For Some Buyers, Commercial Insurance Market Is Going to Get Better, Easier: Willis

May 3, 2021

North American buyers of commercial property/casualty insurance can expect an “ever-so-slight turn for the better” and a “less difficult marketplace” in the months ahead.

However, global broker Willis Towers Watson’s 2021 Insurance Marketplace Realities report adds, buyers will continue to face rising prices across most lines of business for the remainder of 2021.

Willis says the increases are primarily due to “increasing severity of losses” that have been the main driver of the hard market.

While affirming the pressure on pricing, the broker also offers some positive news for buyers in the report:

Property increases are not as steep as predicted last fall. According to the report, increases are expected to be lower than predicted last fall for 10 lines of insurance and about the same as predicted for almost half the lines.

Only a handful of lines are expected to see higher increases — and some of those just slightly higher. The report conveys that the market has become more orderly and predictable, with rates approaching technical adequacy in some lines and sectors, as new capital has entered the marketplace.

“With higher rates attracting new entrants and coaxing some capacity to come off the sidelines, rate increases are beginning to decelerate, or at least stop climbing,” said Joe Peiser, global head of Broking, Willis Towers Watson. “It’s still a hard market, but to a large degree, the hard/soft market cycle is — or will soon be — proven again.”

The company sees that a two-tiered market has emerged — one for better risks, one for poorer ones — and anticipates each tier will pay more for insurance in 2021, but those in the better tier will suffer considerably less.

While there are wide variations by product line, good risks are finding ease of conditions, including more modest rate increases; others, not so much. Strict underwriting and cautious deployment of capacity on certain risks persist as the underwriting community grapples with systemic changes in the risk landscape.

“Because this hard market has been characterized by uncanny underwriting discipline, it’s important for insurance buyers to differentiate themselves into the good tier,” said Peiser. “Buyers and brokers should fight analytics with analytics to differentiate good risks from others in an insurer’s portfolio.”

As for specific lines, property rate increases, while high, offer what passes as a bright spot in the current marketplace: For non-challenged occupancies, predicted increases fell from +15% to +20% in the fall to +5% to +15% now; for challenged occupancies, the range improved from +30% or more to +20% or more.

The WTW outlooks for other lines:

  • General liability predictions remain at +7.5% to +15%. Casualty excess predictions are slightly less eye-popping than in the fall: from +150% or more for high-hazard buyers and +75% or more for low/moderate hazard buyers, to +100% or more for high-hazard and +50% or more for low/moderate.
  • Workers’ comp continues to offer a respite from big increases, with some buyers even coming away with flat renewals.
  • Auto rate increases remain plateaued at +8% to +15%.
  • Directors’ and officers’ liability increases are decelerating, from +20% to +50% for public companies and +10% to +50% for private/nonprofit organizations in the fall to +10% to +40% for public and +5% to +45% for private/nonprofit now.

“Risk differentiation always begins with a strong commitment to risk management. We strongly believe that providing exposure data that is both current and developed with rigor paves the way for better renewal outcomes. High-quality data are also a necessary,” added Peiser.

Topics Trends Commercial Lines Business Insurance Market

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