Umbrella Loss Segmentation - Trends for Better Insights
Uncertainty around large loss trends can easily undermine an insurer’s confidence in its renewal books. It can cause one to wonder if rates are being evaluated accurately. That is just one reason why Gen Re’s Umbrella team conducts loss studies, drawing on our experience of nearly $9 billion in commercial umbrella claims. This perspective helps our clients keep up with their own examination around severity exposures and trends.
Our latest analysis involves a detailed review of the 3,686 claims reported to Gen Re between 1990 and 2014. This review allowed us to aggregate data, gain insights on longer developing losses and look for emerging trends.
We mined the loss data and then segmented loss experience to understand the various drivers of loss by risk characteristic. To start with, we segmented claims into three main categories: Auto, Premises/Operations and Products Liability.
The breakout reflects our total Commercial Umbrella book of business, from small business and specialty/niche to large national accounts. From this cut, we found that 70% of losses come from General Liability and 30% are from Auto Liability.
When we drilled further into General Liability claims, we found many emanate from larger risks with heavier products/completed operations or greater third party premises liability exposure.
Next we pulled out small and midsize commercial risks from the rest of the study sample, those segments our customer base typically targets. Small business segment characteristics included commercial package, standard business owner classes and risks typically with little to no auto. Those that fell into midsize risks included businesses with several locations, medium size contractors (larger than artisans but no heavy contracting), some products exposure and risks with slightly heavier vehicle types.
For the small risk segment, we found that Business Auto made up less than 20% premium but generated almost 50% of total losses. Auto even surpassed Premises Liability losses, the more common exposure that underwriters evaluate for these classes. It also showed that even for smaller Main Street businesses with hired employees and non-owned or very little exposure, Auto still has the potential to drive severity loss.
When we examined Auto by insured operation in the small risk book, we found that just four industry classifications made up 63% of total Auto losses, namely: Construction, Agriculture, Retail and Restaurant.
Large agricultural auto losses might surprise some carriers, but many serious claims came from high-speed accidents arising from pulling into and turning out of rural roads. It’s another example of how small businesses with few vehicles still have the potential to experience loss severity.
We hope broader findings like these, often unavailable in public data or even within one’s own portfolio, could help you identify severity trends within your own books. It may help you laser out a problem without disrupting more profitable renewals. On new business, it may help recognize more attractive risks or which business may need additional underwriting considerations.
We can help you analyze and manage your own umbrella book – just ask our dedicated Umbrella product team or your Gen Re representative.