Umbrella and Excess Market Update: Reinsurance, Large Settlements Driving Up Cost – IA Magazine

The Umbrella and Excess Liability Market at a Glance

Commercial umbrella insurance provides liability limits above underlying policies such as commercial general liability, employer’s liability and commercial auto. Excess liability coverage may serve a similar purpose, although a pure excess policy generally follows the wording of a specified underlying policy rather than offering the potentially broader protection associated with a true umbrella form.

These policies protect against severe claims that exhaust primary limits. A company might carry a $1 million commercial auto liability policy, a $1 million general liability policy and a $10 million umbrella above both. Large organizations often build towers containing several excess layers, with different insurers participating at different heights.

The market has become particularly demanding in the lead umbrella and lower excess layers. Those layers are the first to respond after primary limits are exhausted, so they are more likely to absorb a major auto accident, product liability judgment or premises liability settlement. Higher layers may face less frequent losses, but one thermonuclear verdict can still travel through an insurance tower like an elevator with no working brakes.

Marsh reported that risk-adjusted umbrella and excess liability rates rose 19% in the fourth quarter of 2025. Lead umbrella programs with favorable loss histories generally experienced increases of 12% to 15%, while less favorable risks could face increases of 30% or more. Some insurers also limited their participation to a maximum of $10 million per risk because of adverse litigation developments.

WTW likewise reported that excess and umbrella liability continued to produce the largest commercial insurance price increases during late 2025, even as pricing in several other commercial lines began to stabilize.

Why Reinsurance Costs Matter

Insurance companies rarely keep every dollar of a major liability exposure on their own balance sheets. They purchase reinsurance to transfer part of the risk to other insurers. Reinsurance can protect an insurer from individual large losses, an accumulation of claims or adverse development across an entire portfolio.

When reinsurers become concerned about U.S. casualty trends, primary carriers feel the pressure. A reinsurer may demand higher pricing, require the insurer to retain more risk, tighten treaty terms or reduce the amount of capacity offered. The primary carrier then has several choices, none of which involves finding loose change under the office sofa. It can raise premiums, reduce limits, increase attachment points, restrict coverage or withdraw from difficult classes.

Aon’s midyear 2025 reinsurance analysis described excess casualty pricing as remaining at historically high levels. Insurers were continuing to deploy capacity carefully and tighten terms, while reinsurers focused on prior-year loss development, nuclear verdicts and emerging casualty catastrophe risk. Capacity was available, but results depended heavily on the insurer’s performance and loss experience.

Broad reinsurance capacity can therefore coexist with an expensive umbrella market. Reinsurers may have capital to deploy while remaining reluctant to support underpriced U.S. casualty portfolios. S&P Global Ratings described January 2025 reinsurance renewals as orderly and well supplied, but casualty reinsurers continued to emphasize pricing adequacy and underwriting discipline. Fitch also warned that liability portfolios remained vulnerable to adverse reserve development caused by prolonged social inflation.

Capacity Is Not the Same as Appetite

A carrier can technically have available capital without wanting to place $25 million above a trucking company with a difficult loss history. Appetite depends on the class of business, fleet composition, geographic footprint, attachment point, claims record and quality of the insured’s risk controls.

Gallagher reported that carriers were willing to offer additional capacity for some best-in-class risks, but remained selective and demanded more detailed information for large umbrella and excess towers.

This creates a divided market. A well-managed manufacturer with limited auto exposure, stable operations and favorable loss development may receive several competing quotes. A large fleet, habitational property portfolio, hospitality business or organization with abuse-related exposures may need numerous carriers to complete the same total limit.

Large Settlements Are Rewriting the Pricing Model

Large jury awards receive the headlines, but settlements also influence the cost of umbrella insurance. Insurers price policies using expected loss frequency and severity. When comparable claims begin settling for $5 million instead of $2 million, open claims must be reevaluated, reserves may need to rise and future pricing assumptions must change.

IA Magazine’s original market analysis noted that increasing settlements were driving loss costs upward and requiring insurers to raise rates. It also explained that early demands and shortened response periods could reduce the time available for discovery, factual analysis and the development of a strong defense.

A settlement does not have to reach a courtroom to affect the market. Plaintiff attorneys study verdicts and recently resolved cases. A highly publicized award can become an anchor in negotiations involving other claims. Once expectations move upward, insurers may pay more to avoid the possibility of an even larger jury result.

This dynamic is especially important for umbrella carriers. A primary insurer may control the initial defense, but an excess insurer’s money is increasingly at risk as damages approach the primary limit. That can create disagreements about litigation strategy, settlement timing and whether a claim should be resolved before it pierces the excess tower.

Nuclear Verdicts and Social Inflation

A nuclear verdict is commonly defined as a jury award of at least $10 million. A thermonuclear verdict generally refers to an award of $100 million or more. These labels sound as though they belong in an action movie, but their effect on casualty insurance budgets is painfully real.

Research from the U.S. Chamber of Commerce Institute for Legal Reform identified 1,288 nuclear verdicts between 2013 and 2022. California, Florida, New York and Texas accounted for approximately half of the verdicts studied. The median product liability nuclear verdict increased from $24 million in 2013 to $36 million in 2022.

A separate market analysis cited by Risk Placement Services found that nuclear verdict cases increased 27% in 2023, reaching a 15-year high. The median award in that dataset reached $44 million, with 27 cases exceeding $100 million. Because studies use different court records and methodologies, their figures should not be treated as identical measures. They nevertheless point in the same direction: severe liability outcomes are becoming more difficult to predict and finance.

Social inflation is broader than jury awards. The term describes liability claim costs rising faster than ordinary economic inflation because of factors such as litigation funding, expanding theories of liability, changing jury attitudes, attorney advertising, larger noneconomic damage awards and more aggressive settlement tactics.

A 2025 analysis from the Insurance Information Institute and Casualty Actuarial Society estimated that economic inflation, legal system abuse and related litigation trends added between $231.6 billion and $281.2 billion to liability losses and defense expenses over the previous decade. The research found that severity, rather than an increase in claim counts, was the dominant driver. Commercial auto and other liability lines were among the most heavily affected.

For umbrella underwriters, severity is the issue that keeps the office lights on late. A primary policy can absorb ordinary claims. Umbrella insurance is designed for extraordinary claims, precisely where social inflation has its largest financial impact.

Commercial Auto Remains the Main Pressure Point

Commercial auto exposure often determines whether an umbrella renewal will be merely challenging or genuinely unpleasant. Large fleets create numerous opportunities for severe bodily injury claims, while heavy vehicles can produce catastrophic damage in a single accident.

Underwriters now examine vehicle type, fleet radius, driver turnover, motor vehicle records, telematics, distracted-driving controls, maintenance procedures and post-accident response plans. A fleet described only as “carefully managed” will not impress anyone. Insurers want evidence.

CRC Group reported that carriers have become reluctant to participate in lower excess layers for risks with substantial auto exposure. Some insurers may offer a $15 million lead umbrella for smaller fleets, while larger fleets may be limited to $10 million or even $5 million. Insurers can also require an auto liability attachment of $3 million, $5 million or $10 million, forcing the insured to purchase an additional buffer layer before the umbrella begins.

That change has two consequences. First, the insured pays for more underlying coverage. Second, the umbrella tower may require more participating carriers because each insurer is willing to deploy a smaller limit.

Industries Facing the Toughest Renewals

Market conditions vary significantly by account, but several classes receive particularly close scrutiny:

• Trucking and transportation: Large fleets, heavy vehicles and serious bodily injury potential can produce expensive primary and excess placements.
• Construction: Height exposure, subcontractor risk, completed operations claims and contractual requirements can create complex towers.
• Habitational real estate: Security claims, fires, falls, negligent maintenance allegations and assault-related losses can restrict capacity.
• Hospitality: Liquor liability, security exposure, hired and non-owned autos and high customer traffic increase claim potential.
• Healthcare and human services: Long-tail allegations, vulnerable populations and abuse-related claims can lead to severe restrictions or exclusions.
• Products and life sciences: A single alleged defect may affect many claimants and trigger aggregation concerns.

Amwins reported that traditional package insurers were reducing umbrella limits or withdrawing from some difficult human-services risks, requiring layered excess programs and specialized excess and surplus lines capacity. The firm also identified rising settlement values, litigation funding and class-specific restrictions as continuing concerns heading into 2026.

How Underwriting Is Changing

The modern umbrella submission is no longer a short application attached to a few loss runs. Underwriters increasingly request detailed exposure information, explanations of historical losses and proof that corrective actions were completed.

Higher Attachment Points

Carriers may require higher primary limits before offering umbrella coverage. A business previously carrying $1 million in commercial auto liability may need a $2 million primary limit plus a separate buffer layer before the lead umbrella attaches.

Smaller Limits Per Carrier

Where one carrier previously offered $25 million, it may now provide $5 million or $10 million. Completing a $50 million tower can therefore involve multiple insurers, policy forms and negotiations.

More Restrictive Terms

Insurers may add exclusions or sublimits involving abuse and molestation, assault and battery, wildfire, perfluoroalkyl substances, biometric privacy, opioids, communicable disease or particular products. Brokers must review how exclusions in one layer interact with the rest of the tower.

Greater Focus on Claims Development

Liability claims can take years to mature. Verisk reported that only about 19% of the estimated ultimate indemnity for general liability claims occurring in the first half of 2025 had been reported by the end of that period, compared with an average of 28% for comparable periods between 2016 and 2019. Slower emergence makes it harder to judge recent underwriting performance and encourages carriers to remain cautious.

What Businesses Can Do Before Renewal

An insured cannot control jury behavior or global reinsurance pricing, but it can improve how its risk is presented. The renewal process should begin at least four to six months before expiration for complex accounts.

• Provide currently valued loss runs and detailed explanations of every major claim.
• Document corrective measures rather than promising that a problem “will be addressed.”
• Prepare accurate vehicle, payroll, sales and location data.
• Show the results of driver screening, telematics, safety training and maintenance programs.
• Review contracts for indemnification, insurance requirements and additional insured obligations.
• Model several tower structures, attachment points and retention options.
• Consider whether alternative risk financing could reduce dependence on the traditional market.

A clear submission helps underwriters distinguish a well-managed business from the average account in its industry. That distinction matters because current market outcomes are highly individualized. Competition exists for desirable risks, while challenging accounts may face reduced capacity regardless of how many insurers are technically active in the market.

Composite Renewal Experience: What the Market Feels Like in Practice

The following example is a composite scenario based on common umbrella and excess renewal situations. It is not a description of one specific insured.

Consider a regional distributor operating 65 delivery trucks across five states. The company carries $1 million in commercial auto liability and a $20 million umbrella program. Its overall claims frequency is manageable, but one accident involving a pedestrian remains open with a reserve approaching the primary limit.

At the previous renewal, a single carrier supplied the first $10 million of umbrella coverage. Another carrier placed $10 million above it. The placement was not cheap, but it was straightforward. Twelve months later, the same program suddenly looks like a puzzle designed by someone who dislikes both brokers and sleep.

The incumbent lead insurer reviews the open pedestrian claim and decides it will offer only $5 million. It also requires the auto coverage to attach at $3 million rather than $1 million. The distributor must now purchase a $2 million auto buffer before reaching the umbrella layer.

A second insurer is willing to participate, but only after receiving five years of driver turnover statistics, telematics reports, motor vehicle record procedures and a written explanation of the company’s accident-response protocol. The application originally described the safety program in three cheerful sentences. The revised submission runs more than 40 pages.

The company’s broker approaches additional markets. One declines because more than 20% of the fleet operates in high-severity venues. Another offers $5 million but excludes a coverage feature provided by the lead policy. A third proposes a competitive premium at the $15 million attachment point, where insurers perceive less immediate exposure to the open claim.

The final tower looks very different from the prior year. The insured purchases a $2 million auto buffer, followed by a $5 million lead umbrella, another $5 million layer and a final $10 million excess layer. Three insurers now provide coverage that previously required two.

The premium increase is substantial, but the process also reveals opportunities. Telematics data shows that harsh-braking incidents are concentrated among newly hired drivers during their first 90 days. The distributor adds supervised route training, revises driver incentives and begins quarterly reviews with its safety vendor.

At the next renewal, the large claim is still developing, but the company can demonstrate measurable improvement. Harsh-braking events are down, driver turnover has stabilized and every serious incident now triggers a documented management review within 24 hours. The risk has not become perfectno fleet risk ever doesbut it has become easier to understand.

This experience illustrates an important feature of the umbrella market: pricing is influenced by more than historical losses. Underwriters also evaluate uncertainty. Incomplete data, unexplained claims and vague safety controls force insurers to assume unfavorable possibilities. Detailed information narrows that uncertainty and can attract more competition.

It also shows why starting early matters. A layered program requires each carrier to review the underlying terms, attachment point and exclusions. A delay in one layer can affect every insurer above it. Waiting until two weeks before expiration turns an already difficult process into a professional fire drill.

Finally, the scenario demonstrates that the least expensive quote is not automatically the best outcome. An exclusion in the lead layer may flow through the entire tower. A financially weak insurer can create long-term uncertainty. A policy with unclear follow-form language may produce disputes precisely when a major claim reaches the excess limits. Price matters, but claims coordination, wording and carrier quality matter when the demand letter contains more zeros than anyone would prefer.

Outlook for the Umbrella and Excess Market

The broader commercial insurance market has gained capacity in several lines, but umbrella and excess casualty remain firm. Reinsurance supply should prevent a complete shortage of coverage for most ordinary risks. However, insurers are expected to continue protecting lower layers, reducing individual line sizes and demanding stronger pricing for commercial auto and other severity-prone exposures.

Brown & Brown’s 2026 outlook described the personal umbrella market as firm because of litigation severity, social inflation and auto-related catastrophic claims. Although personal and commercial placements differ, the common pressure is unmistakable: liability limits are becoming more valuable at the same time insurers are becoming more selective about providing them.

Large settlements will remain a central pricing factor. Reinsurance negotiations will continue to influence carrier appetite. Tort reforms in several states may eventually moderate losses, but their effects will take time to emerge through court decisions and actuarial data.

For insurance agents and buyers, the winning strategy is not to wait for an easy market. It is to create a better submission, begin negotiations early, test alternative structures and treat the umbrella tower as a core financial protection rather than a last-minute certificate requirement.