US casualty insurers hold the line on limits and handle difficult claims sooner: Gallagher Re

Limits discipline and changing claims practices are informing reinsurers’ assessments of North American casualty portfolios, says Emily Apostolides, head of casualty, North America, at Gallagher Re.

Key points:
Limits discipline remains in place
Complex claims get earlier attention
Auto losses reach umbrella layers

Faced with rising claims severity, North American casualty insurers are tackling the challenge head-on – by reducing policy limits on the underwriting side while overhauling claims departments to address difficult cases sooner.

While social inflation and nuclear verdicts are not new, Emily Apostolides, head of casualty, North America, at Gallagher Re, told APCIA Today that the way the industry approaches them is changing. “We’re hearing more about how losses are being recognised as complex claims quicker. As an industry, we’re trying to increase reserves faster and address more difficult cases more quickly,” she said.

“The best way to protect against severity is not to have significant limits out there in the first place.”

For some clients, Apostolides noted, this new approach to claims is not yet fully visible in reported data. But insurers are benefiting from other changes they have made.

In the last decade, many underwriters have also adjusted policy attachments, business mix and geographic diversification. Of those measures, Apostolides said lower limits represent the single biggest action carriers have taken to protect balance sheets against severity.

“The best way to protect against severity is not to have significant limits out there in the first place; the market is being remarkably disciplined in terms of holding the line on limits,” she said. “Proactive management of limits will help in those instances where nuclear verdicts come in and where social inflation is at play.”

Challenges remain

But lower limits have not been a panacea for all lines. Commercial auto insurance remains a particular concern, and a major loss driver across casualty books. This is partly because primary limits have not changed. “Auto has just been a major driver of loss, with primary limits not having changed in a very long time,” Apostolides said.

“There’s also a lot of focus around adequate rates on auto. Some carriers are looking to move away from the auto, and we see more challenges to get auto insurance placed. Reinsurers are heavily scrutinising their client strategies around auto.”

Greater scrutiny of individual accounts has become essential for reinsurers evaluating the performance of their casualty books. Casualty pricing traditionally relies on historical loss patterns to project future profitability. But such are the pressures on the line, past data is no longer an adequate indicator of performance.

“We use historical data to project what profitability will look like,” Apostolides said. “But we’re doing it differently now. Whether it’s due to changes in underwriting or claims, it is increasingly difficult to use the past to predict what the future will look like.”

Evaluate on merit

But as different carriers reform their underwriting and claims strategies, aggregated market data also obscures individual performance. Reinsurers must, therefore, evaluate each placement on its own merit. 

While plentiful capacity is keeping renewal terms broadly flat, reinsurers are not deploying capital indiscriminately – preferring to focus on the core partners they trust.

“Reinsurers are focused on core trading partners more – carriers that have demonstrated discipline throughout the cycle, that have made the appropriate changes, that are addressing claims appropriately,” Apostolides said.

Shifts in reinsurer appetite remain marginal: underwriters that held back during the soft market are now looking to expand; equally, those nursing legacy losses have scaled back. 

Public data shows that reserves for older, soft-market years have risen, suggesting carriers are addressing losses from those periods. Those experiences may encourage greater caution on new business. “Carriers may be more conservative on their reserves now just because they’ve learned lessons from the past.”

Underlying casualty pricing also continues to provide support. “Rates are tapering, but they’re not negative by any stretch,” Apostolides noted. Alongside sustained limits discipline, positive rate momentum leaves room for cautious initial reserve estimates, with the hope that carriers can release reserves later as market conditions soften.

That conservatism may not be universal, however. Apostolides stressed that it remains too early to judge how recent underwriting years will ultimately develop, though the steady availability of reinsurance capacity indicates greater comfort with casualty than prevailing headlines suggest. 

Emily Apostolides is the head of casualty, North America, at Gallagher Re. She can be contacted at Emily_Apostolides@gallagherre.com.

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