Commercial Umbrella rates are on the rise. In a previous blog, we mentioned the state of the insurance industry and that we are currently in a hard market. The largest percentage increase you will probably see in 2020 on a single policy, if you have not already experienced it in 2019, will be from your Commercial Umbrella.
A Commercial Umbrella provides extra Liability Insurance typically ranging anywhere from $1M to $250M. Generally, anything over $5,000,000 is going to be in a Risk Purchasing Group (RPG). An RPG is a group of like members who are benefitting from lower rates than they could normally get if they got their own umbrella. The Named Insured is the RPG and each property added is a member. The insurance policy is in the RPG’s name and typically, the members are issued a copy of the policy and a certificate showing they are a member. It usually consists of many layers, so one insurance company may provide the first $25M with other insurance companies providing each additional $25M layer.
If a co–op were to try and get an Umbrella quote with the same carrier who provides their General Liability, they would probably only be able to get up to $10M and the cost would be anywhere from $500 to $1,000 per million of coverage. So, a 50 unit co-op in an RPG may pay approximately $3,000 for a $100M, but between $5,000 and $10,000 for a $10M Umbrella outside the RPG. Naturally, most insureds opt to be in an RPG. In addition, many property management firms have formed a Master Umbrella policy for the properties they manage within these RPG’s and have gotten even lower rates than normal.
Judgments, especially in the New York area, are getting larger and larger. Some of this is due sympathetic juries and social inflation, defined generally as rising costs of insurance claims that are a result of societal trends and views toward increased litigation, broader contract interpretations, plaintiff-friendly legal decisions, and larger jury awards. In addition, in New York, the Labor Laws are extremely unfriendly towards a property owner. They are usually held responsible for injury to a contractor or their employee. Unless all I’s are dotted and all T’s are crossed, and sometimes even then, the property owner is held responsible and the judgments can be astronomical, easily reaching seven figures and piercing the Umbrella.
Because of this, the carriers within the RPG’s are either bailing out, which is forcing insureds to take lower limits and are increasing premiums drastically. We have seen many insureds receive renewal quotes that are 400% higher. Sometimes for lower limits!
Eventually, the hard market will cease, but the days of having high limit umbrellas at very low premiums may be gone for good. Prepare for at least a 10% increase on your overall insurance budget, higher if your claim history is unfavorable, and expect that you may have to opt for a lower limit on your Umbrella.