Best's Review


Risk Adviser
Going Up

Insurers face rising loss costs due to increased litigation and nuclear verdicts.
  • Dick Lavey
  • February 2020
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General liability loss trends have certainly become a major topic of conversation over the last year. While this is not a new issue for our industry, of course, recent earnings calls have put a spotlight on the complexity of this topic and the multiple, varied dimensions that drive the underlying trends.

What is driving loss trends in general liability?

While there is no single driver that can encapsulate this complex trend, “social inflation” has become a broadly used term to describe many of these factors. Nevertheless, it is clear that the legal landscape is shifting, and we are witnessing an increase in lawyer involvement and the percentage of claims that end up in litigation.

Also, while it's hard to measure, litigation financing is helping to motivate the push for higher verdicts. Financers are often seeking up to 200% returns on their investment. “Nuclear verdicts” related to high profile cases like Pacific Gas & Electric, Monsanto or Johnson & Johnson are playing a role as well in encouraging additional class action suits that place significant efforts on “recruiting” additional plaintiffs.

How are carriers managing these evolving loss trends?

Given the significance of these trends, carriers are working hard to minimize the impact, employing a range of strategies. In particular, carriers have been:

  • Thoughtful About Portfolio Management: Portfolio management across a number of dimensions is critical to profit protection. Specifically, liability exposures associated with more standard coverages such as commercial package policies and business owner policies are less volatile than “other liability” which will include monoline umbrella and product liability. Classes of business that include business-to-consumer exposure are also likely to face more challenging liability losses than business-to-business exposures.
  • Managing Limits and Revising Reinsurance Programs: As claim verdicts and payments increase, pressure mounts on availability and costs of general liability and umbrella capacity. This could have an impact on the limits carriers are willing to extend and they will also likely leverage or restructure reinsurance by adjusting their net retentions.
  • Addressing Geographic Concentrations of Risk: Some markets are worse than others when it comes to loss trends and carriers are being more mindful than ever about the geographic mix of business they put on the books.
    State-level legislation can make these loss trends even more prevalent in some areas of the country. Carefully watching exposure in difficult judicial areas that have been problematic liability jurisdictions is very important.

What are the implications for the market?

Independent agents are reporting multiple instances whereby excess/umbrella limits available for their customers are being reduced and prices are increasing simultaneously.

All of this adds up to a challenging insurance environment for agents and their clients, and ultimately extends to a tax on society.

While this can create uncertainty for customers looking to protect their assets with the right coverage and insurance programs, these same trends create opportunities for agents to provide experienced counsel and to deliver value to their customers.

By understanding emerging risks and maintaining strong partnerships with carriers, agents can provide the guidance and advice their customers have come to expect.

Best’s Review columnist Dick Lavey is president of Hanover Agency Markets, The Hanover Insurance Group. He can be reached at

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