Hard market to continue across all commercial lines throughout 2021: WTW
A new report by broker Willis Towers Watson predicts that the US commercial insurance prices across every line except one will increase and the hard market conditions will continue throughout 2021.
WTW's 2021 Insurance Marketplace Realities report found that the COVID-19 pandemic will continue to hurt the economies, exacerbating the hard market.
Willis said the insurance industry is expected to adapt to the continuing hard market by utilising analytics and data-driven tools to change the way both buyers and sellers approach the negotiating table when it comes to risk transfer.
For most lines, rate increases predicted in 2021 surpass those forecasted last spring. In the few cases where rate reductions were considered possible last spring, the best outcome buyers can hope for is flat renewals — with the exception of kidnap and ransom.
Across some lines, such as workers compensation, life sciences, terrorism, product recall and alternative risk transfer, flat renewals are possible, though increases will persist for many buyers.
Willis added that in a handful of lines, such as aerospace, environmental, marine, trade credit, personal, rate predictions were no worse than in the spring. In every other line, higher increases are expected in 2021.
“We have to look back to the defining hard market crisis of the mid-1980s to see market conditions of the proportions we are currently experiencing — one of double- and triple-digit rate increases in most lines of business and dramatically reduced capacity in key lines,” said Joe Peiser, global head of broking at Willis Towers Watson.
“However, our experience in this hard market is that there is a wide range of results; renewal results are not huddled around the mean. This means underwriters are underwriting, and there is the opportunity to differentiate your risk.”
The report emphasised the significant role analytics is playing across the industry, especially as organisations demand to know the value insurance brings.
“Insureds are finding that risk analytics provide the insights they need to measure this value and set insurance priorities,” said Peiser. “Analytics can also make our industry more relevant to global business leaders, as we advise them on the sources of volatility to their bottom line, backed up by credible analytics.”
According to the report, the property environment will be full of challenges with expectations of hardening continuing into 2021. However, rate increases should begin to moderate by mid-year barring another major insured catastrophe.
“Catastrophe losses and continued attritional losses amid uncertainty surrounding COVID-19 are just a few factors contributing to the sustained rate pressure buyers are experiencing,” said Peiser.
The commercial liability marketplace remains hard because of various factors continuing to negatively affect loss trends and underwriting profitability. This especially holds true for the umbrella/excess liability marketplace, which continues to experience extensive disruption.
“The casualty marketplace presents a range of challenges, and utilization of analytics remains an important tool for navigating these challenges,” Peiser added.
The broker said workers compensation rate decreases are flattening, with slight increases now materialising in response to high severity/excess losses. Auto liability continues to be unprofitable for insurers as claim payments remain on the rise.
Meanwhile, directors’ and officers’ (D&O) liability will continue to see upward pressure well into 2021, but new start-up insurers targeting D&O could lead to some market stabilisation.
In the cyber market, given the dramatic increase in ransomware incidents during the pandemic, organisations need to be proactive in assessing their cyber resilience and demonstrate it to underwriters, WTW said.
“COVID-19 continues to impact the cyber market with capacity tightening and rates on the rise,” Peiser noted.
Peiser said going forward "analytics, judgment and relationships will bring this difficult market to a new equilibrium," adding that "we may not see a precipitous return to soft pricing, but we will see moderation and perhaps some welcome sustainability — and increased relevance".
