For 2020, Expect Biggest Commercial Insurance Hikes in Years: Willis Towers Watson

November 15, 2019

North American commercial insurance buyers will face sizable price increases in 2020, across most lines of insurance, according to insurance broker Willis Towers Watson’s 2020 Insurance Marketplace Realities.

While the report finds that capacity is available in all but the most challenged lines, Willis Towers Watson says underwriters are showing unprecedented discipline in its deployment, especially for risks they find perilous.

Overall, with buyers sitting squarely in a seller’s market, 19 lines are expected to see price increases according to the report, with property, umbrella, and public company directors and officers (D&O) experiencing the most widespread hikes (20% and higher) and capacity withdrawals. Across two lines, international casualty and surety, the company expects price decreases. Six lines — fiduciary, environmental, marine, political risk, kidnap and ransom, and terrorism— will have a mix of both or flat renewals.

“We’re seeing the biggest upward price shift in years. We expect rate hikes and capacity constrictions will continue throughout 2020 and likely into 2021, but a more orderly market to emerge by mid-2020,” said Joe Peiser, global head of Broking, Willis Towers Watson.

Nevertheless, Peiser continued, as the market seeks equilibrium, there are reasons for optimism: “The alternative capital market is showing renewed enthusiasm for reinsurance; the overall industry has more capital than ever; insolvencies are a rarity; InsurTech is working with market participants to improve the client experience, and the laws of supply and demand still apply. This challenging market won’t last forever.”

Several factors account for the firming market. Persistently low interest rates have dampened insurer returns on their investment portfolios. Across commercial property, extreme catastrophic weather and wildfires since 2017 have had a direct impact on pricing, prompting conditions to harden with sustained escalation in rates. Over and above the company’s baseline property rate pricing predictions, a micro-hard market can be expected to produce increases of 50% to 100% and even up to 400% for challenged occupancies with poor losses and/or risk control deficiencies.

According to the report, the commercial liability market is worsening, with deteriorating loss trends that continue to negatively impact underwriting profitability, except in workers compensation, which remains stable. In fact, general liability predictions moved from the mixed category (increases and decreases approximately –5% to +5%) into single-digit increases for virtually all buyers.

Auto liability continues to be unprofitable for personal and commercial insurers as losses continue to climb due, in part, to economic growth — which has companies facing labor shortages relying on more inexperienced workers who have a higher rate of accidents, especially in trucking. A strong economy also means more vehicle traffic and accidents, particularly as distracted driving persists. The umbrella/excess liability market is experiencing significant disruption, especially for large company buyers.

Social inflation is another key factor driving rate increases in the liability marketplace. Companies continue to be held accountable for social ills, whether they were actors or bystanders, and today’s juries seem numb to monetary values. Fingers are also being pointed at D&O, underscored by a record number of shareholder class actions. Accordingly, D&O liability insurers have demonstrated discipline by raising rates and hedging bets by deploying much lower limits on any one risk.

In the cyber market, with ransomware incidents increasing dramatically across all industries in frequency and magnitude, including some high-profile breaches, we are starting to see an uptick in premiums and a cautious deployment of capacity across the global marketplace. Primary and excess cyber renewals are now averaging premium increases in the +5% to +10% range, though flat renewals should be possible for some.

Political risk, and kidnap and ransom both showed some softening since the company’s spring report. Political risk prices are expected to be flat (except for high-risk countries where prices may rise 10%). With global nationalism on the rise, U.S. businesses may come under scrutiny because of where they’re located. Rates for kidnap and ransom will be mixed –5% to +5%, as insurers continue to reduce exposure on cyber extortion events and adjust policy language pertaining to cyber events that could be considered part of a ransom scenario.

“There’s work to be done in the short run to avoid the worst of the rate hikes,” said Peiser. “Buyers should allot plenty of time to work with their advisers, provide robust risk information to potential risk takers, consider options across the global marketplace and take advantage of analytic tools. They should also continue to invest in risk control measures. The cheapest loss is the one avoided.”

Peiser adds, “In the long run, we urge risk professionals to keep an ear to the ground on the topic of climate risk, which may soon have an impact on the valuation of every business.”

Key price predictions for 2020 from Willis Towers Watson Marketplace Report

Property
Non cat-exposed risks +5% to +15%
Cat-exposed risks +10% to +20%
Cat-exposed with losses +15% to +30% or more
Casualty
General liability +2.5% to +7.5%
Umbrella +12% to +20%
Excess +15% or more
Workers compensation –2% to +2%
Auto +6% to +12%
International –5% to flat
Executive risks
Directors and officers public company (primary) +17.5% to +50% or more
Directors and officers private/not-for-profit (overall) +5% to +35%
Errors and omissions +5% to +10%
Employment practices liability +5% to +15%
Fiduciary Flat to +7.5%
Cyber
Flat to +10%
Political risk
Most risks Flat to +10%
Terrorism and political violence
Flat
Environmental
All lines –5% to +15%

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