New excess casualty facility signals industry effort to curb social inflation, Lockton executives say

By Mia MacGregor

July 21 - (The Insurer) - As social inflation persists, the insurance industry is seeking new solutions, and the recent launch of a major excess casualty facility may mark the first significant attempt at structural change in years, according to Lockton executives Vince Gaffigan and Peter Rapciewicz.

The new facility launched by Chubb, Zurich and National Indemnity offers up to $100 million in limits using claims-made coverage instead of traditional occurrence forms, marking a potential turning point in how carriers respond to rising third-party liability costs and mounting loss trends.

“The industry has a problem when it comes to third-party liability. Social inflation has been cooking along for well over a decade,” said Gaffigan, U.S. market strategy and engagement group leader at Lockton, in an interview with The Insurer.

“Carriers have responded by tightening risk selection, increasing attachment points, raising rates and pulling back on terms and conditions, but none of it is really having an impact or slowing the growth and loss rates.”

Claims-made policies, which cover claims reported during the policy period rather than those occurring during that time, may help carriers address long-tail exposures that have challenged the industry, Gaffigan noted.

“With legal theories evolving, claims related to sexual abuse, asbestos, opioids or PFAS can emerge years later and impact earlier policy periods, risks that were never anticipated or priced for,” he said.

Rapciewicz, Lockton’s alternative risk solutions practice leader, said the facility may address a significant gap for clients seeking the first $25 million to $50 million in excess capacity.

“This actually kind of solves that problem a little bit,” he said, adding that collaboration between major carriers may signal a broader industry trend.

However, contractual obligations remain a barrier to wider adoption, as many insurance buyers are required to purchase occurrence-based coverage.

“A lot of insurance buyers are handcuffed by contractual obligations, which typically push for occurrence coverage,” Rapciewicz said.

Both executives emphasized that it is too early to determine whether claims-made policies will become the industry norm, but education will be critical.

“Educating our clients, and the industry, on the differences between claims-made and occurrence coverage is something that’s definitely going to need to be done,” Rapciewicz said.

Gaffigan cautioned against reduced market competition as carriers collaborate on new solutions. “I get nervous when we talk about markets partnering up to impose a solution on the industry, because you’re taking some free-market competition out of it,” he said.

Underlying drivers of social inflation, including well-funded plaintiff attorneys, third-party litigation funding and shifting juror attitudes, remain unchanged.

"You have got a well-funded, well-organized plaintiff bar. You have got third-party litigation funding that is becoming a huge business in and of itself, you've got jurors who think very differently about social justice and what's fair," Gaffigan said.

“Until you can impact those factors and slow down the rate of loss growth, the industry will have to impose some solutions,” he added.

The executives stressed the broader economic stakes. “Insurance fuels business. If it’s unaffordable or clients can’t get sufficient limits, it’s a problem for the broader economy,” Gaffigan said.

Despite ongoing challenges, both leaders see innovation as a positive sign. “I love the fact that there’s some sign of innovation. I think there’s more to come,” Gaffigan concluded.

A recent TransRe report suggested that moving to claims-made coverage could be one way to reduce the lingering impact of unpredictable liability claims.

The reinsurer argued that such policies give insurers and reinsurers greater flexibility to respond more quickly to changing market conditions, and encouraged wider industry adoption of this approach.

“To improve long-term industry results, the changeover requires traction and we encourage every carrier and broker to support this initiative,” the report stated.