One of the most frequent questions I hear when meeting with clients is how much umbrella and excess liability insurance coverage they should carry. It’s a great question—and a difficult answer.
I’ve been in the Property Casualty insurance industry for nearly two decades and in my first ten years, I rarely saw claims get into the umbrella coverage. But in recent years, the increase in both the number and severity of umbrella claims has increased at an incredible rate.
More Money, More Problems
I won’t encourage you to do this because it will scare you but if you’re bored, Google nuclear verdicts. A nuclear verdict is any award over $10 million. Here are a few stats to consider:
- Nuclear verdicts rose 52% in 2024.
- Awards reached a total value of $31.3 billion in 2024.
- Since 2020, the number of nuclear verdicts has increased over 300%.
You might be saying to yourself, “Okay Jake, I see the scary numbers. But what led to such an increase?” It’s nuanced, but the two most prominent reasons are social inflation and third-party litigation funding.
Social inflation describes the rising cost of insurance claims due to changing public attitudes towards businesses and corporations and aggressive legal strategies that can result in larger verdicts and reputation damage. Third-party litigation funding transforms lawsuits into investment opportunities. Investors or hedge funds can provide money needed to pursue a lawsuit in return for a percentage of the damages awarded or settlement. Money could come from a hedge fund or wealthy individual
Coverage Considerations
So, it brings us back to the question: how much coverage is enough? There’s no right answer. Just this year, I’ve had a nine-figure demand, seven-figure demand, and a claim settle for eight figures. There’s no denying nuclear verdicts are on the rise, and it’s impacting businesses and insurance providers across industries.
When I talk about this with clients, we discuss a variety of factors including:
- Maximum possible loss
- Maximum probable loss
- Purchasing trends among industry peers
- Industry standards
- Contractual requirements
- State-level legal climate (plaintiff or defendant favorability)
- Punitive damages
We cover this and more depending on what they need to consider to protect their company and ensure we’re making strategic decisions that don’t harm the bottom line. It’s different for everyone, but diving into these items can be a good place to start.
Understand Your Umbrella Needs
While there’s no right or wrong answer to how much umbrella and excess coverage you should have, I still encourage business owners and leaders to make an educated decision. Some people are risk averse, and some are risk takers. But you can’t just blindly pick a limit and hope for the best.
Our team at Holmes Murphy understands the landscape and trends but more importantly, we care about your company just as much as you do. If you have questions about umbrella and excess coverage, reach out today and let us help.
