How to Manage Complex Risk and Secure Excess Liability Coverage

Soaring claims litigation and increasingly common seven-figure verdicts in favor of policyholders have led carriers to restrict capacity and increase premiums. Rate increases are averaging 15% to 25% in nearly every insurance sector.¹

The impact of several factors — including so-called “social inflation,” inexperienced employees, supply chain woes and lower attention to safety — has been particularly severe for several insurance lines. In recent years, commercial auto insurance and construction insurers have been hit with nuclear verdicts and seen substantial underwriting losses and rising rates.^{2, 3}

Organizations in these industries with unique loss scenarios or perceived high-dollar threats are considered complex risks that require expertise to adequately insure. And the excess liability market is where some organizations with intersecting risks and increased complexity will need to look for coverage.

Policyholders enjoyed high excess liability coverage limits pre-pandemic, but underwriters have reduced their appetite for writing these risks, tightened policy language and expanded exclusions.⁴ In today’s marketplace, insurers are unlikely to write more than $5 million of a liability risk, requiring policyholders who may need $25 million in coverage to find multiple carriers to “layer” policies until that $25 million amount is reached. 

Increased interconnectivity of risks and the complexity of the exposures have driven more organizations to the excess liability insurance market. As a result, they need to find market-savvy partners to help them stand out to excess carriers and prove they’re worth the risk.

Steps to getting coverage

Excess liability coverage demands a deep understanding of complex risk, and securing this insurance comes with demands: an insured needs to understand its exposures, be able to show carriers a positive risk profile and have the expertise to navigate the intricacies of the excess market.

Before seeking coverage in the excess liabilities market, organizations need to recognize the complex risk involved and should keep in mind the following best practices:

Start early. Companies should work on their plan to secure coverage four to five months prior to renewal. They need to detail excess coverage needs and adjust risk management strategies to make their exposures more attractive to carriers. Top carriers are flooded with excess liability submissions — organizations need to position themselves better than peers to obtain optimal coverage.

Be realistic. The COVID-19 pandemic, rising inflation and supply chain delays shrunk excess liability maximum capacity limits — the top amount a carrier is willing to insure a particular risk — from $1.2 billion in 2019 to $800 million in 2021.⁵ Although the availability of coverage has rebounded and rate hikes have stabilized, some industries — transportation, habitation and construction in particular — will continue to see significant rate increases and additional coverage exclusions.⁶

Review risk management plans. Organizations must be prepared to answer questions from carriers about risk programs. Companies without a risk plan in place (especially those with an adverse loss history) need to implement one. Organizations with detailed risk management plans are more likely to receive reduced rates and higher policy limits.

Tell a story. Carriers want insureds who are low risk but also are fundamentally strong. Organizations should develop a compelling narrative about their history and trajectory, providing a historical perspective that shows how the business has thrived and its future potential. The story should explain how the business insulated itself against supply chain interruptions, stock market volatility and rising interest rates. But any narrative must include information about how the organization prevents loss, such as using telematics in vehicles, installing security cameras and training staff to mitigate the impact of workplace incidents.

Prepare to address adverse loss history. Even if it has a history of high-dollar claims or unfavorable legal judgments, an organization can still secure excess liability coverage. Such insureds should be prepared for high dollar amounts to be paid out before excess liability coverage kicks in — also known as attachment points — and lower coverage limits. Such organizations also may need to expand their search for capacity overseas, which magnifies the complexity of the purchase.

Seek face time. Companies that meet with carriers fare better in securing excess liability insurance. Face-to-face meetings with a company leader — such as the risk committee chair, COO or CEO — show underwriters that the business is confident and has invested the time and resources to mitigate risk. Brokers with excess liability market expertise can get company leaders in front of the right insurers.

Organizations approaching the renewal process with a strategic mindset and partnering with experts who understand complex risk will be better positioned to obtain excess coverage that meets their needs and budget.

Contact HUB International’s complex risk experts to learn more about how to navigate the excess liability marketplace.

¹ Insurance Business America, “Rates will continue to rise in casualty market – report,” September 17, 2021.

² Zurich North America, “Commercial auto insurers face an environment of continuing challenges,” August 11, 2021.

³ Builder, “Will construction insurance costs continue their upward climb?” February 8, 2022.

⁴ Business Insurance, “Liability rate hikes ease as competition increases,” January 11, 2022.

⁵ Business Insurance, “Liability rate hikes ease as competition increases,” Jan. 11, 2022.

⁶ Insurance Business America, “Global insurance industry could hit new record in 2022,” November 18, 2021.