Over the past couple of years, awareness of an increasingly litigious environment has been a key factor leading to increased demand for personal umbrella coverage. However, significant growth has been stymied by premium increases and reductions in coverages and capacity—hallmarks of the hard market—leading to upheaval in the personal umbrella market.

“The personal umbrella insurance market has experienced several significant shifts in the last few years, driven by increasing loss ratios and the rising frequency of large claims, particularly due to nuclear jury verdicts," says Danielle Westen, vice president and head of personal umbrella, Hudson Insurance Group. “Pricing has steadily risen, and perhaps more critically, the breadth of coverage has contracted."

As the sustained uptick in frequency and severity of claims continues, carriers have responded in several ways, including with a reduction in capacity.

“Capacity in the personal umbrella market has been constricting over the past five years, with a notable decline in the number of carriers willing to participate," Westen says. “Many insurers have exited this space altogether, particularly for higher limit policies above $5 million."

Additionally, “we are seeing more underwriting restrictions, especially on those higher limits, as well as tighter guidelines and more restrictions in that space," says Shannon Cragg, vice president of personal lines casualty claims, Nationwide. “Overall dollar thresholds are getting higher and higher and definitely everything that you're seeing industry-wide—increased medical expenses, increased attorney representation rates, increased litigation, and some of the shock verdicts—is putting pressure on that space."

As a result, independent insurance agents are facing unique challenges in today's rapidly evolving marketplace to provide the umbrella coverage their clients are seeking. For many customers, umbrella coverage is a crucial part of their overall insurance needs and agents need to find solutions to protect their customers' financial assets.

Specifically, consumer awareness of exposure to large liability payments is impacting demand. “Agents have become more comfortable offering an umbrella and educating insureds about the benefits of that extra layer of protection," says Daina Kawchack Smith, chief marketing officer, PersonalUmbrella.com. “Word-of-mouth is also playing a part—insureds are now much more likely to know of someone that's been affected by an umbrella loss due to increased claims."

Further, the client profile that seeks this coverage is changing.

“The typical personal umbrella insurance client is often a middle- to upper-middle-class individual or family with assets that exceed the liability limits provided by their primary home and auto insurance policies," Westen says. “The most common profile includes someone with one home, two cars and possibly a youthful driver, looking to protect themselves from potential lawsuits or large liability claims that could jeopardize their financial stability."

However, over the past couple of years, “trends are shifting as more clients, particularly those with greater wealth or who own rental properties, recreational vehicles or boats, recognize the need for higher limits due to the rise in substantial jury verdicts," Westen says. “In recent years, the demand for higher umbrella limits, often exceeding $3 million, has grown as clients become more aware of the financial risks posed by large liability claims."

As individuals acquire more assets, they recognize that personal umbrella insurance helps safeguard these assets by providing additional liability coverage beyond what is offered by their underlying insurance policies.

“In terms of motivation to purchase this coverage, people that are in this kind of market understand that they have assets to be protected and are probably much more knowledgeable on insurance," Cragg says. “This is where agents can really help those customers identify what is their actual exposure, what their assets are and how can they build an asset protection program through umbrella offerings."

“Rates have driven consumers to do more research, to do more to understand and to make decisions on deductibles, endorsements and to do that wisely," Cragg explains. The profile that would buy an umbrella policy is probably putting a lot more research into what the different offerings are and making selections based on their household, thus driving a thirst for knowledge."

Olivia Overman is IA content editor.