Hub's Murphy warns of widening relevance gap in casualty sector

By Mia MacGregor

March 7 - (The Insurer) - Insurers must work to close the "relevance gap" in the casualty sector, according to Carol Murphy, executive vice president and North American casualty practice leader at Hub International.

Speaking on a panel about modelling and reserving for current and future risks at the Zywave 2025 Casualty Insights Conference, Murphy described the relevance gap as “all those things that happen in the world that aren't insured".

She highlighted that mental injury is one emerging risk that should not be overlooked.

“Now, post-traumatic stress is so prevalent, and with the rise of violent events and incidents, think about all the witnesses to those events and the experience they have with post-traumatic stress. That’s not covered by traditional policies if they aren't physically injured.”

Murphy called for innovation in insurance products, emphasising that solutions should go beyond issues like addictive software or harm to children from social media.

“There are myriad other opportunities for addressing mental health risks in our society,” she said. “There are real solutions for customers in our industry facing risks, and it’s up to all of us to make sure we don’t widen the relevance gap in insurance.”

Murphy also emphasised the need for insurers to rethink their approach.

"Every time something impacts our customers, if we’re automatically excluding something like communicable diseases without fully assessing the risk, in my opinion, that should be a covered excess liability," she said.

“If It’s unusual and infrequent, like the pandemic, we need to find new solutions so we don't shrink the applicability of our industry in response to what’s happening in the world.”

Robert Reville, senior director at Moody’s, echoed Murphy's sentiments and highlighted per- and polyfluoroalkyl substances (PFAS) as another emerging risk that is often overlooked.

“PFAS are still in massive production and used in all kinds of industries, like semiconductor manufacturing and lithium production, both of which have seen huge increases in the U.S.,” he said.

While these industries haven't seen notable claims, Reville emphasised that coverage is still necessary.

“Even though these industries haven’t had major claims, they still need coverage. It should be available, either on a main peril, claims-made or integrated occurrence basis. It should be offered and available to industries using these critical chemicals,” he added.

Shannon Totten, executive vice president and head of retail excess casualty insurance for North America at Sompo International, underscored the importance of considering multiple factors when evaluating emerging risks.

“You have to layer in different factors. For example, if you look at trends on platforms like Twitter or consider where advertising dollars are being spent, you should also look at the political environment and how these factors influence agendas. Issues like microplastics may be on the rise, and these are things insurers need to be thinking about,” she said.

Murphy emphasised that understanding the risk possibilities is key.

“It’s about understanding that these risks exist and considering the probabilities. That’s what we aim to do with modelling – focus not just on peer benchmarks but on the probabilities for each specific part or client.”

“Capital-free risks are often opaque, and while brokers have done original, customised placements for distinct risks, the challenge is scaling them in an environment with customers facing different magnitudes, geographies and litigation challenges. It's about understanding the dynamics of risk,” she explained.

Reville noted that the legal environment is also evolving, creating additional challenges for insurers.

“We’re in an environment now where capital is supporting the plaintiffs' bar, and they have figured out how to manage large-scale, complex litigation over several years. This results in more insurers’ portfolios being subject to long-latency and correlated claims.”

“This is a very different environment from what we’ve historically experienced. Twenty years ago, emerging risks might have made up 10% of insurance portfolios; today, it’s more like 30-40%.”

As emerging risks become a larger part of insurers' portfolios, Reville cautioned against relying solely on experience-based pricing and reserving models.

“I think that the industry has to move toward more a mix of experience and exposure based ways to price, reserve, underwrite and, in a way, structure their products as well,” he said.