General liability takes rate, but not at pace with legal threats: AM Best
US commercial general liability may continue to perform “strongly” in 2024, but can only merit a negative outlook given the plethora of threats with potentially explosive impact on claims costs for which actions on insurance rates seems to fall short, analysts at AM Best said in an update on the sector.
“The US commercial general liability segment should continue to perform strongly in 2024, owing to cumulative year-over-year premium-rate improvement,” analysts wrote. Rate increases have continued in recent periods, albeit “not nearly as high” as in prior years.
“Rate-level improvement continues to strengthen underwriting performance,” AM Best wrote, with an added boost from tightened underwriting standards including limits management, higher deductibles, coverage exclusion, and better-defined risk appetites.
None of which is guaranteed to withstand the rising onslaught of coverage costs, increasing from a broad array of social and medical inflation and rising litigation costs, new and emerging hazards, and “growing social sensitivity to past injustices.”
“Rate increases have lowered the segment’s persistently high combined ratio incrementally; however, cumulative pricing increases have not fully caught up with multi-year loss cost trends” be they of the past, present or future.
AM Best sees “worsening social inflation, medical expenses, and litigation financing, which are leading to rising claims losses and legal costs” potentially dovetailing with emerging classes of litigation exposure, such as PFAS chemicals, all multiplied by the frequency latent in post-pandemic court-room reactivation.
The net balance: the “moderate pace of premium rate increases ... cannot keep up with increasing loss costs.”
The list of courtroom threats sounds ominous in the AM Best review, although impacts are not quantified.
Social inflation is “the new normal” with ability to “significantly affect” general liability via an increase in claims with attorney representation, in nuclear verdicts, and the frequency of single-payout events with “overinflated non-economic damages.”
Medical costs are called a “direct pass-through cost” to general liability insurers with “no indication that the accelerating rise of medical costs will subside.”
Litigation financing plays a “significant role” in making cases run longer, with higher defence costs, and more frequent “costly” verdicts.
And the growing number of US states passing revival statutes with retroactive lifting of statutes of limitations could be a “potentially enormously costly issue” vis-a-vis clients with historical sexual abuse risks, AM Best noted.
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