Staying Ahead of the Curve: Avoiding “Boatsinkers” in the Casualty Market

After years of turbulence, the property insurance market is finally stabilizing—bringing welcome premium decreases for many Affordable Housing owners. But just as one storm clears, another rolls in: the Casualty insurance market is tightening.

Affordable Housing owners typically spend about 70-90% of their insurance premium on the property line and the remainder on the casualty lines. General Liability (and Excess Liability) policies are often an afterthought since they constitute a small percentage of the overall insurance cost. Ignoring this can be expensive.

Uncovered liability claims are a serious threat to any portfolio's long-term viability. You might refer to an uncovered large liability incident as a “boatsinker.” Avoiding catastrophic claims is in the best interest of the entire Affordable Housing community.

Casualty insurance includes General Liability, Umbrella/Excess Liability, and other coverages that protect against third-party allegations. The casualty market is starting to show signs of hardening, with reduced capacity, more restrictive coverage terms, and increased rates. It seems we are Back to the Future, with General Liability coverage for habitational risks echoing the hard property market of the last 5-7 years.

What's Driving the Casualty Market Tightening?

This market shift is driven by a combination of rising litigation costs, nuclear verdicts, (both of which translate to higher claims costs for insurers), social inflation, and heightened scrutiny around specific hot-button exposures.

  • Increased Litigation and “Nuclear” Verdicts: Courts across the country are awarding larger settlements, particularly in cases involving bodily injury or perceived negligence. This has led insurers to reassess their risk appetite, increase premiums, restrict coverage, or deny coverage completely.
  • Social Inflation: Social Inflation is the rising costs of claims due to societal trends, such as increased sympathy for plaintiffs and a growing distrust of corporations or ownership entities.
  • Underwriting Focus on “Hotspot” Exposures: Insurers are zeroing in on specific risks that have historically led to high-cost claims. These include:
    • Assault and Battery: Claims stemming from violent interactions or security measures alleged to be inadequate.
    • Animal Liability: Dog bites and other pet-related incidents, especially in communities with limited pet policies or enforcement.
    • Abuse and Molestation: Incidents of physical or sexual abuse leading to allegations of inadequate safeguarding conditions offered by the owner or property manager.
    • Slips, Trips, and Falls: A perennial concern, especially in aging properties or those with deferred maintenance.

Regional Differences: Sample of CAHEC's Markets

The impact of these trends varies by region. In the following sample of CAHEC's markets, there are notable differences in how insurers are responding:

  • North Carolina: North Carolina has seen moderate increases in Casualty premiums, but many insurers are still offering adequate capacity to meet investor requirements. However, underwriters are placing more emphasis on site inspections and loss control measures. Properties (or entire portfolios) with above-average loss history will feel the strain regardless of location.
  • Georgia and South Carolina: Historically, a more litigious environment has led to higher premiums and stricter underwriting. Any insurance premium relief stemming from recent tort reform legislation in Georgia will be gradual, as insurers cautiously assess the legislation's impact on claims costs. Carriers are particularly cautious about properties in urban areas with higher crime scores. Crime scores are aggregated and can feel punitive when they do not align with an individual property's loss history.
  • Virginia and Tennessee: These states are experiencing a mixed casualty market. While some carriers are still offering plentiful capacity and reasonable terms, others are restricting coverage, for example by adding exclusions for high-risk exposures like Assault and Battery.
  • Alabama and Mississippi: These markets are seeing some of the steepest increases in Casualty rates (in addition to Georgia and South Carolina), driven by both legal trends and claims frequency.

What Affordable Housing Owners Can Do Now

In this evolving landscape, Affordable Housing stakeholders must be proactive. Here are a few key steps to consider:

  1. Review Your Coverage Carefully: Ensure your General Liability and Umbrella policies include adequate limits and do not exclude critical exposures like Assault and Battery or Abuse and Molestation.
  2. Engage in Risk Mitigation: Implement or enhance security measures, enforce pet policies, and maintain common areas to reduce the likelihood of claims. Encourage onsite property managers to practice “care, compassion, and concern” when managing any sensitive incidents.
  3. Data is King: From resident correspondence to maintenance logs, thorough documentation can be a powerful defense in the event of a claim.
  4. Stay Informed: Insurance markets are cyclical and can change rapidly. Today's difficult challenges may soon be obsolete. Regularly reviewing your program and staying up to date on regional trends can help you stay ahead of potential issues.

Looking Ahead

While the Casualty market is always presenting new challenges, it also offers an opportunity for Affordable Housing providers to proactively avoid “boatsinkers” by strengthening their risk management practices and building more resilient insurance programs. By staying vigilant and informed, owners and developers can navigate this shifting landscape with confidence.

David Robinson

Scott Insurance

Affordable Housing Practice
Risk Advisor

Luke Massei

Scott Insurance

Affordable Housing Practice
Risk Advisor