Across the board, it’s difficult to make generalizations about public entities insurance pricing.

Jeff McNatt, executive vice president at AmWINS, points out that rates vary largely depending on whether you’re dealing with a non-catastrophic “state of Tennessee kind of account,” versus one with catastrophic wind, flood or earthquake exposures. “Those are two different animals, and each can be a little different than the other depending on where they’re located,” he explains.

“Retention is driven more so by the individual loss and performance of each account,” agrees Brian Frost, executive vice president at AmWINS. “It’s hard to make national statements because you have very different legal environments based on whether or not there are tort caps in those states.”

But in general, here’s what you need to know about what’s happening in today’s public entities market, what’s motivating carriers in the space and where underwriting appetites are headed in the future.

Property Pricing

On the public entities property side, “there’s an absolute abundance of capacity,” McNatt says. “That’s putting pressure on everything from price to terms and conditions to deductibles, including catastrophe deductibles. We’re seeing reduced catastrophic deductibles—while the norm in Florida used to always be 5%, it’s definitely drifted down to where there’s 2-3% available. That’s something we haven’t seen in a long time.”

Joe Caufield, senior underwriting director at OneBeacon Government Risks, says public entities property rates are “at or approaching a bottom—in part because there’s really no distinct property market for local governments,” he points out. “There’s nothing that specialized about public sector property that they’re not subject to the overall trends on property.”

McNatt has started noticing some carriers walk away from the opportunity to write or renew business at these rates, “because the pricing’s just too aggressive,” he says. “Right now there are still some companies willing to pick that business up at a really suppressed price, but we’re definitely seeing insurance companies say, ‘We’ve had too much—we’d rather walk away than write it at this price.’ I haven’t seen that in a long, long time.”

The question, then, is whether attritional losses will catch up to the companies that continue to slash their rates—“and will it be a knee-jerk reaction when it does happen?” McNatt points out. “We tend to be our own worst enemies. We cut prices so hard that by the time pricing gets to where we have an uptick in the marketplace, the uptick tends to be drastic because we’ve pressed it down so hard over the years.”

Meanwhile, what are public entities clients doing with their savings? “Rather than take those savings off the table, they’re purchasing more insurance or they’re using those same dollars to lower their deductibles,” McNatt explains. “So they’ll pay the same price they paid last year or take maybe a 5% reduction, but they’ll improve their deductibles or buy a little bit more limit. That’s very common in the catastrophic world.”

Liability Trends

In public entities liability, Frost sees underwriting appetite splitting into two sets: those that prefer shorter limits and tend to be actuarially driven, and those that prefer to stay outside any perceived working layer and maintain more of an excess capacity position.

He also sees opportunities for new capacity entering the marketplace in three areas: reinsurance of coverage, lead policy form and pure excess capacity.

“Most of that is being driven by the fact that because of the volatility in the non-tort cap-protected states, underwriters and chief underwriting officers are starting to manage their capacity and limit deployment in any one non-ventilated layer,” Frost explains. “So what we’re seeing in towers of coverage is a general trend toward increased participation and syndication of the capacity, rather than in years past when there would be one market that may provide $15-25 million of limit. That just doesn’t seem to be as commonplace.”

On more difficult accounts, even if a carrier has $15-20 million in capacity, “they may only put up $5 million on a lead basis, then reserve additional capacity if necessary from a ventilated standpoint, so maybe they come back in above $10-15 million,” Frost explains. “Structurally, you’re seeing the marketplace move toward that broader participation on any one program, and that probably is more relevant for the larger pool business or program business.”

Do more players mean increases on the horizon for public entities liability premiums? Frost says it depends on the legal environment in the client’s state. Consider California, where insureds enjoy effectively no tort protection and face joint and several liability concerns.

“That makes for a very volatile environment in terms of loss potential,” Frost explains. “That attachment point is being driven by the individual account experience, and most of the underwriting community has underlying thresholds as to the number of losses that are allowable to come into the insurance layer and breach the retention. There are now markets in California that are just moving up their absolute minimum attachment point in the state. We’re seeing more attachment point sensitivity than real rate sensitivity.”

Whether your public entities client purchases coverage standalone or through a pool also affects their pricing. Keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter to get the scoop on public entities pools.

Jacquelyn Connelly is IA senior editor.