The pricing declines enjoyed by most buyers for several renewal cycles are beginning to slow down, raising the likelihood that companies will experience some price increases in various commercial lines of insurance in the coming year, according to a report published by Willis Towers Watson.
The report, titled “Marketplace Realities 2016, Spring Update, Bringing the Pieces Together,” provides a 2016 marketplace forecast for North American insurance buyers.
“At the macro-level, the market remains stable and pricing is still considered soft, but we may be starting to see the bottom end of that softening,” said Matt Keeping, head of broking for North America, Willis Towers Watson.
“In property, for example, there’s only so much the marketplace can give back. And while we remain in a period thankfully free of huge mega-disasters, losses line by line have taken their toll on marketplace competition. Plus, with interest rates low, insurance companies remain under revenue pressure,” Keeping added.
In a section on property rates, the Willis Towers Watson report predicted these prices will fall for most buyers – but they may see single-digit decreases. Last year, they might have gotten double digit reductions, said the report.
Property rates are expected to decline 7.5 percent to 10.0 percent for companies, without great exposure to natural disasters, and 10.0 percent to 12.5 percent for those buyers with greater exposures, the report added.
General liability rates for the remainder of 2016 are expected to be down -5% to flat. However, buyers with recent claims can expect increases of 5 percent to 10 percent, the report revealed.
Workers compensation costs are expected to remain steady, with most buyers getting small increases or decreases, the report said. On the other hand, auto liability rates are rising as much as 10 percent because of an increase in loss frequency and severity, which is leading many insurers to reevaluate their appetite or even exit the class of business.
The cyber insurance marketplace is increasingly fragmented, the report noted. “Cyber renewals are seeing primary premium increases of 5 percent to 15 percent for most buyers, and 15 percent to 30 percent for point-of-sale retailers and large health care companies with no losses.”
Middle-market firms can expect a very competitive marketplace with aggressive pricing and broad policy language, said the report, explaining that smaller companies tend to hold fewer personal records than their Fortune 1000 counterparts, making the potential losses less severe.
“Meanwhile, underwriting requirements continue to tighten as carriers seek to understand the culture of an organization and how data privacy is embraced across many operational functions.”
In executive risk lines, buyers will continue to find a mix of modest increases and decreases, the Willis Towers Watson’s report went on to say.
Moving to health care and employee benefits, it noted that benefit plan costs are forecast to increase 4 percent to 5 percent for self-insured plans and 7 percent to 8 percent for insured plans.
“Employers continue to pursue a variety of cost management strategies, including increased adoption of telemedicine services, vigilance in managing pharmacy benefits (with a focus on specialty drugs), and assessment of value-based contracting and reimbursement arrangements offered by health plans,” the report said.
New Dynamics in Changing Marketplace
In his introductory comments to the report, Keeping addressed the recent shifts in fundamental market positions brought about by the retractions of one “super carrier” and the arrival of another.
Super-carrier AIG is poised to get smaller and may divide into several pieces in the coming years – as some have been urging, the report explained. “Meanwhile, another super-carrier is arriving on the scene following the ACE/Chubb merger. Those two changes alone can add a healthy dose of complexity to a company’s renewal strategy.”
Changes in the marketplace “will force some insurance buyers to consider moves they might otherwise have been content to ignore (for the simple fact that a risk manager cannot choose to stay with a carrier if that carrier no longer exists),” it added.
“That, in turn, will raise the question of how carrier partners are chosen in the first place,” Keeping affirmed.
“In most cases (and certainly for leading firms with billions in revenue), the selection process involves many considerations. Price, no doubt. But also key is the financial stability of the company that will have to pay the claims should a loss occur and so are the culture and personality of the people and institution involved in the transaction,” he affirmed.
“In other words, the choice of a carrier involves the variables, tangible and otherwise, that inform this important strategic relationship. Many pieces must fit to solve that puzzle,” Keeping added.
Source: Willis Towers Watson
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