Spring 2021 McGriff Market Update:
Public Entities

Public entities continue to see overall rate increases through most lines of insurance. Due to the hard market conditions, carriers are limiting capacity while tightening underwriting guidelines and policy terms and conditions.

We’re also seeing more public entities agreeing to increased retentions and/or deductibles to meet budget constraints. As always, we’re optimistic that the insurance market is peaking and that we’ll see rates stabilize by the end of the year.

The extended hard market conditions have hit public entities harder than most segments.

Property rates, particularly in areas prone to wind and hail, have continued to rise, with no immediate relief expected. More traditional events like hurricanes and hail had their typical impact, while other less predictable black swan events, such as the February deep freeze in Texas, made matters worse. In the Property market, rate increases range from 5% to 30% depending on geographical location, loss history, rate history and exposure. Public entities with poor loss experience or elevated exposure, such as coastal marine, could see significantly higher rate increases.

Casualty rates continue to rise, with some coverages being particularly impacted by events such as social movements, civil unrest and high-profile court cases.

Workers’ Compensation underwriters are seeking 2% to 5% rate increases that could rise with public safety (police/fire) exposures and an increase in presumption laws for first responders.

Cyber coverage renewals are continuing their upward trend due to the increased frequency and severity of data breaches, with most rate increases at 10% or higher. While not long ago, $1 million in cyber coverage was considered sufficient for most, entities are now requesting $3 million or more in coverage to start.

Public Officials and Employment Practices coverages are also seeing increases and a tightening of policy terms and conditions. Underwriters are more likely to keep rate increases manageable for entities that are more engaged and proactive with their risk management programs. Among other loss control measures, this includes:

• Collecting and providing detailed COPE data
• Maintaining loss-control programs
• Multi-factor authentication (MFA) processes for computer logins
• Disaster response plans
• Business continuity plans
• Social media response plans

Lower limits and higher deductibles/retentions have become commonplace as public entities struggle to keep premium increases within their budgets. We’re also seeing an increased interest in more creative and strategic risk financing methods, such as parametric and aggregate stop-loss programs.

Entities that are part of risk pools have been somewhat insulated from large-market fluctuations. Yet now even those entities are seeing an impact, since many pools have been hit by widespread losses from their members as well as reinsurance issues.

Factors driving the hard market include Catastrophic (CAT) losses, inconsistent underwriter profits, mixed investment returns, market uncertainty, and the higher cost of reinsurance.

Additional factors include:

Natural Disasters

• 2020 was the fifth consecutive year with an above-average hurricane season
  • 30 named storms in the Atlantic in 2020
  • 13 of those storms developed into hurricanes; six were major and 12 hit the United States (five targeted Louisiana)
• Wildfires have increased in scope and size
• More tornadoes
• Extreme/severe weather (winter storms)

Economic Climate

• Low interest rate on investment income
• Business interruption caused by the pandemic
• Medical cost inflation
• Litigation
• Nuclear verdicts against insureds
• More class-action suits

Umbrella Effect               

• The increasing frequency and severity in Property, General Liability, and Auto claims is driving excess carriers to reduce capacity, restrict terms and conditions, and implement stricter underwriting guidelines
• Geographical locations impacting excess rates
• Rising costs with reinsurance carriers

Legislation and other factors

• Presumption Laws – pandemic and cancer
• Political uncertainty with leadership transition and new economic policies
• Social justice movements, cancel culture, and civil unrest
• Black Swan events (pandemic, power grid failure, ash cloud, supply chain disruptions)
• Discussion of qualified immunity reform for police officers
• Increase in frequency and severity of cyber attacks (Solar Winds, UTEP, Microsoft)