Insurance buyers with US risks face ‘biggest upward price shift’ in years: WTW

Insurance buyers with US risks face the “biggest upward price shift” for years during 2020, with increases across more lines than in “recent memory”, according to Willis Towers Watson (WTW). Property, excess liability and D&O cover will be hardest hit, according to the broker. It notes that several other lines of business are looking at increases “topping out at well over 25%”, but stresses that capacity is available in all but the most challenged lines. In more encouraging news for buyers, WTW expects a “more orderly” market to emerge, especially for property, by mid-2020. In its 2020 Insurance Marketplace Realities report, WTW’s global head of broking Jo Peiser predicts “increases, many sizeable, for more lines of insurance than we've experienced in recent memory”, with the global insurance market “demonstrating unprecedented discipline”. “Comparing our rate predictions for 2020 to those from our spring 2019 issue, we're looking almost entirely in one direction: up,” he adds. Overall, 19 lines are expected to see price increases for US buyers in 2020. Two – international casualty and surety – will see decreases. The remaining six will see a mix of both, or flat renewals. These six are: fiduciary, environmental, marine, political risk, kidnap and ransom, and terrorism insurance. US property rate increases are expected to be twice as high as WTW’s Spring prediction. “The market is hardening and rate increases are accelerating with each succeeding month. Cat losses aside, attritional losses continue to bedevil financial results for insurers,” states the broker. Catastrophe-exposed risks with loss histories can expect the largest increases stretching from 15% to over 30% in 2020. WTW predicts increases of 10% to 20% for cat-exposed property risks, with rates set to rise between 5% and 15% for non-cat cover. It says the commercial liability marketplace is worsening, with deteriorating loss trends continuing to negatively impact underwriting profitability, except in workers compensation where competitive conditions continue. WTW expects US general liability rates to increase between 2.5% and 7.5%. But buyers of umbrella and excess liability will fare worse, with increases of more than 30% and 25% predicted for high hazard risks in the respective lines. Looking further afield, WTW says international casualty rates are expected to be flat to down 5%. The brokers says US D&O buyers should “brace for significant price rises” next year. “Firming has continued at an accelerated rate. Most programmes can find adequate capacity, but for certain segments and larger programmes, willing capacity for new or replacement layers can be sparse,” it explains. The biggest D&O increases will be felt by public companies. Here, rates are expected to rise by up to 50% or more for primary cover. Private and not-for-profit firms can expect D&O increases of between 5% and 35%. WTW says that with ransomware incidents increasing "dramatically across all industries in frequency and magnitude, including some high-profile breaches", there will be an uptick in cyber rates 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, but flat renewals should be possible for some, it says. WTW predicts that commercial insurance rate hikes and capacity constrictions will continue throughout 2020 and likely into 2021. However, it expects things to settle down, particularly for property risks, by the middle of next year. “By that point, the bulk of the re-underwriting by some major property insurers should be largely complete. Pricing will most likely continue to rise as insurers seek profitability, but those increases and market capacity for most risks should be more predictable than they have been during the past two quarters,” says Mr Peiser. However, umbrella and D&O for public companies are likely to be difficult and unpredictable for the next four to six quarters because of “what appears to be a fundamental and systemic change in liability losses – and not for the better”, he adds. “As the market seeks a new equilibrium, there are reasons for optimism: the alternative capital market is showing some renewed enthusiasm for the reinsurance market after a year or so of tepid interest; the overall industry has more capital than ever; insolvencies are a rarity; insurtech companies seem to have largely abandoned their bad-boy disruptor image and are now working with insurance market participants to improve the client experience by helping us all be smarter, cheaper and faster; and the inexorable laws of supply and demand still apply to our industry. This challenging market will not last forever,” continues Mr Peiser. WTW offers two pieces of advice to help buyers cope with the challenging market conditions. “In the short run, there’s work to be done to avoid the worst of the rate hikes. Organisations 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 increasingly sophisticated and user-friendly analytic tools that can help with both decision-making and differentiating your risk in the market. Organisations should also continue to invest in risk control measures. The cheapest loss is the one avoided,” says Mr Peiser.

Insurance buyers with US risks face ‘biggest upward price shift’ in years: WTW

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