Buyer’s market for US commercial insureds will last through 2017

This year will be another commercial insurance buyer’s market in the US, according to the Wells Fargo Insurance Market Outlook 2017 – although the cuts will not be as deep as in 2016.

The bank’s analysts state that last year’s Hurricane Matthew did little to dent industry surplus, which remains at an all-time high. “However, we are beginning to see the pace of reductions slowing and the market stabilising somewhat,” the report notes, adding that some insurers are walking away from perceived unprofitable deals.

Wells Fargo believes insurers will maintain underwriting profitability in 2017, resulting in the continuance of a buyer’s market. The market will not be as robust as in prior years, because the pace and level of reductions for the majority of insureds will temper a bit, it continues.

In particular, buyers of guaranteed-cost or low deductible programmes will experience lower reductions and likely single-digit increases in 2017, compared to buyers of large deductible and retention programmes.

However, a series of events, including natural disasters, terrorist events of significance across the globe, or a pandemic, could negatively affect the insurance market.

Specific factors and trends that will affect the 2017 market include terrorist events increasingly occurring on US soil, and risk managers increasingly considering terrorism and political violence coverage for international exposures, due to the growth of terrorist organisations.

Also, high profile data breaches and imposter fraud will continue to occur, increasing the focus on cybercrime and reputational risk loss mitigation; and aggregation will be a concern for cyber carriers, because a single data privacy event could result in multiple claims reported to the same insurance companies.

The report also notes that securities class action filings are increasing year on year, while surplus capital is continuing to be deployed in existing and emerging product lines, although there will be more underwriting discipline.

It also points out that catastrophe bonds and other forms of alternative capital products are being developed for non-property exposures for both insurers and corporate entities.