North American commercial insurance market to remain challenging in 2021

Commercial insurance prices in North America are expected to increase in every line except one, according to Willis Towers Watson’s (WTW) 2021 Insurance Marketplace Realities report, and 2021 will be challenging. However, it points out that in this market, there is the opportunity for buyers to use granular analytics to differentiate their risk. The one exception is kidnap and ransom (and only because exposures have reduced due to pandemic travel restrictions), although there are some lines, such as workers compensation, life sciences, terrorism, product recall and alternative risk transfer, where flat renewals are possible, though increases will persist for many buyers, according to WTW. It adds that in a handful of lines (such as aerospace, environmental, marine, trade credit, and personal), rate predictions were no worse than in the spring, but in every other line, higher increases are expected in 2021. The report points to several factors accentuating the current hard market, which it says is underscored by the significant withdrawal of capacity in response to systemic changes in risk exposures. Factors include the surge in frequency and severity of natural catastrophes across the world, the persistent increase in manmade property damage losses and the rise in severity for liability losses of all types attributed to ‘social inflation’, together with the impact of the pandemic. “We have to look back to the defining hard market crisis of the mid-1980s to see market conditions of the proportions we are currently experiencing – one of double- and triple-digit rate increases in most lines of business and dramatically reduced capacity in key lines,” commented Joe Peiser, global head of broking, WTW. “However, our experience in this hard market is that there is a wide range of results; renewal results are not huddled around the mean. This means underwriters are underwriting, and there is the opportunity to differentiate your risk.” WTW states that the insurance industry will adapt to the continuing hard market “by utilising analytics and data-driven tools to change the way both buyers and sellers approach the negotiating table when it comes to risk transfer”. The broker adds: “While underwriters look at mega trends, good risk managers and brokers use granular analytics to demonstrate where a prospective insured differs positively from those trends. Where an insured differs negatively, a good risk manager, with a consultative broker, can devise a risk management plan to remediate the deficiencies and articulate that plan to insurers.” Mr Peiser said: “Insureds are finding that risk analytics provide the insights they need to measure this value and set insurance priorities. Analytics can also make our industry more relevant to global business leaders as we advise them on the sources of volatility to their bottom line, backed up by credible analytics.” Looking at the various lines of business, the property environment is full of challenges with expectations of hardening continuing into 2021, the report states, although rate increases should begin to moderate by midyear, barring another major insured catastrophe. It concludes that property rate increases are still worsening – for non-challenged occupancies, the predictions for 2021 are +15% to +25%, up from 10% to +20% in the spring. WTW says the commercial liability marketplace remains hard because of various factors continuing to negatively affect loss trends and underwriting profitability. General liability predictions more than doubled to +7.5% to +15%, from +2.5% to +7.5%. As for umbrella/excess, the lowest expected increases are now 30% (for low/moderate hazard umbrella) while the highest remain at 150% (for high hazard excess). The report explains that workers compensation rate decreases are flattening, with slight increases now materialising in response to high severity/excess losses, while auto liability continues to be unprofitable for insurers as claim payments remain on the rise. Forecasted auto rate increases rose to a range of +8% to +15%, from +6% to +12% earlier this year. Directors and officers (D&O) liability will continue to see upward pressure well into 2021, but new startup insurers targeting D&O could lead to some market stabilisation. Nevertheless, all categories of D&O are forecast to go up double digits, some by as much as 70%. And finally, the report states that cyber insurance rate increases are anticipated at +10% to +30%, up from +10% to +15% earlier this year. “Every organisation has been changed by the pandemic – some positively, many negatively,” said Mr Peiser. “But as we look to the future, we are confident that analytics, judgement and relationships will bring this difficult market to a new equilibrium – one that provides customers with protection from emerging risks and growing volatility and keeps the underwriting community relevant to world business. We may not see a precipitous return to soft pricing, but we will see moderation and perhaps some welcome sustainability – and increased relevance.” The report concludes: “One thing is certain: the insurance marketplace will continue to be challenging in 2021.”

North American commercial insurance market to remain challenging in 2021

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