Rate increases set to moderate but market wary of uncertainty

Buyers should expect a moderation in rate increases for many lines of business at upcoming renewal but the cyber liability market will remain difficult and property insurers will continue to focus on valuations, brokers and insurers say. While insurers have pushed through significant increases for the past three to four years, frequently in double digits or higher, many have reported improved underwriting results, and new entrants are bringing more competition to the market. But, as first reported in our sister publication Business Insurance, inflation and global political uncertainty remain concerns, according to brokers and insurers at last week’s annual Rims conference in San Francisco. “With a few notable exceptions, it feels like things are steadying and we’ve crested,” said Marc Kunney, president, risk management, at EPIC Insurance Brokers & Consultants. Insurers that have pared back their capacity, remediated their books of business and hiked rates during the past four years are reporting profits and looking to grow, he said. “It feels like they are now playing offense,” Kunney said. Outside of cyber liability, some emerging risks and those affected by the conflict in Ukraine, such as aviation and political risk, buyers should see rate increases in the single digits for most lines, he said. When first-quarter 2022 rate reports are released, “we’ll likely see a continued trend in the moderation in rate increases, cyber risk notwithstanding”, said Chris Lang, placement leader for US and Canada at Marsh. Most insurers have remediated their books of business and have achieved “rate adequacy”, he said, adding: “If you look at the results, they looked pretty positive in 2021.” Property insurer FM Global has increased rates and reviewed its book of business since paying large catastrophe losses in 2017 and 2018, said Malcolm C Roberts, president and CEO. “Like everybody, we had to get the level set, but it’s not just rate; a lot of deductible erosion had happened,” Roberts said. He believes further market hardening will likely be prompted by supply chain disruptions, increased inflation and losses in some lines from the war in Ukraine. Rates are “now picking up steam again in the industry”, he said, but “for FM Global, going into 2022 we feel on a macro level we have the rate we need”. But some sectors, such as heavy industry, and individual policyholders may still see higher rates, Roberts said. “There’s a lot of competition heating up on soft occupancy business,” such as retail properties, he explained. Property insurers continue to be concerned about insured valuations and whether they are keeping pace with inflation, said Marsh’s Lang. “Everything costs more to fix than it did three months ago or six months ago,” he said. AXA XL adjusted some of its books of business and bought more reinsurance for some lines last year and now plans to grow, said Scott Gunter, CEO of the commercial insurer. Higher inflation, elevated catastrophe losses, higher court judgments and settlements, and concerns over losses in specialty lines from the war in Ukraine, will likely lead to further rate increases but not at the same level seen during the past several years, he said. For excess casualty risks, for example, buyers paid steep increases during the past four years, Gunter said. “The increases that they’re seeing will still be positive. But they’ll be high single-digit, low double-digit, not like they were seeing in 2021,” he said. Cyber liability is an exception, with rates still increasing by 100% for some buyers, Gunter added. “The way the loss trends are, I don't want to see it coming off that anytime soon. It’s a pricing issue, but for the clients it’s also a capacity issue,” he said. Lambros Lambrou, CEO of commercial risk solutions at Aon, said: “The risk landscape is definitely more volatile, more complex, more interconnected… As a result, the demand for data, insight and predictive modelling is shifting considerably.” In addition, risk managers are looking at their whole risk portfolios as rates and capacity have risen and contracted in various coverage lines, he said. “Clients are saying: ‘We need to have a holistic view on all of this so that we can make better decisions around the puts and takes of dialling up and dialling down in certain areas,’” Lambrou said. For example, a policyholder seeking to buy more cyber liability limits may be more willing to retain more traditional P&C risks, which are more predictable, he said. But pressure remains in some areas of the traditional P&C market, too, experts say. Claims from storms in Texas in February 2021 and extensive wildfire claims in the western US are driving rates higher and crimping property catastrophe insurance capacity, said Chip Stuart, chief sales officer and North American real estate practice leader at Hub International. “Wildfire is more expensive and harder to place than earthquake now,” he said. Sharp increases in court settlements and verdicts are curbing liability capacity, Stuart said. “The awards are getting bigger, and it’s not that they have to pay it out every time, but they have to pay the defence,” he said. “These things drag on for three or four years, and they are hard to reserve for.” In addition, excess liability insurers are looking to attach at higher levels as losses rise, said Mary-Beth Hahn, head of Hub’s North American complex risk practice. For example, an excess insurer that previously attached on a trucking programme excess of $1m is now looking to attach excess of $3m, she said. “You have to be able to build that primary programme and then the excess above it, so it takes a little more time and more creativity,” Hahn said. For example, Hub is more frequently placing parts of programmes with international insurers, she said. “The market by and large feels better, but I still think there’s a lot of unease,” said Mike Fallon, president of major accounts at Liberty Mutual. Social inflation, economic inflation, supply chain disruptions and the war in Ukraine are all contributing to a sense of uncertainty for underwriters, he said. “The trajectory of rate increases has moderated but there’s still some pretty good distribution around that,” he said. “Carriers are still having to think about rate in terms of loss-cost trends.” For further news from Business Insurance, please click here.

Rate increases set to moderate but market wary of uncertainty

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