From rising courtroom verdicts to notable underwriting shifts, here are six things independent agents and brokers need to understand about today’s umbrella market.
What Is an Umbrella Policy?
An umbrella liability policy is designed to pick up where underlying liability insurance policies leave off.
This could mean that once the underlying coverage is exhausted due to the payment of a claim, the umbrella policy can begin to pay on the balance that is owed to the claimant. It could also mean that the loss was excluded on the underlying liability policy, and the umbrella can pick up coverage because there is no exclusion for the loss.
Patrick Wraight, director of education at Insurance Journal’s Academy of Insurance, shared that an umbrella policy, especially one issued by a different company than the one that issued the underlying coverages, might have different coverage terms, conditions, and exclusions than those underlying liability policies.
By comparison, an excess liability policy is like an umbrella in that it picks up where those underlying policies cease making payments, but it is designed to pay claims in the same way that the underlying policies pay the claim.
Pressure on Umbrella Pricing Remains
The broader commercial insurance market may be experiencing increased capacity, but umbrella pricing remains strained. In some cases, $2 million or $3 million is replacing the traditional $5 million lead umbrella layer.
When unpacking this trend, Society Insurance, a mutual insurance company based in Wisconsin, pointed to third-party litigation funding and social inflation–both of which are increasing the severity of claims.
Data from Marathon Strategies shows that jury awards exceeding $10 million (and even $100 million) are becoming more common, with a 27% increase in nuclear verdicts from 2022 to 2023. And all the while, carrier capacity is being managed more conservatively, with many insurers reducing the limits they’re willing to offer.
How Underwriting Has Changed
Society Insurance reports that umbrella policy underwriting has become more selective and data driven. Carriers are placing greater scrutiny on loss history, safety protocols, and risk management practices, and insurers are deploying smaller, more targeted layers where multiple carriers participate–instead of offering large, single-layer limits.
