The Unexpected Link Between Poverty, Opioids, and Rising Personal Umbrella Claim Severity

The Surge in Personal Umbrella Claims

Insurers have observed a significant increase in the cost of personal umbrella claims before the start of 2020, according to a recent analysis by Gen Re. The reinsurer anticipates that such claims will continue to rise as we recover from the COVID-19 pandemic. Personal umbrella insurance is designed to cover liability costs that exceed the limits of the policyholder's homeowners or auto policies.

The Unexpected Predictors of Claim Severity

Gen Re has identified several unexpected factors contributing to the rise in claim severity, including increases in the annual poverty rate, opioid prescription rates, fatal accidents, brain injuries, attorney representation, and injuries involving a fatality and multiple claimants. Other notable predictors linked with higher claims severity include laws permitting recreational marijuana and a lack of motorcycle helmet laws. These findings suggest that 'social inflation' – a term used to describe growth in liability risks and costs related to litigation trends – is not only affecting commercial lines but also making inroads into personal lines.

Implications and Recommendations

The findings from Gen Re's analysis will facilitate deeper client interaction on this line of business. For insurers, understanding these predictors can help in better risk assessment and pricing strategies. For policyholders, it is crucial to review their coverage regularly and consider the potential impact of these social and economic factors on their liability risks. As we navigate through the post-pandemic world, staying informed about these trends can help in making more informed insurance decisions.