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Why Public Entities Are Faced with a Complex Liability Market

The public entities insurance market has experienced significant upheaval as carriers exited the sector, due to an increase in risks, or reduced capacity, requiring a higher level of self-insurance.
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why public entities are faced with a complex liability market

Public entities are the backbone of state and local infrastructure, providing crucial services to our communities. Yet the complexities and risk exposures they face make it difficult for them to find coverage.

Over the past two years, the public entities insurance market has experienced significant upheaval. Carriers have either exited the sector, due to an increase in risks and falling profits, or reduced capacity, requiring a higher level of self-insurance from community institutions.

“Overall, there is reduced capacity—there have been a couple of new players entering the market, but many of the remaining carriers are reducing limits or looking for ventilation between limits," says Stacy Kaplan, chief operating officer, Amwins Specialty Casualty Solutions. “Additionally, in the last couple of years there have been more carriers restricting coverage in specific jurisdictions—for instance, we have seen markets stop writing in California altogether."

“Rising severity across most casualty lines, and specifically law enforcement liability and auto liability, are driving up rates and retentions and decreasing capacity and limits," says Christopher Skarinka, president, Tokio Marine HCC. “Even if claims are not reaching trial, the public entity sector is seeing higher settlements and increased attorney fees overall."

Further, “the rising severity in law enforcement and auto liability has also resulted in a constriction in capacity for excess layers," Skarinka adds. “Especially on higher layers, if public entities can acquire the capacity, rates can be up over 100%."

In addition, several other trends continue to impact the market. “One of the major trends we continue seeing is social inflation, as well as an increased frequency of natural disasters," Kaplan says. 

Weather and climate disasters soared in 2021, with total losses for 20 events exceeding $1 billion each, according to the National Centers for Environmental Information. These events cause severe damage to public entity properties, increasing the likelihood of injuries and causing an increase in financial risk to public entities.

“Sexual abuse and molestation claims have also become a greater issue for public entities and more recently, we are starting to see inflation impact pricing across the board," Kaplan adds.

In the 2018 high-profile case involving 300 victims of USA Gymnastics, Michigan State University agreed to pay $500 million in settlement to the victims of Larry Nassar, who was the team doctor. The reputational impact for educational risk including youth and collegiate sports teams from such a settlement, will most certainly lead to closer scrutiny by carriers, as well as the public.

Consequently, carriers continue to pay close attention to the justice system, particularly because the outcomes of claims have been unpredictable. “Historically, municipalities have had significant protection due to tort caps that most states have in place, but we're starting to see attorneys take claims that would typically be tried at a state level and subject to certain state tort caps and find loopholes in order to try them federally and avoid that state immunity," says Adam Mazan, vice president, Pacific Region, Risk Placement Services (RPS).

Additionally, discrimination-related claims have increased. To help fend off any possible claims, entities must ensure that their diversity, equity and inclusion (DE&I) policies are current, compliant and do not include exclusionary practices.

On a positive note, claims relating to COVID-19 “continue to be a non-event for the public sector and other segments of the industry," says Lisa Blackmon, underwriting manager, public entities workers compensation, Associated Insurance Administrators Inc. “Most submitted claims are being closed with no payment. The National Council on Compensation Insurance (NCCI) continues to stay on top of trends in the various states, following court rulings and other trends."

Yet, while the public entities market has witnessed carriers leave the marketplace due to increasing claims severity, it is expected to stabilize through 2023.

“In 2023, we are expecting a lot more stability than what we saw in 2020 and 2021," Mazan says. “We're still seeing pricing going up 10%-15% for accounts that have had adverse loss experience or are in a situation where an incumbent carrier is not offering a renewal."

“But when I look at what's going on, a lot of the carriers that are writing the business want to stay in the class," Mazan adds. “They're finally at price points that they're comfortable with."

Olivia Overman is IA content editor.

Tuesday, November 1, 2022
Public Entities
Big I Markets