Soft market conditions still favouring North American insurance buyers

North American insurance buyers can expect a favourable and stable commercial insurance market, despite potential changes from Washington, DC, which could alter marketplace dynamics that have sustained prolonged soft market conditions. According to Willis Towers Watson’s 2017 Marketplace Realities report, this has been good news for most buyers in many lines, with some notable exceptions. The key driver of the current soft market conditions is the fluidity and availability of capital, which has allowed the industry to absorb insurer consolidation, and a rise in catastrophic losses (although recent losses still remain below historical averages), the report notes. In the report, Joseph Peiser, head of broking for Willis Towers Watson North America, writes: “Trade, taxes, infrastructure, regulation: change could be coming in all of these areas, with the potential to affect our clients, carrier partners and, therefore, the advice we offer. In terms of the marketplace mechanics and price predictions that are the focus of this publication, change is one thing we haven’t seen in a while. Will the transformation at hand turn this long, soft market?” He believes there are two possible scenarios where the movement of capital would end the status quo. If there is economic growth, interest rates could climb, and stocks could rise. “These forces could move capital away from the insurance industry, removing the leading factor in the present soft market. Meanwhile, a hotter economy would increase the demand for insurance, also putting upward pressure on premium rates,” Mr Peiser writes. If, on the other hand, the global trade economy contracts, then transnational investment might also decline, reducing the fluidity of capital that has brought the sustained flow of capacity into the risk transfer business, he adds. “It’s also possible that aspects of both scenarios come true, and instead of neutralising each other they could amplify the pressures that would harden the insurance marketplace,” he explains. The report’s predictions for the remainder of 2017 show a mix of increases, decreases and flat rates. The following lines are expecting decreases: property, casualty, aviation, directors and officers (D&O), energy, fidelity, healthcare professional, international, marine, political risks, and terrorism. Six lines are expecting increases: auto, cyber, employee benefits, employment practices liability, errors and omissions, and trade credit. Willis Towers Watson notes that, compared to its predictions of last Autumn, property rate decreases are less pronounced, D&O rate decreases are more pronounced, employment practices liability rates are up a little and crime/fidelity coverage rates are forecast to be flat for most buyers, rather than down by small percentages. But in general, Willis Towers Watson believes that property and casualty rates are still trending downward for most buyers, though in the casualty lines, rates are going up for buyers experiencing losses. Rates for auto and cyber coverage are generally rising across the board, due to rising losses for insurers. The remaining lines are expected to see a mix of increases and decreases, ranging from significant double-digit increases for buyers of environmental policies combined with casualty cover, to similarly sized decreases in aerospace insurance. The property market is still seeing abundant capital, which continues to sustain an attractive market for buyers despite deteriorating underwriting results and a 32% increase in catastrophe losses year on year, states the report. While property rates are forecast to decline 5% to 10% for companies without significant exposure to natural disasters, even those that are more exposed are forecast to see a decline in rates of 5% to 12.5%. And Willis Towers Watson points out that buyers can also explore new opportunities to expand coverage under their property programme to include some cyber events and non-physical damage. The casualty market continues to be favourable for most companies and most industries, with some exceptions, states the report. And in the financial and executive risk lines, ample capacity and competition continue to drive a soft D&O liability market. The cyber insurance market appears robust, with new entrants coming into the marketplace and carriers taking steps to expand cyber coverage, the report notes. “However, the threat of cyber risk continues to escalate and cyber renewals are facing primary premium increases of 5% to 10% for most buyers, and 15% to 20% for point-of-sale retailers and large healthcare companies with no loss experience,” states Willis Towers Watson. The political risk insurance market remains open and competitive due to the continued influx of capital, despite rising political risk exposures across the globe. However, there are some exceptions in the riskiest locales, and the report warns multinational companies to consider buying political risk coverage on operations worldwide, particularly for select regions, while it is still available as coverage will constrict considerably after an event.

Soft market conditions still favouring North American insurance buyers

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