Be careful that this umbrella doesn't leave you all wet

Rough Notes, Jul 2002 by France, Larry G

SPECIALTY LINES MARKETS

The changes in the umbrella market started prior to 9-11

Webster's dictionary defines umbrella as "something, which covers or embraces a broad range of elements or factors." That certainly is the intent of the umbrella and excess policies. Not all umbrella policies are the same. Each carrier will have its "own form" that may not be exactly the same as the prior carrier. If you are replacing an existing umbrella or excess policy, the new policy will not automatically have the same conditions or exclusions as the replacement carrier.

There is a difference between umbrella and excess policies. Normally an excess following form policy will extend all coverage that is found in the primary policy. If the loss is not a covered loss in the underlying, it will not be covered in the excess form. The client will accept a portion of the risk by selecting this type of coverage but will also most likely enjoy some premium relief.

The umbrella policy, in most cases, will give the insured broader coverage than excess coverage. It can replace exhausted primary limits and extend the limit of liability above the aggregate shown in the policy. In some instances, the umbrella coverage can replace a primary policy in providing the insured with coverage not found in the standard primary policy form.

A claims-made form should be matched with a claims-made umbrella or excess as should an occurrence with an occurrence form.

To obtain the limits of the prior year, you may also need to acquire several carriers to achieve the higher limits of the expiring umbrella policy. Far too many markets have departed the marketplace by design and other means in the past year and, sad to say, this trend will continue in the immediate future. The wish to have all of the coverage with one carrier is not always possible in today's marketplace. If the markets you approach cannot provide all of the limits required, the risk must go to the facultative market. This means that favorable pricing and conditions become more difficult to obtain. Last year's market may not even be able to provide the basic limits as expiring.

The umbrella market was on a firming trend during early 2001. Pricing was on a 20% to 30% upward scale. Insurers were starting to consider what future classes of business they really wanted in their portfolio. Early in 2001, those classes included trucking, long term care, and products. In 2002, habitational risks and medical malpractice, among others, have been added to the desirable list.

Donald Alberico of Swett & Crawford's Chicago office says: "The umbrella market continues to harden as we move toward the end of the second quarter. This has come about based on some of the following reasons:

1. Insurance carriers are taking less on the net line on risk and have cut back on limits that they are willing to offer.

2. As the insurance carriers' net lines have been reduced, tighter reinsurance treaties have been put in place and more carriers are purchasing facultative reinsurance. The carriers are re-evaluating their books of business internally to see what classes they wish to write. This has caused carriers to exit such classes as nursing homes, OLT, trucking and construction."

Alberico continues: "As we move into the third quarter, the umbrella market shows signs of staying firm for both pricing and terms. The capacity to place risk with assorted carriers still exists, but many carriers are targeting classes that they wish to enter."

Not only have carriers narrowed their list of desirable business classes, but some carriers have experienced problems with their financial ratings, which prevents them from writing business.

Elizabeth Grigalunas, CPCU, ARM, of Surplus Services Insurance Agency, Inc., in Newton, Massachusetts, states: "Due to some carriers' rating downgrades, it is more difficult to obtain umbrella coverage. Capacity is definitely a factor. Also, carriers are no longer writing certain classes-for example, residential general contractors and some other trade contractors."

Premium increases in the primary market will have an effect on most umbrella pricing. Here are some guidelines to getting a competitive quote in the umbrella market:

* Provide complete information and allow ample time.

* Give the underwriter a written description of the risk including prior carrier expiring premium. You know the risk. Underwriters know only what is on the paperwork set in front of them. You can't supply too much information.

* Complete all applications including ACORD, supplemental apps that the carrier requires as it pertains to that class of business.

* Hard copy loss runs for the last three to five years as required by the carrier. List as much information about large or unusual losses. You are going to be asked anyway, so save yourself and the underwriter some time.

* What has the insured done to prevent past losses? Installed safety equipment? Provided training to employees? Hired a risk manager?

* Diagrams and photos will also enhance the submission in the underwriter's eyes and give you a better chance to place business in the future.