Where the stakes are high and the risks even higher, securing a robust insurance coverage tower is not just a safety measure—it’s a cornerstone of business survival. Tailor-made with both umbrella and excess policies, “towers” of coverage are designed to extend protection beyond the limits of a general liability policy, which ensures that a single incident doesn’t have the power to undermine the financial stability of a business.
In this blog, we explore the indispensable shield provided by umbrella and excess layers and identify several market trends to watch in the coming months.
Turmoil in the Market
One of the most notable factors contributing to unrest in the market is skyrocketing jury verdicts that have pushed claim costs to unprecedented levels. These “nuclear verdicts” can be financially devastating for a business—and they’ve been rising sharply over the last five years. In April 2023, a former Tesla worker won nearly $3.2 million in damages from a trial in San Francisco, holding the company accountable for racial abuse. Legal experts were relieved as this amount replaced a previous excessive award of $137 million, which was deemed “unconstitutionally large” by a US District Judge. Another factor driving up claims costs is third-party litigation financing. This funding incentivizes plaintiffs to refuse settlements and wait out the process to be heard by a jury, resulting in escalated claim amounts and defense costs, elevating risks for insurers, and potentially raising premiums for policyholders. Consequently, such claims are redirected from traditional insurance to excess and surplus lines (E&S). Experts predict that “by 2028, up to $30 billion will be invested in litigation financing by third-party groups.” The escalating trend of nuclear verdicts presents a formidable challenge for insurance carriers, necessitating a strategic reassessment of risk management and policy pricing to accommodate these rising claim costs.
Capacity Constrictions Continue
Jencap’s casualty brokers are seeing a notable constriction in capacity, making it challenging to secure higher limits for umbrella and excess layers. Joe Hayes, Managing Director of Jencap, explains, “The only new capacity entering the market recently is through MGAs, which necessitates accepting terms and conditions that might be tighter than we’re accustomed to. The industry is witnessing a marked departure from the previously available single layer of $25 million, with carriers now offering significantly smaller layers, typically ranging from $1 million to $10 million, depending on the attachment point. The ease of securing a $25 million layer is becoming rarer, reflecting the tight market conditions that now favor much smaller deployments. However, Hayes offers insight into navigating this new terrain: “In the current market landscape, deployment expectations range from 1-5MM within the initial 10MM, escalating to 5-10MM in the subsequent 15MM, and reaching 10-15MM beyond 25MM,” he explains. “Despite preferences for larger single placements of 25-50MM, our analysis suggests this trend is unlikely to return. Given these conditions, aiming for larger capacity from a single carrier can inadvertently lead to higher premiums. A strategic approach of accepting less capacity can, in fact, result in more favorable pricing dynamics for a tower’s structure.” Hayes’ perspective highlights a strategic pivot for brokers and wholesalers—adapting to reduced capacity by adjusting deployment expectations, thereby optimizing the cost-efficiency of insurance towers in a challenging market.
The Value of Specialized Wholesalers
At Jencap, our expert casualty brokers are ready to deliver the right tower of coverage quickly and efficiently. Joe Hayes, Managing Director of Jencap states, “Our brokerage teams are focused on the deal path, including the carriers involved and the optimal limit deployment for the insured. This allows us to deliver results efficiently and quickly, especially when time is of the essence for our clients.” Trust us to streamline the process from the start, ensuring you can direct your energy where it’s needed most. Request a quote today.
