Source: Business Insurance – Risk Management
COLORADO SPRINGS, Colorado – Commercial insurance buyers likely won’t see much let up in insurers’ drive for increased rates through the rest of this year, into next year and possibly beyond, industry experts say.
Price hikes, which started in some lines last year or earlier and took hold in many other lines in the spring and summer of 2019, are gaining momentum despite plentiful capacity as insurers look for increased revenue following accelerating liability awards and two years of big property losses, they say.
Rate increases started in lines of business that have seen significant losses, such as property, excess casualty and directors and officers liability, but the hardening has spread to most lines, especially for large accounts, said Brian S. Wanat, New York-based chief broking officer at Aon PLC.
Excess casualty loss trends are increasing “anywhere between 12 and 20 points and most markets are just trying to keep up with that so they don’t slip backwards,” he said.
In addition, the low interest environment is affecting pricing for long-tail lines, Mr. Perez said.
“The issue with loss trends but also what we can generate from our premium are two factors that we have to keep up with,” he said.
Workers comp and small cyber accounts are still seeing soft pricing, but most other lines are seeing increases, said Michael Rice, CEO of CAC Specialty.
“Larger cyber is getting more expensive and D&O is going through the roof right now, and property/casualty is getting tougher and tougher,” he said.
Umbrella and excess casualty and public D&O risks are experiencing the most disruption, said David Bresnahan, executive vice president at Berkshire Hathaway Specialty Insurance Co. in Boston.
And market conditions are changing rapidly, he said, with more insurers cutting limits on excess casualty placements from $25 million to $15 million to $10 million and in some cases, over the past several weeks, to $5 million.
The reduction in limits available in the market is largely driven by increased jury awards and liability settlements, which have increased by multiples over the past several years, he said.
Property insurance rates have been increasing since last year, as a result of significant catastrophe losses in 2017 and 2018, and the increases are gaining momentum, industry executives say.
Rate increases in property lines began about 18 months ago but have accelerated since April this year, said Sanjay Godhwani, executive vice president at Berkshire Hathaway Specialty.
“What may have been a high single-digit/low double-digit rate increase started turning into mid double digits and now you are hearing 15-, 20- or 25-point rate increases as averages in the market,” he said.
Rate increases and higher deductibles are motivated by higher catastrophe losses over the past several years, Mr. Godhwani said. “There’s not enough money being collected to pay the loss cost; it’s just as simple as that.”
The property rate increases are being felt throughout the insurance and reinsurance markets but are being led by primary insurers.
“The primary market is firming at a quicker pace than the reinsurance space, aside from retro,” he said.
Much of the rate firming across property/casualty markets will last in 2020 and possibly beyond, executives say.
The expectation from insurers is that increases will be imposed for at least one and probably two renewal cycles, said Mr. Wanat of Aon. “Over time, if rates go up enough, I think you’ll see additional capital coming in.”
“The problem underwriters have right now is that there’s a high frequency of high-severity events,” Mr. Rice said. “There are so many big claims out there.”
The increases will likely continue at least through 2020, said Mr. Perez of Liberty Mutual. “After the market gets through the cycle of remediation, we still have to keep up with loss trends so it’s not like rates will be flat.”
For example, commercial auto has seen increases for several years “and it’s still not profitable,” Mr. Perez said.
For excess liability and D&O, “my advice to customers is that ‘you should be planning on rate increases every year for the next five years’ because there is no sign of tort reform or anything else coming that would stem this tide,” Mr. Bresnahan said.
Aside from the pricing, insurers are also changing terms and conditions, said Mr. Rice of RSGUM. “They are tightening up the coverage “¦ and I think that’s probably going to be more meaningful in the long term.”
