'Verdicts that just stagger you:' Is the casualty insurance market sustainable?
Advisen
'Verdicts that just stagger you:' Is the casualty insurance market sustainable?
By Erin Ayers, Advisen
The “Kardashian” effect on liability claims payouts has the insurance industry concerned about sustainability and fighting for rate on casualty lines, according to experts speaking during Advisen’s Big Nasty Claims Conference here on Sept. 20.
“We fight hand-to-hand combat on rate every day,” said Kevin Maloney, senior vice president and real estate/financial institutions practice leader at Allied World during a panel on loss trends, noting that the increases are meant to cover not only frequency and severity of claims, but also sustainability. “From an underwriting perspective, we need to get rate on the accounts.”
Insurers might profit “when the wind hasn’t blown” but also have to make sure that the funds are there when the claims get worse and “you’re sustainable for the long-term.”
“We all know that there’s a tail on these claims,” said Maloney. “Long after that particular underwriter that put it on the books for me is gone, I’m living with the ramifications of it.”
“More than the one-off really large claim, what scares me is people, jurists have lost their sense on the value of a dollar,” Maloney added during the conference, highlighting the “Kardashian effects – an impact of reality-television culture on litigation that sets unrealistic expectations for lost wages and damages.
Even “innocuous” cases can see high awards at trial, Maloney said, citing a $13 million award to a woman who fell down a set of steps.
“For a fractured ankle, I would have said $2 million was too much. When it went over $10 million, I don’t know. That’s end game for me. I don’t know how many of those you can sustain and still say, ‘yeah, we’re planning on being profitable,” said Maloney. He called them “verdicts that just stagger you.”
Maloney, who chaired the advisory board for the conference, said during his opening comments that jury awards keep spiraling higher – “the old ceiling is the new floor,” he said.
The public has been “desensitized” to million-dollar verdicts, explained Jonathon Drummond, head of casualty brokerage, North America, Willis Towers Watson. It’s no longer uncommon to see eight-figure awards and punitive damages as part of overall awards is on the rise.
“The frequency by which we see punitive awards assessed is astounding,” he said, citing Reuters data that showed a 20 percent uptick in the frequency of punitive damages for bodily injury or property damage claims. Looking at auto liability, he added, “It’s kind of hard to figure out the punitive damage … with an auto accident. Who’s out intentionally driving into people? But you’d be surprised.”
Millennials are highlighted as having skewed the value of a dollar, but Drummond noted that the impact is not from millennials only but appears to come from many demographics. Venue factors into the equation as well, he said.
In some so-called “judicial hellholes,” junk science is a “major challenge,” according to Drummond. However, he added that defense counsel must be prepared and recognize the themes that contribute to toxic jurisdictions and be prepared for situations to change at any time.
Jennifer Yuen, partner, Lewis Brisbois, offered a perspective from the “front lines of litigation in dealing with these big nasty claims” as a defense attorney. She explained that defense counsel will fare better against plaintiffs’ attorneys’ “highly effective, dangerously effective” tactics if they react “preemptively and effectively” in identifying the commonly-used strategies.
“Instead of giving into it, you lean into it,” Yuen said.
Defense counsel could also benefit from greater cooperation among themselves.
“Plaintiffs’ counsel have a willingness to share information and band together to form a united front,” Yuen said. “I don’t know if I see the same willingness to share information from defense counsel.”
Dave Elkind, partner with Anderson Kill Olick, added that the litigation environment “puts an incredible burden on the defense counsel to be prepared to fight at every second along the way.” They have to “know when to pick your battles” to also not offend juries.
The “next asbestos”
Much discussion of the “next asbestos” came up throughout the conference, with opioid litigation cited and traumatic brain injury/concussion litigation highlighted as “the very essence of a long-tailed line” producing big, nasty claims.
The issue has made renewal meetings “a little more contentious,” according to Maloney. “It’s cause for concern” since claims could be brought against a wide range of colleges, universities, schools, and sports programs. For opioids, he noted, the risk has caused some grocery chains to abandon from their pharmacy operations due to the cost of insuring the exposure.
Coverage is still available for these types of risk, Drummond told the audience, although it generally comes with policy changes to increase insurers’ comfort with the exposure.
“It’s out there, it’s isn’t cheap, it isn’t easy to secure, but it’s out there,” he said.
Asked whether the casualty market is sustainable in the face of “doubling and quadrupling” jury verdicts, panelists said they felt it is, with some caveats.
Drummond noted that liability lines are “stressed” and if there were not so much capacity in the market, the rate environment would be “substantially different.” However, right now, excess liability is relatively flat and auto liability is in a tough spot.
“While we can understand it, it’s simple math,” he said, noting that an auto fatality in 2005 might cost $1.5 million and now costs the industry $3.5 million. With increases in drivers on the road and distracted driving, more accidents are occurring.
“Until we get a better understanding of what is going to occur on loss costs going forward, you’re going to see a stressed market on the liability lines,” he said. “Largely, it’s because of the capacity out there that’s hindering the insurance companies on getting the rate that they would like to get.”
Maloney said that on accounts with losses and large exposures, insurers can get the rate needed and Allied World has seen progress.
“Be measured in your approach,” he said, adding, “Keep the pressure on rate. I know it gets to be a worn-out record … but you’ve got to make it sustainable for the long-term.”
