Modest rate increases for US financial institutions but cyber tough: Gallagher

A hard market continues for cyber for US financial institutions while other lines have seen modest increases, according to Gallagher’s Mid-Year 2022 Financial Institutions Market Update. In property, areas that are prone to catastrophes or have had losses will see double-digit rate increases, while others can expect modest renewal rate increases. Gallagher says: “As with most industries, the trending topic here is property valuations. The past year has seen significant inflation drive up building reconstruction costs and, consequently, claims payments.” General liability is seeing a median rate increase of 3.1%, but 45% of Gallagher’s clients are seeing flat or decreased renewal rates over the prior year. Looking ahead, the broker said it is monitoring the impact that third-party litigation and inflation has on claims costs, which would potentially cause carriers to be more firm on renewals. The favourable trend in workers’ compensation insurance for financial institutions continued through the first quarter of 2022, although the broker warns that inflation and increased medical costs may cause rates to increase in the near term. In the first quarter, Gallagher’s financial institution clients saw a median rate decrease of 7%, and only 38.0% of clients saw any rate increases. Auto liability rates have increased slightly and inflation’s impact on auto claim costs has the potential to keep rate increases continuing throughout 2022, says Gallagher. It says in the report that social inflation, nuclear verdicts, increased plaintiff activity and litigation funding continue to drive up umbrella and excess liability rates for financial institutions, with the first quarter of 2022 seeing a median rate increase of 3.9%, which Gallagher says is better than most other industries. As for cyber, the broker is seeing 30%-100% increases in premium for most financial institutions, with higher increases for those the market deems ‘below average’ risks, such as those with claims activity (frequency or severity) and those with below-market-standard cybersecurity controls. “We are reserving the term ‘hard market’ for the cyber liability marketplace, as the firm market conditions we have seen over the past 18 months have persisted. Continued claims activity among all industry groups and ongoing geopolitical tensions have prevented this market from softening,” says Gallagher in the report. Retentions are being pushed upward at renewal and the market continues to scrutinise risks, putting all insureds under a microscope from a controls standpoint, says the report. D&O insurance for publicly traded financial institutions has seen stabilisation and a continued moderation of rate increases in the first quarter of 2022. “Most segments within the financial institutions arena are seeing low rate increases, from 5% to just below 10%, with some even flat. Greater capacity in the public company D&O market in general has led to diminished rates, but not all carriers underwrite financial institutions,” says the report. It adds that privately held financial institutions are experiencing slightly higher rate increases than their public counterparts, driven largely by carriers continuing to see costly entity claims (Side-C). Employment practices liability has seen a moderation in rate increases, with most risks seeing 5% to 15% increases, although those with California exposures or claims activity fall above this range, as do those adversely affected by Covid-19. Professional liability or errors and omissions (E&O) coverage varies in scope across the many segments of the financial institutions industry, with some carrying greater risk and thus higher premium than others, the report notes. It adds: “In general, we have not seen shock rates in segments of the financial institutions industry, but some areas trend higher, like broker-dealer E&O, bankers professional liability and insurance company professional liability.”

Modest rate increases for US financial institutions but cyber tough: Gallagher

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