Commercial insurance buyers can expect hard market conditions to continue throughout 2021
For the first time, Insurance Marketplace Realities predicts that buyers across every line except one will see rates increase...
North American commercial insurance prices are expected to increase in every line except one, according to Willis Towers Watson’s 2021 Insurance Marketplace Realities report. Promisingly, the leading global advisory, broking and solutions company suggests that the insurance industry will adapt to the continuing hard market by utilizing analytics and data-driven tools to change the way both buyers and sellers approach the negotiating table when it comes to risk transfer.
The report, published today, points to several factors accentuating the current hard market, underscored by the significant withdrawal of capacity in response to systemic changes in risk exposures. These triggers include the surge in frequency and severity of natural catastrophes across the world, the persistent increase in man-made property damage losses and rise in severity for liability losses of all types attributed to “social inflation.” Further and unsurprisingly, the pandemic continues to hurt our populations and economies, exacerbating the hard market.
“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, 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 emphasizes the significant role analytics is playing across the industry, especially as organizations 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.”
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, now, 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 (new this issue), terrorism, product recall and alternative risk transfer — flat renewals are possible, though increases will persist for many buyers. In a handful of lines (e.g., 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.
According to the report, the property environment is full of challenges with expectations of hardening continuing into 2021; however, rate increases should begin to moderate by midyear 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,” said Peiser.
Workers compensation rate decreases are flattening, with slight increases now materializing in response to high severity/excess losses; workers compensation continues to be the casualty line of business with the most COVID-19 claim activity. Auto liability continues to be unprofitable for insurers as claim payments remain on the rise. “Insureds continue to experience rate increases and program restrictions,” said Peiser.
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 stabilization. In the cyber market, given the dramatic increase in ransomware incidents during the pandemic, organizations should be proactive in assessing their cyber resilience and demonstrate it to underwriters. “COVID-19 continues to impact the cyber market with capacity tightening and rates on the rise,” said Peiser.
“Every organization has been changed by the pandemic — some positively, many negatively,” said Peiser. “But as we look to the future, we are confident analytics, judgment and relationships will bring this difficult market to a new equilibrium — one that provides customers with protection from emerging risks and growing volatility and keeps the underwriting community relevant to world business. We may not see a precipitous return to soft pricing, but we will see moderation and perhaps some welcome sustainability — and increased relevance.”
Key price predictions for 2021
|Non-challenged occupancies||+15% to +25%|
|Challenged occupancies||+30% or more|
|General liability||+7.5% to +15%|
|Umbrella (high hazard)||+50% or more|
|Excess (high hazard)||+150% or more|
|Workers compensation||Flat to +4%|
|Auto||+8% to +15%|
|Directors’ and officers’ public company (primary)||+20% to +50%|
|Directors’ and officers’ private/not-for-profit (overall)||+10% to +50%|
|Errors and omissions (large law firms)||+10% to +20%|
|Errors and omissions (technology)||+10% to +15%|
|Employment practices liability (primary)||+10% to +30%|
|Fiduciary (overall)||+5% to +70% or more|
|+10% to +30%|
|Most risks||Flat to +20%|
|Terrorism and political violence|
|Flat to +5%|
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.