From insurance tower challenges to evolving presumptions
Liability insurance tower challenges, human capital, and sustainability and regulations are among the most significant issues facing insurance professionals and risk managers this year.
That’s according to Sedgwick global chief brand officer Kimberley George, and Safety National vice president of client engagement Mark Walls.
At a recent Out Front Ideas webinar, the two named the top 20 issues that North American insurance workers and risk managers need to be paying attention to in 2024.
Five insurance and risk issues to keep an eye on in 2024
According to George and Walls, five key issues for insurance industry stakeholders and risk managers are:
- Liability insurance tower challenges
- Adverse reserve development
- Sustainability and regulations
- Human capital
- Evolving presumptions
Liability insurance tower challenges
The complexities associated with liability insurance towers are another issue that could spell higher costs for businesses and insurance carriers.
Employers are grappling with the difficulty and expense of obtaining sufficient coverage limits, especially in the face of rising awards, according to Walls.
The looming threat of bad-faith exposure poses an additional hurdle for insurance carriers.
“Failure to settle a claim within the primary insurance layer could lead to allegations of bad faith from higher reinsurance layers,” said Walls.
“This places carriers in a challenging position, caught between policyholders eager to go to trial and reinsurers poised for bad faith litigation in case of an unfavorable jury verdict.
“Brokers and policyholders may not always anticipate this bad faith exposure, contributing to a lack of understanding regarding the carrier’s reluctance to proceed to trial.
“While policyholders may only be exposed up to their policy attachment points, carriers face potential exposures well beyond their policy limits due to the looming threat of a bad faith lawsuit.”
Adverse reserve development
In the last few years, many carriers have released reserves from prior years in multiple lines of coverage. Amid higher commercial general liability and auto awards, elevated inflation rates, and nat cat losses, carriers may tap into more of their reserves this year.
“Awards continue to increase to record levels, well beyond what was anticipated when the coverage was underwritten,” George said, noting there continues to be a backlog of pending cases in the courts because of COVID shutdowns.
“As these cases work their way through the courts, will these trends of growing awards continue?” she asked.
The impact of climate change means that property carriers are seeing more extensive losses than before. Many have responded by increasing rates, but these increases are not keeping up with the losses that are developing, said George.
Finally, some carriers are experiencing adverse development on their workers’ compensation tail claims. This is due to a combination of rapidly increasing attendant care costs and the extended life expectancy of severely and catastrophically injured workers, according to George.
Thanks to medical advancements, individuals with severe injuries, initially projected to live 10 years or less, are now surviving 30-plus years, requiring continuous nursing and attendant care.
The convergence of higher tail costs with stabilization in frequency could have implications for workers’ compensation rates in the future.
“Risk managers and brokers should pay attention to the carrier earning calls,” George said.
“If they start to hear comments around the need to strengthen reserves in lines of coverage, this may be a signal that rates could increase, or the carrier might pull back from certain lines of coverage.”
Sustainability and regulation
For the last few years, environmental, social and governance or ESG issues have been an increasing area of focus for businesses. However, some of these issues have become highly politicized, especially in the United States.
Following the backlash, organizations have shifted to the umbrella term “sustainability” instead of ESG. Regardless, they face increasing regulation from state governments and agencies, as well as international bodies like the European Union.
These regulations are far-reaching and cover diverse issues like climate emissions, workforce and board demographics, and even investments, Walls said in the webinar. Ensuring compliance is, therefore, a mounting challenge.
“Employers are not only having to track all their data on these issues but also the data of their suppliers and business partners,” Walls said.
“Publicly traded companies have also faced shareholder lawsuits pertaining to these issues. State insurance regulators are putting carriers in the middle of political battles over climate issues. One state will try to restrict carriers from insuring are investing in fossil fuel companies, while other states will penalize insurers who refuse to insure such things.”
Employee retention, talent attraction, upskilling and reskilling workers, and the wave of retirements from the older generations are human capital issues that should be on the industry’s radar this year.
According to the December 2023 US jobs report, there are more job openings than job seekers. Despite this, navigating the jobs market remains tremendously challenging for both employers and skilled workers.
“It’s difficult to reconcile the data from the jobs report with the experience of people we know who are actively looking for jobs,” George said.
The insurance industry has adapted to labour challenges by emphasizing skills-based hiring, broadening its talent attraction strategies, and leveraging artificial intelligence (AI).
“We’re seeing intentional efforts to recruit veterans, stay-at-home parents returning to the workforce, people with disabilities, and high school graduates looking for a career where they can grow and develop,” George said.
“Companies are increasingly using artificial intelligence tools to assess competencies for their potential candidate pool. This provides companies with a view of candidate skills across open positions beyond what one may have applied for.”
This risk relates to workers’ compensation and legislation on presumptions for first responders. These laws used to cover diseases of the heart and lungs but have since broadened to cover many cancers.
The challenge with presumptions lies in the burden of proof on a claim.
“Instead of the injured worker needing to prove their illness is work-related, it is presumed work-related, unless rebutted,” Wallis said. “This is a very difficult hurdle for employers to overcome.”
More recently, presumptions around post-traumatic stress disorder (PTSD) have been evolving, which could lead to more complexity in workers’ comp.
Many states have expanded PTSD presumptions to include dispatchers and other occupations. Wallis said he sees more states pursuing similar legislation.
“One of the challenges of these PTSD presumption laws is that they created unequal outcomes for different workers exposed to the same incident,” he said.
“For example, the police or firefighters who responded to a workplace shooting would be eligible to file a claim for PTSD. However, the people working in the workplace where the shooting occurred could not. We are seeing a push in a number of states to make mental injuries compensable.”
If you missed the first two parts of this series on the most significant insurance and risk issues in 2024, check out part 1 and part 2.
What do you make of the five insurance and risk issues outlined in this story? Please share your perspective in the comments.
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