Umbrella coverage offers attractive protection for those who worry that their limits might not be high enough or that insurance gaps might be leaving them exposed. Unfortunately, current insurance market conditions may be making umbrella coverage more difficult to obtain. Here’s why you should prepare for umbrella coverage’s shrinking capacity.
How Umbrella Insurance Works
Umbrella insurance provides excess liability coverage for the insurance policies you already have. For example, let’s say that you have an auto insurance policy and a homeowners policy. You think your limits should be sufficient for most claims, but you worry about what would happen if you got hit with a large lawsuit. Instead of paying for higher liability limits on your individual policies, you can purchase umbrella insurance to provide additional coverage. Umbrella insurance can also provide coverage for insurance gaps created by exclusions in your primary policies.
Umbrella coverage is available for both commercial and personal insurance lines. However, getting it is becoming more difficult.
Emerging Risks and Rising Claims
A look at the current insurance landscape can shine light on what’s happening with umbrella coverage.
Auto insurance lines have seen higher losses. The last decade saw a spike in fatal car crashes, which some attribute at least in part to distracted driving. Meanwhile, the same vehicle tech that’s supposed to make cars safer is also making repairs much more expensive.
To top it off, so-called nuclear verdicts have proven that juries will award jaw-dropping amounts in order to punish defendants. In one example, CWRV, the country’s second largest RV and motor-home transportation provider, had to close permanently after a $26.6 million wrongful death verdict involving one of its drivers, according to Freight Waves.
The Hardening Insurance Market
As claims go up and new risks emerge, the insurance market appears to be hardening. This means that insurers are raising rates, narrowing coverage options and increasing underwriting requirements.
According to MarketScout, U.S. personal lines rates were up 4.5 percent in the fourth quarter of 2019, while U.S. commercial insurance rates were up 5 percent. Workers’ compensation was the only commercial line of coverage that did not see rate hikes.
Umbrella coverage is not immune to this trend – in fact, it may be at the forefront. According to Business Insurance, umbrella and excess liability saw some of the biggest premium increases as well as reduction in capacity in 2019.
The market may continue to harden in the coming months, so it’s important to act now.
- Prepare for rate increases across the board.
- Take risk management seriously, and be ready to demonstrate your commitment to safety.
- Don’t wait to secure necessary coverage.
- Work with your insurance broker to meet your insurance needs.