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U.S. Commercial Insurance Prices to Firm in 2013: Marsh

Rates for commercial lines insurance will continue to rise in 2013, thanks to above average losses, low investment returns and receding reserve releases. However, according to a report by Marsh, traditional signs of a conventional hard market have yet to occur.

Casualty insurance markets remain in a state of transition entering 2013, Marsh said in its “US Insurance Market Report 2013.” Rates for financial and professional insurance — including directors and officers liability (D&O), commercial errors and omissions (E&O), and cyber insurance — are expected to generally increase in 2013.

Fallout from Superstorm Sandy, one of the costliest storms in U.S. history, will likely temper what had been a generally improving rate environment for property insurance buyers in late 2012, Marsh said.

Underwriters are now seeking “clarification of certain definitions and other language in property policies” said David Bidmead, Marsh’s U.S. CEO. “In the Northeast and other regions that they did not previously perceive to be catastrophe-exposed, property insurers are also reconsidering their underwriting approach and seeking higher rates and tighter terms and conditions,” he said.

Marsh’s annual report provides information on commercial insurance market trends and risk issues. Major findings include:

• Insureds with significant catastrophe exposures renewing programs in fourth quarter 2012 typically saw property rate increases of 5 percent to 15 percent.
• The general liability insurance market was generally stable in 2012, with some moderate firming.
• Workers’ compensation rates generally renewed in the range of 5 percent decreases to 5 percent increases in the fourth quarter, with rates generally expected to increase more in 2013.
• The D&O insurance market entered a state of transition in the second quarter of 2012. Pricing at renewal in the fourth quarter was typically flat to up 10 percent for publicly traded companies, and flat to up 15 percent for private companies. Rate increases are likely in 2013.

An increase in frequency and severity of claims drove commercial E&O and cyber insurance rates upward in 2012. Rates for both lines were flat to up 5 percent in the fourth quarter and are expected to continue rising in 2013.

Pricing in the political risk market increased in some Middle East and North Africa countries at the end of 2012; this is likely to continue in 2013. Conditions in the U.S. trade credit insurance market are expected to continue to favor insureds.