If your Umbrella program isn’t helping to boost retentions and grow your business, maybe it’s time to rethink it. We’re two months into the new year, and the Casualty market continues to send mixed signals. Rate changes are decelerating, inflation is at its highest level in 40 years, and, in some Casualty lines, loss ratio improvement is only incremental.

On paper we have made tremendous progress in the hardest insurance market in two decades. The main components of Umbrella – Auto and General Liability – have had several years of strong rate increases: Most industry benchmarks show an increase of over 20% in the Umbrella line, double that seen in primary Casualty lines. So, all should be well for this line’s fiscal health, right? On an industry level, those rate changes do bear out.

In the National and E&S space, there was tremendous compression of limits so the per million of pricing of Umbrella capacity did rise by multiples. However, there are other factors to consider, including the leveraged impact of inflation on Umbrella and the fact that, despite strong rate increases, the Umbrella line benefits less from rate increases than compressed layers. Have the “strong” rate increases really kept up with both CPI inflation and the average rise in claim awards?

In Main Street America, there are two factors making it more difficult to achieve the Umbrella rate being reported on an industry basis. First, in many instances, limits above the first million have minimum premiums which may be changing in their adequacy levels. Secondly, competition in the small- and mid-market space is a winner take all business model, so it is difficult to practice limits management.

What about your company? Are you taking steps to make sure rates and minimum premiums are both sufficiently differentiated and keeping pace with loss trends in Umbrella line of business?

As shown in the table below, rate increases are muted as limits increase – and the minimum premium is unchanged. In soft markets and times of falling exposures, this is a boon and a protection.

Currently, we see both inflation and social inflation eroding the strength of minimum premiums. Severity trends are still rising, while frequency trends are benign or even negative, in part due to the pandemic. This means that large claims are getting larger faster than small claims. According to Advisen loss data, the median cost of a single-fatality loss spiked 67% between 2010 and 2020, jumping from $2.3 million to $3.7 million. Are you charging 67% more for your Umbrella product than you were in 2010?

Staggering claim settlements make the lead Umbrella layer behave more like the primary Casualty layer, which is out of step with the spirit of the product. Umbrella is priced for severity rather than frequency. It is designed for “Casualty Catastrophe.” In many states, regulatory constraints, in combination with actuarial challenges, put the brakes on funding for the Umbrella line.

Property value inflation and social inflation aren’t the only factors challenging the Umbrella sector. Advancing competitor analytics, talent scarcity and pandemic operational shifts also make it more difficult for insurers to prioritize Umbrella product management. And to further complicate matters, if you are not differentiating rates and minimum premiums in filings, you won’t have the framework to tailor them to your risk profile, which is critical to success.

A healthy Umbrella program can boost retentions and help you grow your business. As dedicated Umbrella specialists, we offer a unique level of support, including proprietary rate model analysis, exposure and loss trend analysis, underwriting reviews, coverage form analysis and consultative claims services. Call us today to discuss your business strategy and how we might add to the conversation.