Sizable rate hikes for North American commercial insurance buyers
North American commercial insurance buyers will face sizable price increases in 2020 across most lines of insurance, according to insurance brokerage and advisory company Willis Towers Watson's 2020 Insurance Marketplace Realities report.
The report 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, it said 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 percent 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,” said Joe Peiser, global head of broking, Willis Towers Watson. “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. 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, said Willis Towers Watson. 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 percent to 100 percent and even up to 400 percent for challenged occupancies with poor losses and/or risk control deficiencies,” said Willis Towers Watson.
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.
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 labour shortages relying on more inexperienced workers who have a higher rate of accidents, especially in trucking.
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,” said Willis Towers Watson.
In the cyber market, with ransomware incidents increasing dramatically across all industries in frequency and magnitude, including some high-profile breaches, Willis Towers Watson said they are starting to see an uptick in premiums and a cautious deployment of capacity across the global marketplace.
Political risk, and kidnap and ransom both showed some softening since the company's spring report.
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