Rising claim frequency and severity have generated hardening conditions across the general liability insurance segment in recent years, prompting ongoing rate increases, stringent underwriting standards and limited capacity. Fortunately, carriers experienced slightly better underwriting results in 2022-23, paving the way for rate deceleration.
In other words, although rates have continued to increase during this time frame, they have done so at a slower pace than in previous years. According to industry data, average premium increases hovered between 6% and 7% during most of 2022; throughout 2023, such rate hikes remained between 4% and 5%.
Nonetheless, several concerning trends across the segment—including rising litigation concerns, increasing medical expenses, and heightened risks related to per- and polyfluoroalkyl substances (PFAS)—still have the potential to threaten claim costs and negatively impact overall market performance. As such, policyholders can anticipate another year of modest premium increases in 2024.
Renewal results will likely depend on policyholders’ unique exposures, class and loss history. Additionally, insureds who operate in sectors with elevated liability risks (e.g., real estate, construction, manufacturing, retail and hospitality) may be vulnerable to larger rate hikes, more restrictive underwriting standards and difficulties obtaining higher coverage limits.
2024 Price Prediction: +1% to +10%
Developments and Trends to Watch
As the United States becomes an increasingly litigious society and social inflation drives up the frequency and severity of insurance claims, businesses face a growing number of lawsuits following liability incidents (actual or alleged) and, in turn, greater penalties from such legal action. Multiple factors influence rising litigation and social inflation issues within the liability market, including additional attorney advertising, TPLF and nuclear verdicts. In particular, attorney advertising has grown progressively more widespread, spanning various mediums (e.g., television, print and social media) and highlighting opportunities to take legal action in a range of scenarios—thus promoting further litigation against businesses. According to the American Tort Reform Association, attorneys collectively spend up to $250 million creating and dispersing more than 3.5 million local legal advertisements each quarter.
Furthermore, industry experts are projecting the global TPLF industry—which permits third parties to invest in lawsuits by financing attorneys or their clients in exchange for a portion of any resulting settlements—to reach $30 billion by 2028, presenting more avenues for litigation against businesses. In fact, industry research confirmed that attorneys are already experiencing internal rates of return of at least 25% on their TPLF investments. In addition to attorney advertising and TPLF, nuclear verdicts are on the rise, particularly in the case of class action lawsuits. According to independent public relations firm Marathon Strategies, the five years leading up to the COVID-19 pandemic saw the total sum and median of nuclear verdicts increase by 178% and 41%, respectively. Although these numbers decreased in 2020 due to pandemic-related court closures, they skyrocketed in the following years; the average nuclear verdict nearly doubled from $21.5 million in 2020 to $41.1 million in 2022, while the sum of these verdicts jumped from $4.9 billion to $18.3 billion in the same time frame. Altogether, increased litigation, rising verdicts and surging social inflation issues have largely contributed to elevated general liability insurance claim costs. In some cases, such litigation has posed underinsurance concerns for businesses, leaving them with coverage gaps and substantial out-of-pocket expenses amid associated claims.
Increased medical expenses
Coverage for medical costs stemming from third-party injuries is one of the most critical components of general liability insurance. Consequently, surging medical expenses have compounded claim costs in the segment throughout the past few decades, with no end in sight. According to the BLS, the total value of medical care has jumped by 115.1% since 2000. Medical inflation is tied to several different factors, including increased drug costs, elevated treatment expenses due to advancements in medical technology and evolving care methods, and rising wages among health care workers. Specifically, the BLS found that prices for prescription drugs, outpatient care and hospital services increased by 3.1%, 5.7.% and 4.2%, respectively, over the previous 12 months. However, it’s worth noting that inflation among overall goods and services began exceeding medical inflation in 2023, evidenced by monthly consumer and producer price index data from the BLS. This is a rare occurrence, as medical care and health spending generally outpace growth across the rest of the economy. Regardless, surging medical expenses will likely continue playing a major role in elevated general liability insurance claim costs in 2024 and beyond.
PFAS consist of a large grouping of over 7,000 chemicals that have been widely manufactured and distributed across the United States since the 1940s. Because PFAS don’t break down easily within the environment or the human body, these substances are also known as “forever chemicals.” PFAS can be present in various products, including food packaging, nonstick cookware, household cleaners, firefighting agents, textiles, furniture and auto parts. Over the past few years, PFAS have been the subject of increased scrutiny stemming from recent developments regarding the health and safety of these substances and their environmental impacts. Namely, PFAS have been linked to several health conditions, including certain cancers and immune dysfunction. As more information regarding the risks of PFAS comes to light, regulatory issues involving these substances have ensued.
Although two main types of PFAS (i.e., perfluorooctanoic acid and perfluorooctane sulfonate) have already faced regulatory action—resulting in these substances no longer being manufactured in the United States since 2015 and 2002, respectively—the federal government recently implemented multiple efforts to limit PFAS usage and exposure in the coming years and beyond. Such efforts include creating national water quality standards related to PFAS contamination, designating certain PFAS as hazardous substances, enhancing PFAS reporting requirements, limiting PFAS discharge from industrial sources, and conducting and publishing toxicity assessments for various PFAS. Apart from federal legislation, 15 states currently have standards restricting PFAS contamination within soil and groundwater. Additionally, New York and New Jersey have already listed PFAS as hazardous substances within their regulatory regimes.
This legislation has contributed to a rise in litigation and subsequent liability concerns for businesses that are found responsible for causing PFAS contamination amid their operations. For instance, multiple manufacturers have faced lawsuits due to their operations resulting in contaminated soil or drinking water and allegedly leading to health complications for individuals located near their worksites. While recent PFAS litigation has been directed primarily at manufacturers, it’s certainly possible that businesses across additional industries could encounter lawsuits related to the use of these substances in their products and packaging, prompting liability claims and associated losses. What’s worse, many carriers have begun excluding coverage for PFAS-related losses from their general liability policies. As regulatory pressures and litigation concerns related to such chemicals press on, businesses that manufacture PFAS, sell products containing these substances or utilize packaging with PFAS may experience elevated liability exposures. Further, businesses facing PFAS-related incidents could be more susceptible to coverage exclusions and out-of-pocket losses.
Tips for Insurance Buyers
- Work with risk management experts to educate yourself on key market changes affecting your rates and how to respond using loss control measures.
- Ensure your establishment has measures in place to reduce the likelihood of customer or visitor injuries (e.g., maintaining safe walking surfaces and promoting proper housekeeping).
- Create workplace policies and procedures aimed at minimizing PFAS exposures. Consult legal counsel to ensure compliance with applicable PFAS legislation.
- Examine your general liability coverage with trusted insurance professionals to ensure your policy limits match your insurance needs.