Over the last couple years, commercial insureds have seen substantial increases in premium. The renewal rate increases have been stacked upon previous years' rate increases and much like the miracle of compounding interest, premiums have soared in this environment. Commercial Property and Commercial Automobile have been leading the way in the rate volatility.

Historically, risks like churches, schools, lessors-risk-only, and manufacturing facilities were desired risks for insurers. Unfortunately, with the weather patterns of recent years, the large roof square footages for these types of risks have created significant losses for insurers. As a result, insurance carriers have taken rate up significantly. They have also required the insured take on additional financial responsibility, at the time of a loss, by requiring higher property deductibles, as well as separate wind/hail deductibles. The financial pain to insureds has been exacerbated by the fact that, not only are they required to absorb a larger rate increase, but they are also being required to insure their buildings for significantly more than they were required prior to Covid. The increased cost of construction has driven the replacement cost for buildings "through the roof".

It does appear help is on the way, at least for property. Many insurers are opening up classes of business that have been relatively closed for the past few years. There are also rumblings of reducing the types of risks where wind/hail deductibles are currently required. This easing of terms and reintroduction of carriers back into the marketplace, could present commercial consumers with more favorable terms when looking for property insurance.

The same cannot be said for Commercial Automobile insurance. While safety features on vehicles have made driving safer in certain instances, distracted driving, cost of repairs, social inflation and Third-Party Litigation Funding (TPLF) have driven the cost of claims up. In the are of Commercial Transportation, the number of carriers willing to look at intermediate haul and long haul trucking continues to decline. This construction of the market has caused premium increases, especially for heavy trucks. Third Party Litigation Funding has driven the record number of nuclear verdicts in this arena and will continue to drive the cost of claims higher.

While Commercial General Liability and Commercial Umbrella coverage have not seen the premium increases that Commercial Property and Commercial Automobile have seen recently, there are market indicators that they could be the next two shoes to drop. Over the past few years, general liability premiums have continued to rise, but dur to the premium jumps in Property and Automobile, the General Liability premium increases have largely went unnoticed. With Commercial Umbrella, premiums are now beginning to jump exponentially. Besides premiums going up, Commercial Umbrella carriers are also beginning to limit their exposure by dropping umbrella limits. As an example, a contractor who had a $6M umbrella, stacked on top of a $1M underlying General Liability policy, may see an offer on his renewal that reduces the Commercial Umbrella to $2M in x of the $1M underlying. Additionally, the insured may be looking at paying the same amount or more for the $2M Umbrella that they had paid for the $6M Umbrella just a year ago. Trying to then find a carrier to write a $4M umbrella to get the overall limit back up $7M could be problematic and will most assuredly cost significantly more. As one underwriter answered when asked about why his $4M in x of $3M was so expensive, "Let's be honest, if they get through the first $3M, they're getting thru the next $4M." In terms of recently gathered claims data, in the 2022 claims year, there were over 150 nuclear verdicts nationwide (a nuclear verdict is defined as a jury award of $10M or more). The median nuclear verdict was just north of $20M. In calendar year 2024, there have been 49 verdicts in excess of in excess of $100M . With numbers like these, its not hard to imagine that while property may be stabilizing, Commercial Automobile, Commercial General Liability and Commercial Umbrella will continue to see premium increases.

This article is intended for informational purposes only and is not intended to be exhaustive, nor should any discussion or opinions be construed as professional advice.