Liability Insurance

No let-up for corporations and complex risks

The market for liability insurance continues to harden. Insurers’ rising premium demands are more modest than in the previous year. The general inflation rate and rising loss expenses are not only being cited by insurers as reasons behind their demands for premium increases, but are also leading to even gloomier worst-case scenarios for companies. They are having to ask themselves whether the amounts insured under their liability policies are still suitably high enough to cover the liability scenarios for potential disasters relevant to them. Willingness to engage in dialogue is therefore more important than ever.

Market situation

According to the latest figures published by the German Insurance Association, GDV, the liability insurance line is still seen as attractive by the insurance industry. Last year, private individuals and companies in Germany spent EUR 8.3bn on liability insurance. GDV expects premium income to increase by 3.5 per cent, forecasting a combined ratio of 84 per cent for insurers.

Yet, in industrial liability insurance in particular, the picture is different. The market for liability insurance is still hardening, manifesting itself in different ways from one company to the next. The impact of a hardening market is will be felt less by industrial companies in the middle or upper-middle markets where many insurers are looking to grow their business.

In general, premium increases are more modest than in the previous year. However, companies in risk-exposed industries or with complex risks (e.g. automotive suppliers, chemical and pharmaceutical industries, medical device manufacturers and companies with high US risk) are still facing more demands for premium increases and higher deductibles/retentions. They are feeling the impact of the reduced capacities of some insurers.

Where insurers seek to use the inflationary environment to justify premium increases, customers and brokers should jointly request concrete, risk-specific reasons based on an individual underwriting process. However, general inflation and rising loss expenses are not the only reasons cited by insurers for premium increases – they also frequently mean gloomier worst-case scenarios for companies.

This year, too, there is particular focus on US risks and developments in the United States. Various major losses and automotive liability claims in the USA have led to more cautious underwriting behaviour on the part of insurers for companies with extensive US risk.

The reasons cited include social inflation (as distinct from general economic inflation), and litigation funding.

“Social inflation” describes the increase in insurance benefits (in the US) as a result of various social factors independent of general economic inflation. These include an increasing claims mentality, enhanced use of social media and social developments that influence jury members and can result in high damages awards by juries (“nuclear verdicts”).

In view of rising loss expenses and taking into account potential losses from natural disasters, companies must therefore also ask themselves whether the level of their liability insurance cover is still appropriate.


Sustainable action and early risk dialogue put companies in better negotiating positions

Insurers are now focusing more on technical underwriting and will be scrutinising companies more closely in future. In addition, ESG criteria are increasingly influencing insurers’ underwriting behaviour. A particular focus is being placed on green strategies and all other aspects of sustainability. Companies good at positioning themselves in this area will therefore also be in a better negotiating position.

Well-prepared risk data and timely risk dialogue in the renewal process are very important, especially in the case of complex risks.

The consequences of the war in Ukraine are also evident in the liability insurance line. Insurers are reviewing their position on risks in Belarus, Ukraine and Russia and are increasingly confronting companies with restrictions on insurance coverage for such risks.

The significance of cyber risks means that the markets are also increasingly seeing a need for regulation in terms of the specific demarcation between liability insurance and cyber insurance (“silent cyber”, “affirmative cyber”). In co-operation with customers and brokers, it is therefore vital that a coherent overall concept be negotiated for customers to ensure seamless insurance coverage for a number lines. This applies to financial losses in particular. In practice, however, restrictions cannot always be avoided. In cyber policies in particular, they are not yet being adequately compensated for. A solution using Tech E&O insurance is currently (still) difficult due to the cautious underwriting behaviour described above.

Key figures in 2022

Liability Insurance
+3.5% compared
with 2021
63 %
loss ratio
+2.0% compared
with 2021
84 %
combined ratio

Source: GDV, projection among GDV member companies

Market trends

Modest market hardening continues

As a result of general inflation and rising loss expenses, the current trend towards a modest hardening of the market will continue for premiums and terms in the industrial liability line, in particular where risks are complex. In some cases, insurers’ results are still burdened in the wake a more prolonged period of lower premiums and increased claims.

As a result of various court cases worldwide, the exclusion of some of the risks relating to PFAs (perfluoroalkoxy polymers) is a current point of discussion for some companies, especially in the chemical sector. PFAs, a group of around 4,700 synthetic chemicals, are used in many industries and applications, including in various household products or fire-fighting foam.

But other industries are also having to prepare for changes: on 1st August 2022, the “Gesetz zur Neuregelung des Berufsrechts der anwaltlichen und steuerberatenden Berufsausübungsgesellschaften sowie zur Änderung weiterer Vorschriften im Bereich der rechtsberatenden Berufe” (German Act on the Reorganisation of the Professional Law of Lawyers and Tax Consultants and on the Amendment of Other Regulations in the Area of the Legal Professions) came into force. The main purpose of this act is to reform the professional regulations for companies that lawyers, patent attorneys and tax advisors are allowed to form in order to practise their profession. However, such reform may also have an impact on insurance cover. This is because, depending on the company form, much higher insurance amounts are required for professional liability insurance.