Professional Liability Insurance Claims on the Rise in 2023
Claims are on the rise throughout the insurance industry, mainly due to something called “social inflation.” This term refers to the increase in lawsuits and more expensive settlements.
Social inflation is primarily caused by aggressive tactics used by lawyers representing people who file claims. This has led to a significant increase in bodily injury claims covered by commercial auto and general liability policies.
But it’s not just these types of insurance that are affected—claims payouts are going up across the board. In 2019, there was a 300% increase in jury verdicts of $20 million or more compared to the yearly average between 2001 and 2010, according to a 2020 report by the Insurance Research Council (IRC). The severity of claims is growing much faster than regular inflation, and more bodily injury liability claims are being paid out at policy limits.
This trend is especially troubling for professional liability underwriters. They’ve noticed a worrying pattern of bodily injury claims spilling over into professional liability policies. Typically, general liability policies cover injuries or damage that happen on a property, but if those limits are used up or if the claim involves allegations of negligence or misrepresentation, it can become a professional liability claim. Depending on the situation, professional liability insurers may find themselves drawn into bodily injury claims.
Across various professional fields like insurance agents, brokers, property managers, and home inspectors, bodily injury claims are being made against professionals. These claims argue that injuries resulted from negligence, misrepresentation, or mistakes made by these professionals.
In simpler terms, any professional whose client might face bodily injury risks could also face professional liability claims.
Here are some real-life examples:
- A property management company got sued when someone was injured at an apartment complex they managed. The claimant argued that the company was negligent in maintaining the property, leading to a professional liability claim and a multimillion-dollar payout.
- A lawsuit over a shooting death at a residential complex resulted in a professional liability claim against the property manager for failing to provide adequate security.
- An insurance agent failed to add a newly purchased truck to a commercial auto policy, and the truck was involved in a fatal accident. The commercial carrier denied coverage due to the agent’s mistake.
Impact on Coverage
The professional liability insurance sector hasn’t experienced as much tightening as other types of insurance, but professional liability insurers are closely monitoring the effects of social inflation. Social inflation is a term used to describe the amount that liability claim costs are rising above the rate of general economic inflation 1. It is mainly caused by an increase in the litigiousness of society, which can lead to an increase in the number of lawsuits and the number of damages awarded.
Many insurers are already responding by reducing the amount they cover, sometimes by half or more. Premiums are also increasing. In April 2023, a market update by WTW E&O insurance noted that professional liability rates have gone up by 5% to 20%, depending on the type of business.
Insurers are increasingly worried that the trends related to social inflation might continue. As a result, rates are likely to keep rising over the next year, while the coverage available becomes scarcer, especially for riskier businesses.
What Agents and Brokers Need to Know
This situation puts more pressure on agents and brokers, who play a crucial role in helping clients protect themselves when rates are higher, and coverage options are limited.
Here are some steps agents can take to assist their clients:
- Stay informed about changes made by insurance providers and prepare clients so they’re not surprised when it’s time for policy renewal.
- Educate clients about market changes and risks they might face, helping them address these issues to ensure they have adequate coverage.
- Explore alternative ways to cover clients’ risks, such as purchasing extra coverage that fills gaps in their primary policy, suggesting higher deductibles, or obtaining coverage for past claims.
- Build strong relationships with underwriters and discuss various options and creative solutions for your clients, or negotiate on their behalf.
- Familiarize yourself with the risk management options carriers offer to reduce your clients’ risks and ensure they take advantage of these resources.
- When submitting applications to underwriters, provide all necessary information about your client, including any concerns about coverage or specific needs, to ensure accurate and prompt quotes.
Unfortunately, it doesn’t seem like social inflation trends will disappear soon. Therefore, the industry must work together to navigate these ongoing challenges responsibly. This includes finding ways to educate clients about what social inflation means and how it affects all insurance consumers.