The hospitality insurance market in the United States is in a tough bind. Not only are hospitality insurers under pressure to find solutions for an industry that has been totally devastated by the COVID-19 pandemic, but they’re trying to do so at a time when the US property and casualty (P&C) insurance market is facing ongoing challenges of its own.
Some say we’ve entered a “hard market” in many P&C lines, while others describe the market as “tightening,” “firming,” or “transitioning”. Regardless of language, it’s widely accepted that the P&C market has experienced some dramatic changes in recent months, characterized by inflated insurance premiums, coverage restrictions and shifts in market capacity. All of these elements are only exacerbating the challenges that hospitality insurers are facing amid the coronavirus pandemic.
While some state there’s not enough capacity to service hospitality accounts in these challenging times, Marc Adler, managing director at Burns & Wilcox Brokerage, Scottsdale, Arizona, suggests otherwise, especially if brokers look to the excess market. According to Adler, there is an “extremely large amount of limit” available in the excess market, but how that limit is being deployed has changed over the past six- to 12-months – a shift that has “radically impacted” how accounts are being placed.
“We’re looking at carriers that used to put up $25 million in limit, and now they’ll only put up $5 million or $10 million. Carriers that would play in a league of $5 million or $10 million are now saying they [need] excess of $5 million,” he said. “While the amount of limit remains more than abundantly available, how that capital is being deployed by the carriers has changed, and, in some cases, it now takes multiple carriers to put together sufficient excess limits, whereas before, it might have only taken one or two.”
Excess carriers have tightened their underwriting belts for a number of reasons. Just like the primary carriers, they are subject to the phenomenon of social inflation – a term used by insurers to describe the rising costs of insurance claims resulting from things like increasing litigation, broader definitions of liability, more plaintiff-friendly legal decisions, and larger compensatory jury awards. According to Adler, nuclear court verdicts have impacted how excess carriers approach putting up limit.
“We’ve seen a dramatic shift in how they underwrite,” Adler added, “whether it’s the liquor exposure, or the geographic location that they’re in and what the liquor laws are and the crime scores - [all of these factors] play a very heavy part in how underwriters are looking at the acceptability of risks right now.
“Assault and battery is a much scrutinized coverage at the moment. It’s still available, but it is no longer a guarantee that you’re going to get silent [coverage] or get full limits. The carrier is going to look at frequency, and if there’s a frequency of assault and battery claims, they may opt to exclude or offer a sub-limit. If it’s been a clean account, they’re still certainly very willing to offer full limits or be silent and grant coverage.”
With both primary and excess hospitality carriers shoring up their books and tightening their underwriting guidelines, it’s essential for insurance brokers and agents to ensure hospitality clients have strong risk management protocols in place, and, crucially, that underwriters are made aware of these best practices.
Adler commented: “The more we can tell the market about the accounts and why the account is good or if they had a problem, what they’ve done about that problem, that’s going to be paramount in terms of how to sell these accounts to the underwriters now. On the larger accounts, carriers are having to do loss analytics and they will look at frequency. A lot of carriers are now mandating on frequency-driven accounts that they [go into] self-insured retention, and they will require the insured to have skin in the game. It’s a dramatically changing approach. The excess market will continue to evolve, and not in a friendly way.”