Businesses Do Not Have Proper Coverage for Rising Liability Losses, Says Chubb
An annual report from Chubb has revealed a couple of troubling trends for many businesses—the frequency and severity of large losses are up and companies are underestimating the amount of liability coverage they need.
“The delta between liability loss-cost trend and median limits purchased continues to widen at an alarming pace,” said the insurer.
In fact, according to Chubb’s 16th annual Liability Limit Benchmark & Large Loss Profile by Industry Sector 2024 Report, the median insurance limits purchased by 9 out of 10 industries profiled are lower than median limits purchased a decade ago. In the healthcare sector, for example, median limits in 2023 were nearly 32% lower than in 2014. In construction, limits purchased in 2023 were 44% lower than 2014.
Meanwhile, businesses face new and evolving risks such as technology and science advancements, forever chemicals, climate change, and the legal environment—including the rise in third-party litigation funding—a market valued at more than $18 billion in 2022 with expectations to grow thanks to a 30-40% return on state and federal litigation funding investments.
Chubb pointed to the rise in so-called nuclear verdicts of $10 million or more as juries award high punitive damages in cases. This trend has helped to steadily increased loss costs for each industry, widening the insurance coverage gap. In the oil and gas industry, loss costs eclipsed $1.2 billion in 2023 but the median liability limit purchased was just under $500 million. Loss costs in the chemical industry approached $1.2 billion in 2023 but the sector’s median limit was just $350 million.
“The increase in elevated liability-related loss costs is driven by a number of factors, including a rise in litigation funding and a perception in society today that the system, including big business, is rigged against everyday people,” said Seth Gillston, head of North America Industry Practices for Chubb. “Companies that underestimate the severity of liability losses may face financial, brand, and long-term stock price impacts.”
The insurer said many organizations have looked to mitigate the risk with insurance but many states restrict the purchase of insurance for punitive damages. However, there are risk transfer solutions available such as standalone policies issued outside of the U.S. called a punitive damage wrap policy, Chubb said.
Related: Chubb’s Greenberg: Start Questioning the Societal Benefits of Litigation Funding