Jury awards have been catapulting upward. Between 1994 and 2000, product liability awards increased nearly 300 percent, and jury awards in premises liability cases more than doubled.  What is driving these exorbitant increases? And what does it mean for excess casualty insurers, insureds and brokers?

The average costs for a person who is critically injured in an auto accident are $1.1 million. One in ten businesses recently surveyed has suffered a liability loss of $5 million or more. Numerous factors are fueling these skyrocketing damages, most notably a sophisticated, well financed plaintiffs bar, double-digit medical inflation, rampant class actions, and failed tort reform. Juries today, desensitized to the value of the dollar, dole out multimillion dollar awards against companies large and small with unprecedented ease and regularity.

"The rapid rise in the frequency and severity of large losses has changed the liability landscape entirely. Every business, whatever its size needs to reevaluate the amount of limits it purchases in light of the potential exposures that it faces," says John Doyle, President of American Home Assurance Company, a member company of American International Group, Inc. (AIG) and the nation's leading provider of excess casualty protection.

Confronting dramatically increased exposure, today's excess liability market is changing-and so are the standards by which brokers and insureds should judge their excess liability carriers.

Market Reactions

Excess casualty insurers are changing the way they underwrite and price policies to better reflect the realities of commercial liability exposures. Rates have more than doubled over the past year, and they will continue to rise significantly. Given the long-tail nature of liability claims, pricing must anticipate the cost of claims that will not be settled for several years.

In many cases attachment points are being adjusted upwards as well. Generally speaking, in a world where a multimillion-dollar jury award is commonplace, excess underwriters are looking at attachment points and pricing in order to provide true catastrophic protection.