General Liability Insurance Outlook 2024

The general liability insurance sector, facing increased claim severity, witnessed a deceleration in rate hikes in 2022-23. Challenges persist, including litigation concerns, medical expenses, and PFAS-related liabilities. Modest premium increases are expected in 2024.

In recent years, the general liability insurance segment has witnessed a surge in claim frequency and severity, leading to a challenging environment characterized by hardening conditions. This trend has necessitated ongoing rate increases, stringent underwriting standards, and limited capacity within the industry. Fortunately, 2022-23 slightly improved underwriting results, paving the way for a deceleration in rate increases.

While rates have continued to rise during this period, the increase has been slower than in previous years. Industry data indicates that average premium increases were around 4 per cent and 5 per cent throughout 2023. However, despite this moderation, several trends in the segment remain, including escalating litigation concerns, rising medical expenses, and heightened risks associated with per- and poly-fluoroalkyl substances (PFAS).

Looking ahead to 2024, policyholders can expect another year of modest premium increases. Renewal results are likely to be influenced by individual exposures, classes, and loss histories. Businesses operating in sectors with elevated liability risks, including real estate, construction, manufacturing, retail, and hospitality, may face more extensive rate hikes, more restrictive underwriting standards, and challenges in obtaining higher coverage limits.

Litigation Concerns

Despite this relatively positive trend, several concerning dynamics persist in the segment, potentially threatening claim costs and overall market performance. Among these trends are rising litigation concerns fueled by an increasingly litigious society in the United States. Contributing factors include widespread attorney advertising across various media, third-party litigation funding (TPLF) reaching an estimated $30 billion by 2028, and the surge in nuclear verdicts, particularly in class action lawsuits. This heightened litigation environment has significantly increased general liability insurance claim costs.

Increased Medical Expenses

Another critical factor impacting the industry is the surge in medical expenses related to third-party injuries. Medical costs, a key component of general liability insurance, have increased by 115.1 per cent since 2000. Factors such as increased drug costs, advancements in medical technology, and rising wages among healthcare workers contribute to the ongoing escalation of medical expenses. Despite a rare occurrence in 2023 where inflation among overall goods and services exceeded medical inflation, the outlook suggests that surging medical expenses will continue to play a significant role in general liability insurance claim costs in 2024 and beyond.

PFAS Exposures

PFAS, which includes over 7,000 chemicals, has been linked to health issues and environmental concerns. Regulatory actions at federal and state levels, including efforts to limit PFAS usage and exposure, have increased business litigation and liability concerns. Many insurance carriers exclude coverage for PFAS-related losses, leaving businesses vulnerable to coverage gaps and substantial out-of-pocket expenses.

Looking ahead to 2024, policyholders can anticipate another year of modest premium increases, with renewal results influenced by unique exposures, class, and loss history. Businesses operating in sectors with heightened liability risks, such as real estate, construction, manufacturing, retail, and hospitality, may face more extensive rate hikes and restrictive underwriting standards.

When navigating this complex landscape, insurance buyers should collaborate with risk management experts, implementing measures to reduce injury risks and establishing policies to minimize PFAS exposures. Additionally, they should regularly review general liability coverage with trusted insurance professionals to align policy limits with evolving insurance needs. Adaptability and vigilance will be essential for businesses seeking to navigate the changing dynamics of the general liability insurance market.