Why Is Umbrella Insurance Coverage More Expensive in 2025?

Umbrella insurance coverage is becoming more expensive in 2025. Many of the people buying Business Insurance in Frederick are wondering why. The answer lies in three key legal trends that are making it more difficult for insurance companies to offer high-limit umbrella policies. In this post, I’ll walk you through these trends and explain why they are driving up costs and reducing coverage options across the country.

An insurance agent holding the umbrella for their client

1. The Rise of Nuclear Lawsuits

A nuclear lawsuit is a case in which the settlement or payout exceeds $10 million or costs significantly more than the insurance company initially expected. This is a growing phenomenon in the legal landscape, and it’s having a major impact on how insurance companies assess risk and set premiums.

Insurance companies base their pricing models on past claims data. When unexpected multi-million-dollar payouts occur, these models are thrown off, making it much harder to predict future costs accurately. For example, if an insurance company initially estimates that a vehicle accident claim will cost $75,000 to settle but it ultimately results in a $4 million payout, that disrupts their financial projections.

As a result, insurers have three options:

• Increase premiums to account for the unpredictability.

• Impose stricter policy restrictions.

• Reduce the amount of coverage offered.

  
  

In many cases, when insurance companies lack confidence in their ability to predict future claims costs, they opt for the third option—offering less coverage.

2. The Growth of Third-Party Litigation Funding

Another major factor driving up the cost of umbrella insurance is third-party litigation funding. This is when outside companies invest in lawsuits by financing plaintiffs who may not otherwise be able to afford legal representation. In return, these funding companies receive a portion of the settlement or court award.

This trend has led to an increase in lawsuits, and because these funding companies have deep pockets, they are less likely to settle quickly. Instead, they push for higher payouts, which results in larger claims and more expensive settlements. As the cost of claims rises, insurers have to adjust by charging higher premiums and offering less coverage.

3. Judicial Hellholes

The third trend impacting umbrella insurance costs is the presence of judicial hellholes—court systems that are seen as particularly unfavorable to insurance companies and businesses defending themselves in lawsuits. These jurisdictions tend to have juries that award large settlements, making litigation riskier and more expensive for insurers.

Some of the jurisdictions frequently labeled as judicial hellholes include:

• Philadelphia

• New York

• South Carolina

• Georgia

• California

When insurance companies know they are more likely to face large payouts in these areas, they increase premiums or reduce coverage availability to mitigate their risks.

The Bottom Line

These three trends—nuclear lawsuits, third-party litigation funding, and judicial hellholes—are combining to create an environment where insurance companies are finding it increasingly difficult to offer high-limit umbrella policies. To compensate for the rising risks and unpredictability, insurers are:

• Raising premiums for umbrella coverage.

• Offering lower coverage limits.

• Being more selective about who qualifies for coverage.

  
  

If you’re a business owner or individual looking for umbrella insurance, it’s important to be aware of these factors and work with an experienced insurance professional to navigate the changing landscape.

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