COMMERCIAL AND PERSONAL UMBRELLA

Rough Notes, Jul 2005 by France, Larry G

Have you capitalized on the additional revenues?

Two years ago, when we polled companies actively writing umbrellas about the state of the market, we heard:

"Pricing is still on the rise."

"Commercial umbrella and excess pricing is at an all-time high."

"There are fewer companies, but lack of capacity, rates and minimum premiums are still edging up slightly."

Is this the state of the umbrella market today? No. Today's feedback reflects a 360-degree turnaround.

Toni Campbell, marketing coordinator at RISC, Inc., says, "Industry pricing is softening on commercial umbrella. Most, if not all, of our business is commercial lines. Some markets can offer personal riders excess and lead personal umbrella. Capacity remains constant with our markets. Coverage enhancements are on a risk-by-risk basis."

Matthew Farbman, property/ casualty broker, Jimcor Agencies: "In this changing marketplace we are experiencing carriers showing increased capacity and more competitive pricing while including classes that include OL&T and products risks."

Scott Schleicher, SVP at ISFG International/CCBsure: "Our extensive experience insuring the IT industry for more than a decade has led us to believe that as the market continues to soften, three trends have manifested: Prices are continuing to soften, capacity is growing, and competition is heating up as more and more new entrants into the market try their luck.

"Ten years ago," Schleicher continues, "very few insurers offered commercial umbrella coverage to this industry. Carriers that did, offered high-quality policies at even higher premiums with little capacity. Over time, both regional and national insurers began to take note of the results that the original carriers were receiving and jumped into the market in an effort to take some of the market share.

"As the marketplace evolved and new competitors began trying their hand in the market, policy buyers were given two choices: higher quality policies at prices 20% or higher than the average price or a much less comprehensive policy at a bargain basement price," says Schleicher. "Having the availability of adding more brokers to the mix with an 'I can write it too' mindset continued to contribute to the significant increase in supply that further drove down the prices."

Schleicher says that "capacity limits increase as competition to market continues to heat up. In an ongoing effort to 'keep up with the Joneses,' insurers and underwriters who once would have denied a small, hazardous company, higher commercial limits, are now scrambling to take on the additional risk."

Two years ago carriers would have said "no" to this risk, knowing that the only other carrier would turn it down also. In today's market, competition is so fierce that there are many carriers willing to say "yes."

"This migration of the marketplace, combined with continuing signs of a softening market, has driven down premiums at renewal time. As the insurance marketplace continues to soften, we are confident we will continue to see prices decrease. With a marketplace saturated in competition, offering comparable policies, prices will continue to become the lone differentiation as policy buyers shop around," says Schleicher.

How much is enough? A million dollars is not what it used to be.

"With over five million small businesses in the United States making up about 80% of the total U.S. establishments, there is a continual steady demand for commercial umbrella and excess liability products," according to Paul Harris, CPCU, ALCM, underwriting executive, Specialty Markets at RLI Insurance Company.

"GDP is still forecast to grow in excess of 3% this year and most innovation is still driven by small business. Published studies show that an insured needs to carry $4 million to $5 million in limits to get the same protection that a $1 million limit provided in 1990. Those needs, combined with primary GL rates that are holding ground, suggest that we should continue to experience profitable growth."

Are you missing premium dollars with your personal lines accounts? The personal umbrella market is typically driven by what is occurring in the homeowners and auto market within a given territory, states Becky Lundberg, AVP/product director, PUP (Personal Umbrella Policy) at RLI. "Since most carriers require either the home or auto to write the umbrella layer, if market conditions make it difficult to obtain primary coverage, the umbrella coverage is at risk. With the potential for large claim payouts with small premiums, many carriers do not focus on the personal umbrella market, offering only the basic limits or readily tighten their requirements during stressed market conditions."

Lundberg continues: "From a marketing perspective, the umbrella is a very inexpensive product for a lot of protection. Anyone with assets to protect needs an umbrella policy. Premiums in the marketplace start at just over $100 for $1 million in coverage. However, since it is not required to maintain your auto registration or your mortgage, many agents don't focus on selling the coverage along with the home or auto policy, which can ultimately leave them vulnerable from an E&O perspective."