Casualty insurance market remains resilient, Zurich leader says

The casualty insurance market has its challenges, but nothing that should cause endless sleepless nights across the industry, according to some insurance leaders.

That was one of the takeaways from a panel of insurance leaders at the Zywave Casualty Insights Conference in New York.

The panelists addressed a broad range of topics during the View from the Top session at the March 13 event, including emerging risks, artificial intelligence, commercial auto insurance and legal system abuse, also known as social inflation.

Near the end of the discussion, panel moderator Bill Chepulis, Head of Large Casualty for Zurich North America, asked the four leaders: What emerging risk keeps you up at night?

Even after a robust conversation that highlighted challenges, the panelists voiced confidence in the industry’s ability to navigate whatever comes next, with one saying the industry remains strong, perhaps as strong as it has ever been. Chepulis shared that upbeat outlook.

“As much as there are issues in the market,” Chepulis said, “I think the general feel from the leaders on the panel is there are ebbs and flows. We’ve seen challenges in the past, and the casualty market has been very resilient.”

The event was hosted by Zywave, an insurance software solutions provider, and sponsored by several insurance providers and brokers, including Zurich. Panelists included Russ Johnston, President of Commercial, E&S and Specialty for Nationwide; Stephen Hackenburg, U.S. National Casualty Practice Leader for Aon; Chris Houska, CEO and President of National Casualty for RT Specialty; and Kerri Hamm, EVP and Head of Cyber, Client Solutions and Business Development at Munich Re.

Inflation cuts into profits

The panelists discussed the state of the casualty market and reasons that profitability can be challenging despite strong earnings reports and rising rates for some coverages.

One of the key complications is replacement costs when there is a claim. Prices for building materials like lumber and steel have surged and labor costs have risen in recent years. Replacing vehicles and parts costs more than in the past, in part because of the technology embedded in many parts, such as cameras. Inflationary pressures can outpace premiums paid.

Commercial auto fleet insurance as well as personal lines for auto insurance are areas of significant concern, despite rising rates over the past several years.

Auto and motor risks have intensified

Chepulis said after the panel discussion that many carriers have seen the frequency of commercial auto losses climb back up to pre-pandemic levels, he said.

“The severity is probably 75% higher than it was four years ago,” he said. “That creates a problem, because we haven’t kept pace through the pandemic with loss trends. We have price inadequacies, and retentions haven’t moved up at the same rate. That’s really the fundamental math dilemma.”

Conditions in the primary markets affect excess markets.

“The immediate issue is primary auto, but the bigger concern is around the longer-term pressure this will put on the excess markets as losses continue to get more vertical,” Chepulis said. “Similar to the primary pressures, we will continue to see the need to increase attachment points with additional rate and pricing to keep pace with double-digit loss trends.”

What’s needed to fight legal system abuse

Panelists addressed concerns about legal system abuse, a term used to encompass a variety of tactics the plaintiffs' bar is using to encourage and often prolong litigation and secure higher awards from juries. When insurers and their customers have to absorb these awards, the costs are often ultimately passed on to consumers in the form of higher rates or more restrictions on coverage availability.

The panelists agreed that the insurance industry alone cannot fight legal system abuse. Businesses, regulators, legislators and individuals need to recognize the costs to all and help push back.

The American Property Casualty Insurance Association and Munich Re in March released survey results on certain perceptions of the U.S. legal system. It revealed that a majority of Americans are not aware of the negative impact that some litigation tactics, including predatory advertising and the use of third-party litigation funding, have on their household costs. According to the survey, 88% believe there should be full transparency and disclosure of all who have a financial stake in a civil lawsuit, but not all states require plaintiffs’ attorneys to disclose when a third party is financing a lawsuit.

Those third parties benefit from higher legal awards, as these investors take a cut of the proceeds in exchange for providing financial backing for the legal action upfront. That creates disincentives to settle for a reasonable amount.

Legal system abuse was the topic of a panel discussion earlier in the day where Lisa Bellino, VP of Claims Judicial and Legislative Affairs at Zurich North America, talked about an industrywide coalition that Zurich helped to lead that is addressing this issue.

“We need to all be in the same boat rowing in the same direction,” she said. “It’s great that we all sell different products or that we all have different customers. But at the end of the day, nuclear verdicts and social inflation impact each and every one of our lines of business, regardless of which carrier we might be working with.”

Looking ahead

After the View from the Top panel, Chepulis reflected on the challenges and opportunities in the casualty market.

“If you think about the market like a four-legged stool, not all the legs are wobbly,” he said. “Thankfully, the workers comp market has been very profitable, and it’s been a stabilizing line of business over the last 8 to 10 years. The rest of the legs have varying challenges. Auto is the immediate challenge, but I do think that we are in a better place than 12 months ago, and I can see progress on the market being more receptive to changes in price and structure for the sake of long-term sustainability. Those adjustments will lead to broader progress, but it will take time.”

Read about 3 ways to improve safety in your commercial auto program here.