With the exception of slightly increasing rates, not much has happened in the commercial excess market in recent years.
But the status quo might not stick around for long—major trends are poised to shake up commercial umbrellas in the short- and long-term future. Here are the top commercial excess issues agents should expect to address in the remainder of 2015.
1) Globalization. According to Ross Bertossi, division president at ACE Casualty Lines, the international business arena is changing the landscape for many larger commercial clients, particularly in the need for foreign local admitted policies. “American companies have exposures overseas now and some of them are significant, and the countries outside the United States are requiring that certain limits be purchased,” he explains. “To cover these exposures, foreign local admitted policies are needed.”
As globalization and related supply chain issues continue to creep into insurance, agents will encounter more commercial clients that are venturing overseas or relying on overseas production of their products, says Diane Amodeo, XL Group’s chief underwriting officer for excess casualty. “They may seek a low-cost manufacturer overseas to do their manufacturing for them,” she explains.
For example, consider an insured that uses a company in China to manufacture a product that is always manufactured in the U.S. “Do they impose the same quality controls as they move offshore with that?” Amodeo asks. “We’ve seen it in the papers over the past several years with imports—it could lead to a lot of issues in terms of not just bodily and property damage if they don’t maintain those controls, but also what happens to their reputation as a manufacturer when there’s an incident because of a change in the way they produce.”
2) Drones. It will take time to incorporate drones into commercial umbrellas considering that the insurance industry tends to be very conservative, “especially in the excess market,” says Tom Ryder, associate vice president and director of the Excess Casualty Center of Excellence at Burns & Wilcox. But when it does, “there are some big liability concerns about them crashing into something on the ground or flying too close to a commercial airliner and causing problems,” he points out.
“Many of our insureds use drones today to survey their property or for other industrial uses,” Amodeo adds. “We also obviously see media companies using them, and that’s what we see as perhaps a more significant exposure arising out of the personal injury.”
3) Shared services. “Ride-sharing has become a very popular business model,” says Dan Gaynor, vice president and head of commercial lines at The Main Street America Group. “The industry has an opportunity to make operators aware they have business insurance needs even though they use personal property.”
And while names like Uber and Lyft tend to hog the sharing spotlight, “it may go beyond that to other shared services, like equipment rentals,” Amodeo says. “Take that concept and overlay it among many industries. We’re looking at it as an opportunity.”
4) Reputational harm. In an age of social media, “the speed at which information about corporate clients can be published and the impact that it has on their reputation” has become dizzying, Bertossi says. The result could be expanded limits for catastrophe management, a first-dollar coverage, when an event impacts the umbrella.
5) Cyber liability. “I don’t know of an insured who’s not touched in some way by technology,” says Amodeo, who notes that ISO takes the approach that there is no cyber liability coverage in the GL form. “[ISO] gave various givebacks like a bodily injury giveback, but they did not address property damage. And to the brokerage community, that creates what [ISO] sees as a gap in coverage. As the door shuts on GL and the umbrella, agents need to make sure their customers are buying sufficient limits of the appropriate coverage to address those risks.”
6) Other emerging risks. Amodeo cites construction risks with aging infrastructure as an additional concern, which “could affect municipality or any insured that has aging plant equipment,” she says. “How does that contribute to potential loss?”
Bertossi points out technology companies as a growing class, “not just in the western part of the United States but all over,” he says. “Technology and Internet companies are on the rise and those are certainly opportunities that are growing faster than some other sectors.”
As the construction industry continues to boom economically, expect more opportunities in that area as well. “There are areas in the United States where contractors are having a difficult time finding people to work for them because construction projects have begun to pick up so much,” Ryder says. “We’re going to see more opportunities come our way in the construction and manufacturing industries and maybe the recreation and leisure industries as well.”
But regardless of market shifts, the classic elements of umbrella coverage hold steady—Bertossi cites contract certainty, good claims handling and financial stability of the carrier as particularly important pieces of the puzzle. “There’s emerging trends and risks change,” he says. “But at the end of the day, it’s very important that umbrellas have the language needed to cover claims, contract certainty and good claims handling—regardless of what the changing exposures are.”
Jacquelyn Connelly is IA senior editor.
