The excess habitational market has been slowly hardening over the last several years, but it has accelerated over the last 2-3 years. Excess habitational premiums have been rising due to numerous factors including insurance carriers finding that they have been inadequately funded to cover the growing frequency and severity of claims in today’s litigious environment. There are now limited excess options within the first $10M, especially in the lead position. While some new capacity has started to filter into the marketplace over the last several months, few want to play in the lead $5M.
When structuring excess towers, it appears that the market is trending to a maximum of $2M in the lead, then seeking the best option for $3M in excess of $2M, hopefully followed by $5M in excess of $5M. In a softer market, the lead $5M premium typically equaled 40%-50% of the General Liability (GL) cost, but the first $5M in excess can now often cost more than 100% of the GL premium. In general, layers in excess of the initial $5M have become easier to find; however, premiums are not necessarily lower. Layers above $10M are even easier to secure, but depending on account size, loss history, and geography, limits offered may still be on the lower side of $5M to $10M.
Prior to the current hard market, layers above the lead $5M typically saw premium costs equal to 35%-40% of the previous layer. That cost has risen to approximately 50%-80% as nuclear verdicts continue to push claim losses higher. On primary GL business with a relatively stable schedule, lower crime scores, and good loss history, clients can expect accounts to see rate increases of 5%-10%. When it comes to the excess, price bumps of up to 10% are common on good risks as carriers work to balance against losses. Accounts that are heavier on subsidized housing or those that have experienced a shock loss will likely see heftier rate increases depending on overall loss history.
FACTORS AFFECTING THE MARKETPLACE
Few insurance companies are willing to offer capacity in the first $10M due to the frequency of large losses, social inflation, and increases in violent crime that have all played a significant role in the current excess space for habitational business. Criminal activity, such as assaults or shootings, continues to be one of the primary loss drivers for habitational accounts, and coverage costs are rising due in large part to nuclear court verdicts. In addition, the expenses and settlements associated with typical slip and fall claims have also increased significantly.
Over the last 10 years, a substantial portion of the multi-unit housing market has been purchased by larger companies. These larger property owners can be viewed as bigger targets with deep pockets when it comes to claims. Also, casualty claim development can be slow, and it is not uncommon for a claim to take 4-6 years to fully develop. Many carriers are dreading the coming 12-18 months as claims that were delayed during the pandemic begin to move through the court system.
Because losses resulting from criminal activity have skyrocketed and penetrated excess layers, many carriers are highly focused on crime scores as well as the jurisdiction of locations on the schedule. Risks in higher crime score areas and tough jurisdictions will have more limited coverage options. Even market-rate apartments located in moderate to high crime-score areas are experiencing coverage challenges. Excess carriers are also carefully reviewing primary losses because even if a loss hasn’t hit the excess yet, underwriters know that it is more likely to occur in the future as claim costs rise. Assault and battery (A&B) or sexual abuse and molestation (SML) exclusions or limitations are now nearly ubiquitous in excess policies. Preferred accounts that are still able to obtain SML or A&B coverage will most often pay a much higher price. Accounts with a poor crime score and/or a history of gun violence may also see firearm exclusions in addition to the A&B limitations mentioned above. Accounts with severe losses may also find habitability exclusions as well as A&B and SML limitations or exclusions included in their policies. In conjunction with crime scores, the age of a building and the number of stories can make the underwriting process more challenging. In this environment, carriers are often underwriting individual locations rather than the account as a whole. Carriers are also taking longer to underwrite habitational business due to more thorough underwriting processes and additional levels of management review.
TOUGH VENUES & SECTORS
While all habitational business is harder to place these days, certain classes such as subsidized housing, including Section 42, Section 8, student housing, and senior housing are typically the most difficult. Of the small list of carriers that remain in the excess habitational space, the list gets considerably smaller for insureds with a significant percentage of Section 8 housing. Because there are various forms of subsidized housing, explaining the specific nature of the housing on a schedule can help make those placements easier. In addition, any schedule that includes transportation of residents or another hired / non-owned auto exposure can be challenging for agents to place because of the unique nature of the auto risk.
There are also certain regions throughout the country that generally have a greater likelihood of increased claim frequency and more severe losses due to massive jury verdicts. This is occurring in some locations more than others, and examples of tough venues include California, New York, Florida, Texas, Mississippi, and Georgia. Typically in urban, more litigious areas such as Chicago, Philadelphia, and New York City, prices remain high.
HOW AGENTS CAN HELP
A thorough and complete submission is the single most important item retail agents and brokers can provide. A complete submission will consist of ACORD applications, a Statement of Values (SOV) with life safety information, complete addresses, and a column identifying any locations that are student, senior, or subsidized housing along with the year of acquisition. Markets will also want historical unit counts for at least 3, if not the last 5 years. While 5 years of loss history has been the norm in the industry, many markets now seek 8-10 years of currently valued loss runs. A persistent challenge to underwriting habitational business is the fact that there is constant asset movement as properties are regularly bought and sold across portfolios. This means retailers often have to collaborate with clients to obtain loss documentation from the prior owner, which can be tough. However, agents and brokers must help property owners rise to the challenge because it’s not uncommon for underwriters to decline quoting a newly acquired location when loss history is unavailable.
Based on current market conditions and the extensive layering required, it’s wise to have submissions complete by 90-120 days out. This is especially important when considering how few markets remain and how long the underwriting process can take. The markets that remain in the space are flooded with submissions which adds to the typical turn- around time. It’s also vital to make sure clients are doing everything possible to limit losses and ensure they understand the complexity and pricing difficulty defining the current habitational marketplace. Therefore, providing any available details on improved property management can also help set your insured apart in the underwriting process. Highlighting the action clients have taken to reduce risk such as regular walkthroughs of parking lots to identify uneven surfaces, exterior lighting and security, use of self-latching gates or self-locking exterior laundry room doors, and employment of security guards and/or pool lifeguards along with proper signage can show underwriting that policyholders have taken steps to lessen the likelihood and severity of any potential claim.
It’s possible to obtain excess habitational coverage in almost any scenario; however, premiums have risen significantly. As carriers reduce limits or employ exclusions in the continuing hard market, it’s vital that clients and their insurance providers collaborate to fully understand and adequately communicate the exposures of each account. Underwriters are consistently requesting more and better data to accurately assess and price excess habitational risks. Solid risk management plans showcasing the strengths of habitational policyholders can increase underwriters’ level of comfort with a risk and make a difference in the scope of obtainable coverage.
Successfully navigating the current hard market conditions also means proactively marketing risks with sound brokering and follow-up. CRC Group leverages the power of institutional-level proprietary data, exclusive products, and internal relationships to help ensure clients benefit from the best possible deal, every time. When it comes to habitational accounts CRC Group can often assist with automobile buffers, monoline SML coverage, and hired/non-owned auto coverage. Contact your local CRC Group producer today to learn more about how we can help your habitational clients weather the continuing hard market with unique insurance solutions.
- Andrea Ward is a Senior Vice President and E&S Casualty Broker with CRC Group’s San Francisco, CA office where she specializes in peer-to-peer/app-based insureds, tough-to-place Products, Habitational, OL&T, Life Science, and Construction.
- Brent Tredway is President of Brokerage with CRC Group and a member of the Casualty Practice Advisory Committee.
- Jeff Coles and Mike McCall are Team Leaders with CRC Group’s Los Angeles, CA office and members of the Casualty Practice Advisory Committee.
- Nick Settineri is a Senior Vice President with CRC Group’s Chicago, IL office where he specializes in Property and Casualty.
- Ron Levitt has more than 25 years of experience in placing Habitational business, Hospitality, Products, and Construction. He is also President of CRC Group’s Chicago office.
- Vladimir Peraza is a Vice President and Team Leader with CRC Group’s New York City office where he specializes in Residential, Commercial, and Industrial Real Estate.
- Zach Mather is a Broker with CRC Group’s Birmingham, AL office where he specializes in Real Estate, Construction, and Transportation risks.
- Habitational Market Ripe for Digital Transformation, Insurance Journal, August 16, 2021. https://www.insurancejournal.com/magazines/mag-features/2021/08/16/627099.htm
- How Many Multifamily Units Are in the U.S? IOTAS, https://www.iotashome.com/how-many-multifamily-units-are-in-the-us/
- Judge Gives Initial OK to $1B Deal in Florida Condo Collapse, WMBF News, May 28, 2022. https://www.wmbfnews.com/2022/05/28/judge-gives-initial-ok-1b-deal-florida-condo-collapse/