Zurich’s Bill Chepulis cites excess casualty trends at Zywave event

The picture for casualty insurance presents both clouds and a ray of light, according to a panel of speakers that included Bill Chepulis, Head of Large Casualty at Zurich North America, at the recent Zywave Casualty Insights Conference in New York City.

“The concern I see today is excess casualty markets’ pricing below loss trends,” Chepulis shared while speaking on the “State of the (Re)insurance Market” panel, featured in coverage by The Insurer and Insurance Insider. “That’s disturbing.”

Auto liability is an area of particular concern, he said, citing economic inflation driving up repair costs and record-shattering jury awards in lawsuits (a trend known as “social inflation”). The resulting claims costs are exceeding levels on which rates and premiums were based, and this has been the case for the last four years, Chepulis said.

“I don’t think we’ve kept pace as an industry in terms of pricing and deductibles,” he said. “If we truly want to be there for the long term, we need to keep pace with the loss costs.”

The executives on the panel called for tort reform to restore logic and proportion to liability litigation and jury awards. When broad tort reform last occurred in the 1980s, Chepulis said, that helped bring insurance rates down, ending the so-called “hard market” cycle, benefiting businesses and consumers.

In the years since, tort reforms have been rolled back and the industry has had to resort to reducing coverage limits and increasing pricing and attachment points. “That’s not sustainable,” Chepulis said.

Panelists agreed that the insurance industry can’t be the lone voice calling for tort reform. Legislators need to hear from the companies that carriers serve about the serious impact to their business as insurance costs rise and coverage availability tightens for auto liability, general liability and other kinds of insurance.

Third-party litigation financing exacerbates the problem, panelists said.

Juries often are unaware that there are outside investors in a plaintiff’s case who help pay legal fees in exchange for getting a share of any resulting award, which creates incentives to reject reasonable settlements.

Zurich’s Government and Regulatory Relations team recently hosted a tort reform webinar with over 130 attendees from 43 countries discussing the need for advocacy with legislators and regulators. One potential change would be to allow juries to be informed when a case has financial backers.

A glimmer of positive change

Panelists at the Zywave event discussed one positive development in the casualty insurance picture, coming from the notoriously litigious state of Florida.

Focusing on property insurance policies issued in 2023 and after, Florida legislators passed legislation in December that prohibits “assignment of benefits,” which previously enabled policyholders to sign over their insurance benefits to a third party, such as a roofer or plumber, as payment for services. Assignment of benefits (AoB) allowed contractors to seek payment directly from insurance carriers and was blamed for encouraging inflated claims and unnecessary work, driving up claims costs for property insurance carriers.

This led to some carriers pulling out of the market and others increasing rates for coverage to account for runaway claims costs. One consequence is a shortage of affordable property coverage in the state. The legislation also eliminated one-way attorney fees for property cases, which required insurers to pay the plaintiffs’ legal fees if the carrier lost in court, which also is cited as encouraging frivolous lawsuits. 

This year, the Florida Legislature took on broader tort reform. Just last week, Gov. Ron DeSantis signed a package of legislation that, among other provisions, prohibits assignment of benefits in auto accident claims and eliminates one-way attorney fees across all lines of insurance. 

Chepulis said these developments are steps in the right direction, but in a nation where the 50 states have differing laws, akin to individual countries, there’s a lot more work to do.