what they’re willing to write.”

Meanwhile, other carriers are changing their definition of “inexperienced operator.” While some states rate by the number of years an individual has been licensed, others base their definition on the age of a driver, Kawchack Smith says.

“But we are seeing some changes there,” she notes. “For some carriers, it’s 25 and younger. Some are saying 21 and younger, and some are saying 20 and younger. Everybody’s definition is different. It’s important for the agent to be aware of those age parameters and make sure they’re quoting their insured in a market that’ll best benefit the client.”

Outside of auto, the Roundup verdict is just one of many “large jury awards and excess verdicts that sometimes make you scratch your head a little bit, but that are symptomatic of the litigious society we live in,” Raudins says.

Most lawsuits originate from a legitimate loss, Raudins points out. “But if you get into any dispute about what the value of that claim is, depending on the venue you’re in, you can be subject to some excess verdicts,” he explains. “Simple injuries that a few years ago might have been worth $100,000 may be worth $300,000 today, and it’s not unusual for some attorneys to make policy limit demands right out of the gate.”

For underwriters, that means “continuing to be diligent and evaluating which geographies are more likely to have excess verdicts or unreasonable environments to operate in, and most of those have not changed over time,” says Raudins, who adds that some selective metropolitan cities are notorious for large verdicts. “The unfortunate thing about areas with high numbers of excess verdicts is that they often result in rate increases nationwide, which impacts customers everywhere.”

How do you convince a standard personal lines client that a personal umbrella policy is well worth the investment? Keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter for a few tips on starting the conversation.

Jacquelyn Connelly is IA senior editor.