Skyrocketing Bodily Injury Claims Spill Over to Professional Liability Insurance Market

Claims frequency and severity are on the rise across the insurance industry, driven by social inflation and resulting in increased litigation and costly settlements. This trend is not limited to commercial auto and general liability policies, as other insurance segments are also experiencing an increase in claims payouts.

A report by the Insurance Research Council (IRC) highlighted a significant increase in jury verdicts of $20 million or more in 2019 compared to the average between 2001 and 2010. Claim severity is outpacing economic inflation, and there is a notable growth in the proportion of bodily injury liability claims being paid at policy limits.

This upward trend in bodily injury claims is causing concern for professional liability underwriters. While general liability policies typically cover bodily injury and property damage on an insured’s premises, if the limits are exhausted or the claim involves allegations of negligence or misrepresentation, the incident can turn into a professional liability claim. This has led to a rise in underlying bodily injury claims spilling over into professional liability policies.

Various professionals across different industries, such as insurance agents, brokers, property managers, and home inspectors, have become targets of underlying bodily injury claims. These claims allege negligence, misrepresentation, or errors/omissions on the part of these professionals, resulting in bodily injuries not being properly covered or occurring due to their actions.

Real-life examples of these claims include a property management company being sued for negligence in maintaining an apartment complex, leading to a multi-million-dollar professional liability payout. Another example involves a property manager facing a professional liability claim for inadequate security following a shooting death at a residential complex. Additionally, an insurance agent’s failure to add a newly purchased truck to a commercial auto policy resulted in coverage being denied after a fatal motor vehicle accident.

The impact on professional liability coverage is evident, with insurers reducing their capacity and cutting limits by half or more. Premiums are also increasing, with professional liability rates up 5% to 20%, depending on the line of business. Carriers are concerned about the potential continuation of social inflation claims trends, leading to further rate increases and decreased capacity, particularly for more exposed classes of business.

Agents and brokers play a crucial role in helping insureds navigate these challenges. They need to stay informed about the changes insurance providers are making and prepare clients accordingly. Educating clients on market changes, exposures, and risk mitigation strategies is essential. Exploring options such as excess coverage, higher deductibles, and tail coverage for prior claims can help clients protect their exposure.

Maintaining strong relationships with underwriters and advocating for clients is vital. Agents should provide underwriters with all necessary information about their clients, including coverage concerns and specific needs, to ensure accurate and efficient quoting. Agents should also familiarize themselves with the risk management options offered by carriers and encourage clients to take advantage of these resources.

It is clear that social inflation trends are not likely to dissipate soon. Therefore, the insurance industry must work together to navigate these ongoing challenges responsibly. This includes educating clients on the impact of social inflation and finding innovative ways to address their insurance needs in a changing market landscape.