Current Trends in Public Entity Insurance Coverage and Challenges

The insurance market for public entities remains favorable, marked by significant competition and available capacity that drive opportunities for enhanced property coverage, as detailed in a report by Amwins. However, the casualty segment faces increasing pressures from nuclear verdicts, reviver statutes, and litigation funding, leading to rising loss costs. Proposed changes to FEMA's Public Assistance program could further challenge this segment by potentially limiting disaster aid and shifting financial burdens onto state and local governments.

According to Amwins, strong competition among carriers in the property sector continues, aided by healthy combined ratios and growth objectives. Despite this, the report cautions that a major catastrophic event, especially in high-risk areas like California, might rapidly alter market conditions. Presently, the favorable property rate environment allows public entities to extend coverage limits or reduce deductibles, reversing restrictions from the previous hard market phase. Entities are also exploring options such as enhanced terrorism limits and parametric products.

Shared and layered programs are increasingly in demand, prompting structural adjustments to optimize cost and coverage. Carriers are targeting middle-market segments, offering tailored solutions for entities like regional school districts. Technological advancements, including artificial intelligence, aid carriers in managing higher submission volumes efficiently, fostering competitive pricing and broader terms.

Stringent underwriting remains for accounts with significant catastrophe risks or poor loss histories, with carriers focusing on accurate property valuations and factors like roof age and construction type. The casualty market sees heightened scrutiny, resulting in fewer carriers for lead layers and reduced line sizes. Nuclear verdicts, especially in sectors like law enforcement and public transportation, continue to escalate costs. Third-party litigation funding adds to the financial unpredictability of claim settlements.

Amwins identifies reviver statutes as significantly impacting historical claims, with settlements like Los Angeles County's $4 billion payout for public services. Federal court filings are bypassing state tort caps by framing claims as constitutional rights violations. Underwriting for casualty accounts now heavily relies on recent loss experiences, affecting liability rates due to deteriorating trends.

Proposed FEMA reforms raising eligibility thresholds for Public Assistance are increasing interest in parametric insurance solutions, offering quicker, more flexible payouts. The parametric insurance market is anticipated to grow significantly in the next decade. In professional lines, cyber liability remains crucial, although broad rate hikes have yet to emerge. While underwriting standards stay consistent, demand remains stable, except in large pool risks, where the market is tightening.

Packaged carriers are reducing coverage limits on combined liability policies, leading to greater interest in standalone options offering competitive terms and pricing. This article was produced through collaboration with HCS Network Solutions, with no editorial influence from Risk & Insurance.