Consolidation changes the shape of the risk management puzzle

Commercial insurance rates will further soften while industry consolidation will present challenges to insurance buyers in 2016, predicts Willis in its 2016 Marketplace Realities report.

Consolidation among some of the largest insurance carriers is altering the marketplace and insurance buyers, while still enjoying a buyer’s market, will face new choices and the strong possibility that more consolidation and marketplace transformation lies ahead, the broker said.

Meanwhile, primary casualty rates are falling for most buyers for the first time in the current soft market. Property rates will continue to fall, according to Willis experts, though slightly less steeply because they have fallen for several renewal cycles and do not have much room to drop further.

Relatively benign losses and an oversupply of capacity from traditional and non-traditional sources are fuelling current marketplace conditions. In casualty lines, rates are predicted to fall up to 5 percent for general liability, up to 10 percent for umbrella/excess, and see a mix of low single-digit increases or decreases for workers’ compensation (with the exception of certain states such as California, where rates are expected to rise by up to 10 percent).

Property rates are predicted to fall by 10 to 12.5 percent for non-catastrophe exposed risks and even more, 12.5 to 15 percent, for catastrophe-exposed risks.

The main exception to the overall trend is in cyber and E&O insurance, where the steadily growing threat of cyber intrusion and data theft is sending rates upwards—as much as 150 percent for retailers with POS (point-of-sale) exposures.

Matt Keeping, chief broking officer, Willis North America, said: “Marketplace forces have changed the size and shape of the pieces in the risk management puzzle to an extent we have not seen for some time. The key force driving this change in the market is consolidation.

“In the short run, consolidation shrinks the market. As two companies become one, the marketplace offers one less piece with which to solve the puzzle of an insurance programme.

“But a smaller market with fewer, larger players also opens up the field to new comers that can focus on smaller, specialis ed niches in areas of potential growth. So consolidation often yields its opposite by thinning the competition and encouraging the emergence of new puzzle pieces.”