Wildfires, hurricanes, a pandemic and civil unrest have wreaked plenty of chaos on the commercial insurance market in 2020. Steve Christenson, with Marsh & McLennan Agency LLC, offered guidance to business owners Nov. 9 at ATA Virtual Expo 2020.
“The business insurance market has been going through several changes this year,” says Christenson, with U.S. premiums increasing 19 percent in the second quarter and 20 percent in the third quarter.
Commercial property premiums have increased for 12 straight quarters, but the effect of COVID-19 put special stress on business interruption insurance. Many companies attempted to file for business interruption coverage when the COVID-19 shutdowns occurred, but virus exclusions prevented pay outs.
Many of those companies then sued the insurance companies for payments, but the court rejected 78 percent of these suits. With only 2 percent of lawsuit siding with property owners, Christenson says the government and private industry are going to have to work out a solution, similar to the terrorism act of 2001.
Christenson recommends four actions:
- Start reviewing valuations and open loss control recommendations mid-year or earlier.
- Quality submission is crucial, differentiation is key: details on property protections, changes in supply chain due to COVID and large loss narratives.
- Have a range of plans in your strategy (Plan A, B, C) and prepare to be flexible.
- Discuss and prioritize risk tolerance internally: increased deductibles, potential non-concurrent terms, lower limits, self-insuring part of a layer, captives, etc.
Directors and officers insurance
Lawsuits also occurred in the directors and officers (D & O) area, because shareholders brought forward complaints that boards of directors were unprepared for the pandemic. With litigation at an all-time high, insurance rates increased 19 percent in the second quarter of 2020.
The following strategies are recommended by Christenson:
- Plan to market your D&O renewal program extensively (especially publicly held companies).
- Quality submission is crucial, differentiation is key.
- Have senior executives (CFO, GC) make time for in-person or virtual underwriter meetings.
- Consider alternative deductibles, limits, solutions (i.e., captives).
- Partner closely with your broker through the entire renewal process.
Employment practice insurance
Christenson says 77 percent of private companies saw increases in premiums in the employment practice area due to COVID-19. The issues included claims for mistreatment, harassment or discrimination of employees with COVID-19 positive tests and unauthorized disclosure of infected employees’ identity or private medical information.
Christenson put forth a call to action, saying that businesses should consult with their employment legal counsel to make sure they:
- Comply with all local, state and federal laws relating to COVID-19 and the safety guidelines and requirements.
- Have return to work policies/procedures specifically outlining the plan for employees to return to the workplace.
- Treat all employees and third parties in a consistent and fair manner to avoid any implication of mistreatment, harassment and discrimination.
Cybersecurity and data privacy
At one time cybersecurity and data privacy insurance was sought out mostly by health care companies. Now, however, most types of business require this type of insurance. Rates took a 7 percent jump in the second quarter of 2020 as more employees began to work from home. Cyber premiums are increasing due to a perceived increase in exposure due to work from home, and increased ransomware claims were filed across all industries.
Underwriting rigor is recommended by Christenson, who notes that increased scrutiny is needed especially around business resiliency (i.e. backup systems, patching of systems) due to increased loss trends by intrusions such as ransomware. Increased state and foreign regulations around consumer privacy and security are driving the need for coverage to adapt—GDPR, CCPA, BIPA.
Registration for ATA Virtual Expo 2020 is open through Nov. 12. All Expo sessions will be posted on the Virtual Expo platform for viewing during Expo and for 30 days after Expo has concluded.