What to Expect for Commercial Insurance Pricing for 2018: WTW’s Marketplace Realities

November 20, 2017

Commercial insurance buyers should brace for rate increases for 2018 as the industry continues to tally losses following one of the most financially disruptive hurricane seasons in history, according to global insurance advisor Willis Towers Watson.

According to WTW’s 2018 Marketplace Realities report, underwriters will be pushing for rate increases as they reconcile what is expected to be a significant earnings hit for many, and a potentially material capital hit for some. For underwriters needing to dip into capital to fund their losses, the pressure to raise rates to replenish that capital could be unyielding. For buyers, this may mean the long soft market for commercial property insurance could be over, at least temporarily. There may be upward pressure on rates in other lines of insurance, according to the report.

Joseph C. Peiser, head of Broking for Willis Towers Watson North America, urged organizations to begin preparing now for changing market conditions.

“Now is the time for organizations to catalog the positive differentiators in their risk profile to set themselves apart from the pack at renewal time,” he said. He also recommended that insureds “define their risk tolerances so they know where their ceiling is” if rates and retentions spike.

In the property market, where insured losses from recent catastrophes are expected to exceed $100 billion, WTW experts expect “some type of market correction” after insurers have a chance to estimate their ultimate losses. However, the pricing impact to buyers will likely not manifest until the first or second quarter of next year. While there is still a high degree of uncertainty, rates are forecast to potentially rise 10 percent to 20 percent for catastrophe-exposed risks, and 20 percent to 25 percent for catastrophe-exposed risks, with recent losses. Other property insurance buyers can expect flat rates or low single-digit increases.

Meanwhile, according to the report, several factors could dampen the upward pressure on rates, including still-abundant capacity and what experts view as “still eager” alternative capital providers.

Casualty rates, which had begun to drift downward for many organizations, are predicted to be flat or increase by small amounts as pressure from the catastrophe losses spills over into other lines. Auto rates for businesses will maintain their single-digit increases, while workers’ compensation rates are expected to be stable. For product recall, WTW experts predict rates to range from -5 percent to +5 percent.

The report anticipates many specialty insurance lines of business will “follow their own supply and demand curve.” For example, the directors and officers (D&O) liability marketplace outlook is “not as soft,” as underwriters are mindful of potentially adverse D&O claims activity and looking for ways to avoid compounding the year-over-year impact of declining rate. For terrorism insurance, buyers should expect flat renewals rather than the decreases they have seen in recent renewals. Meanwhile, in the environmental insurance market, the high double-digit increases for combined environmental-casualty programs have begun to ease.

In the cyber liability insurance market, demand continues to rise and supply of capacity is “more than keeping up,” according to the report. Despite a string of high-profile breaches, cyber insurance program renewals for primary and excess cover are averaging only single-digit rate increases. Underwriters have offered premium decreases to organizations that can demonstrate increased levels of security and internal policy controls. The report forecasts rate increases of up to 5 percent for 2018.

Key price predictions for 2018, according to the report:

Property

  • Non-cat risks: Flat to +5%
  • Cat-exposed risks: +10% to +20%
  • Cat-exposed with losses: +20% to +25%

Casualty

  • General liability: Flat to +3%
  • Umbrella: Flat to +3%
  • Excess: Flat
  • Workers’ comp: -2% to +2%
  • Auto: +3% to +8%
  • International: -10% to -5%;
  • -5% to flat for Defense Base Act coverage

Executive Risks

  • Directors and officers: -7% to flat
  • Errors and omissions: Flat to +5% (good loss experience)
  • Employment practice liability: Flat to +5%; +5% to +15% in California
  • Fiduciary: -5% to +5% (flat to +12% for large concentrations of stock in benefit plans

Marine

  • Cargo, Hull: Flat to +10%
  • Liability: -5% to +10%

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Insurance Journal West November 20, 2017
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