Amid backdrop of consolidation, the commercial insurance market shows signs of firming as casualty losses mount
Commercial insurance buyers are facing upward pricing pressure across most lines of business in 2019, driven in part...
...by escalating losses in the casualty insurance market, while industry consolidation and technology advancements are creating new dynamics for insurance buyers to navigate, according to Willis Towers Watson’s (NASDAQ: WLTW) 2019 Insurance Marketplace Realities. The report, published today, serves as a guide for North American insurance buyers preparing for upcoming insurance program renewals.
The seemingly “stealth” firming within the casualty market comes as many observers have been focused on the property market given the record natural catastrophe losses of 2017 and 2018, the report noted. Willis Towers Watson experts predict that auto liability premiums will continue to rise for the third consecutive year. In 2019, auto rates are expected to increase between 6% and 12%, as the sector tries to overcome deteriorating loss costs. The loss costs are driven in part by improving economic conditions, which are pushing more vehicles onto the road — resulting in an uptick in frequency of auto claims while a volatile legal environment has made those claims more costly to manage. Elsewhere in the casualty market, pricing for general liability, umbrella and excess liability coverage is expected to rise in the low- to mid-single digits as the market is hit by significant catastrophic liability stemming from a range of hazards, including California wildfires, the opioid epidemic, #MeToo litigation and relaxed standards for class action certification. Workers compensation and international casualty coverage are two notable exceptions to rising prices in the casualty market; both lines forecast to be soft.
In the property market, Hurricanes Florence and Michael will produce short-term disruption, but will not be significant market moving events. The report credits abundant capacity and availability of alternative capital for keeping rates relatively stable for most buyers. However, following the recent spate of natural catastrophes, underwriters are taking a more critical look at exposures and “right sizing” their portfolios to increase profitability. Pricing for non-catastrophe-exposed programs is expected to be flat to +2.5%; catastrophe-exposed programs are likely to face increases of 2.5% to 7.5%, and catastrophe-exposed programs with heavy losses could face price increases of 10% or higher.
The marketplace also presents challenges for long-term care and senior living facilities, where prices continue to harden due in part to a rising frequency and severity of claims. Some carriers have exited the market due to adverse underwriting performance. Here, renewals are expected to increase 5% to 30%.
In the cyberinsurance market, where global ransomware and extortion claims continue to dominate the headlines, large-account buyers are facing roughly 5% increases for both primary and excess cover. Insurers have tightened pricing and retention guidelines for companies that have not addressed cybersecurity vulnerabilities; however, the market continues to evolve to cover regulatory risk, reputational damage and other gap exposures.
Other potentially challenging lines of business include employment practices liability, where shifting views on corporate accountability are putting upward pressure on rates. Rates are predicted to range between flat to +5% overall, while California accounts could see price increases of 5% to 10%, and media entertainment accounts — where many of the recent high-profile losses have occurred — could face increases as high as 30%. In the directors and officers liability market many renewals are likely to see pricing range between flat and +5% as insurers monitor claim trends and more carefully deploy capacity. In the environmental market additional hardening is expected as a high frequency and severity of loss are seen across all classes of business, especially for indoor air quality exposures.
Beyond firming market conditions, the other notable trend expected to impact risk transfer strategies for buyers in 2019 is the resurgence of mergers and acquisitions (M&A) across the industry as insurance carriers pursue inorganic growth, new technology platforms and talent, according to the report. “So far, recent M&A has not had a material impact on rates and capacity, but it is reducing the number of competitors in the field. Given the capital fluidity that is the industry’s new normal, we don’t foresee a dramatic impact on rates but do expect consolidations will result in more underwriting discipline, which may serve as a backstop against another free fall in rates,” said Joe Peiser, head of North America broking, in introductory comments. “Another important consideration for buyers confronting new carrier combinations is a potential change in an insurer’s claim handling philosophy and the strictness with which policy language is enforced,” he noted.
Key price predictions for 2019
|Non cat-exposed risks||Flat to +5%|
|Cat-exposed risks||+2.5% to +7.5%|
|Cat-exposed with losses||+10% or more|
|General liability||Flat to +4%|
|Umbrella||Flat to +6%|
|Excess||Flat to +2%|
|Workers compensation||–4% to flat|
|Auto||+6% to +12%|
|International||–10% to –5%|
|Directors and officers||Flat to +7.5%|
|Errors and omissions||Flat to +5%|
|Employment practices liability||Flat to +5%; +5% to +10% in California; +15% to +30% for media/entertainment|
|Fiduciary||–5% to +5%|
|–3% to +5%|
|Tier 1 and non-tier 1||Flat|
|All lines||Flat to +15%|
“Navigating this changing and dynamic marketplace demands a strategic approach, and buyers facing renewals should focus on creating submissions using distinguishing data and narratives to set themselves apart from their peers,” said Peiser, noting that Willis Towers Watson will be working closely with clients and carrier partners to achieve the best possible outcome for insurance buyers in the current environment.
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.