North American commercial insurance buyers can expect sizable 2020 rate increases for more lines than in recent years

Insurance Marketplace Realities report offers property & casualty analysis and rate forecasts for North American insurance buyers

Arlington, VA (Nov. 13, 2019) – North American commercial insurance buyers will face sizable price increases in 2020 across most lines of insurance, according to Willis Towers Watson’s 2020 Insurance Marketplace Realities. The report, published today, serves as a guide for North American insurance buyers preparing for upcoming insurance program renewals. While Willis Towers Watson reports that capacity is available in all but the most challenged lines, underwriters are showing unprecedented discipline in its deployment, especially for risks they find perilous.

Overall, with buyers sitting squarely in a seller’s market, 19 lines are expected to see price increases according to the report, with property, umbrella, and public company directors and officers (D&O) experiencing the most widespread hikes (20% and higher) and capacity withdrawals. Across two lines, international casualty and surety, the company expects price decreases. Six lines (fiduciary, environmental, marine, political risk, kidnap and ransom, and terrorism) will have a mix of both or flat renewals.

“We’re seeing the biggest upward price shift in years. We expect rate hikes and capacity constrictions will continue throughout 2020 and likely into 2021, but a more orderly market to emerge by mid-2020,” said Joe Peiser, global head of Broking, Willis Towers Watson. “Nevertheless, as the market seeks equilibrium, there are reasons for optimism: The alternative capital market is showing renewed enthusiasm for reinsurance; the overall industry has more capital than ever; insolvencies are a rarity; InsurTech is working with market participants to improve the client experience, and the laws of supply and demand still apply. This challenging market won’t last forever.”

Several factors account for the firming market. Persistently low interest rates have dampened insurer returns on their investment portfolios. Across commercial property, extreme catastrophic weather and wildfires since 2017 have had a direct impact on pricing, prompting conditions to harden with sustained escalation in rates. Over and above the company’s baseline property rate pricing predictions, a micro-hard market can be expected to produce increases of 50% to 100% and even up to 400% for challenged occupancies with poor losses and/or risk control deficiencies.

According to the report, the commercial liability market is worsening, with deteriorating loss trends that continue to negatively impact underwriting profitability, except in workers compensation, which remains stable. In fact, general liability predictions moved from the mixed category (increases and decreases approximately –5% to +5%) into single-digit increases for virtually all buyers.

Auto liability continues to be unprofitable for personal and commercial insurers as losses continue to climb due, in part, to economic growth — which has companies facing labor shortages relying on more inexperienced workers who have a higher rate of accidents, especially in trucking. A strong economy also means more vehicle traffic and accidents, particularly as distracted driving persists. The umbrella/excess liability market is experiencing significant disruption, especially for large company buyers.

Social inflation is another key factor driving rate increases in the liability marketplace. Companies continue to be held accountable for social ills, whether they were actors or bystanders, and today’s juries seem numb to monetary values. Fingers are also being pointed at D&O, underscored by a record number of shareholder class actions. Accordingly, D&O liability insurers have demonstrated discipline by raising rates and hedging bets by deploying much lower limits on any one risk.

In the cyber market, with ransomware incidents increasing dramatically across all industries in frequency and magnitude, including some high-profile breaches, we are starting to see an uptick in premiums and a cautious deployment of capacity across the global marketplace. Primary and excess cyber renewals are now averaging premium increases in the +5% to +10% range, though flat renewals should be possible for some.

Political risk, and kidnap and ransom both showed some softening since the company’s spring report. Political risk prices are expected to be flat (except for high-risk countries where prices may rise 10%). With global nationalism on the rise, U.S. businesses may come under scrutiny because of where they’re located. Rates for kidnap and ransom will be mixed –5% to +5%, as insurers continue to reduce exposure on cyber extortion events and adjust policy language pertaining to cyber events that could be considered part of a ransom scenario.

Key price predictions for 2020

Property

• Non cat-exposed risks: +5% to +15%
• Cat-exposed risks: +10% to +20%
• Cat-exposed with losses: +15% to +30% or more

Casualty

• General liability: +2.5% to +7.5%
• Umbrella: +12% to +20%
• Excess: +15% or more
• Workers compensation: –2% to +2%
• Auto: +6% to +12%
• International: –5% to flat

Executive risks

• Directors and officers public company (primary): +17.5% to +50% or more
• Directors and officers private/not-for-profit (overall): +5% to +35%
• Errors and omissions: +5% to +10%
• Employment practices liability: +5% to +15%
• Fiduciary: Flat to +7.5%

Cyber

• Flat to +10%

Political risk

• Most risks: Flat to +10%

Terrorism and political violence:

Environmental

• All lines: –5% to +15%

“There’s work to be done in the short run to avoid the worst of the rate hikes,” said Peiser. “Buyers should allot plenty of time to work with their advisers, provide robust risk information to potential risk takers, consider options across the global marketplace and take advantage of analytic tools. They should also continue to invest in risk control measures. The cheapest loss is the one avoided.”

Peiser adds, “In the long run, we urge risk professionals to keep an ear to the ground on the topic of climate risk, which may soon have an impact on the valuation of every business.”

The Insurance Marketplace Realities series is published in the fall and updated every spring. A copy of the full report can be accessed on the Willis Towers Watson website, along with a video message from Joe Peiser.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

SOURCE: Willis Towers Watson

Tags: market dynamics, Premium Renewal, Rate Change, Willis Towers WatsonRead the original article at Insurance-Canada.ca