For multinationals, there is a complex situation across global insurance programmes, but in general such programmes remain popular, while at the same time there is some leveraging of local market conditions.
Numerous surveys and indexes from brokers and carriers are suggesting a mixed picture for the current state of the global insurance market for multinationals. The hard market is undoubtedly still here but most lines are moderating to some extent, with some outliers such as cyber and nat cat-exposed property.
Marsh’s first-quarter 2022 Global Insurance Market Index shows that global commercial insurance prices rose 11% year over year, marking the fifth consecutive reduction in rate increase since global pricing increases peaked at 22% in the fourth quarter of 2020. But it was, however, the 18th consecutive quarter that composite prices rose.
In general, rates continue to exceed loss-cost trends for virtually all major lines of business, according to Erik Miller, director, AM Best. “A notable exception here is US workers compensation, with prices definitely moderating due to competitive markets and a continuation of lower loss-cost trends. For some classes of business, rates remain particularly strong, most notably in cyber, the US commercial and personal auto segments, and also property markets, where loss costs have been elevated. But overall, it is fair to say that the hard market remains broadly intact, though moderating.”
Different lines, different challenges
It clearly depends on regions and line of coverage but one thing that is clear is that cyber remains a challenging market, regardless of country or client, according to David Rahr, global leader, Marsh Multinational. Cyber insurance pricing continues to show significant rate increases — 110% on average year over year in the US and 102% in the UK for the quarter. Rahr says this is leading to changes in retention levels, limits placed and programme design.
He notes that property underwriters have raised concerns about food production, warehousing and paper/pulp risks in the UK, driven by significant industry-wide loss experience and reduced global capacity. And European markets have expressed concern for the pricing and limits placed under US liability programmes, leading clients to explore higher retentions, captive participation and limit structure as a way to optimise their programmes, says Rahr, adding that catastrophe prone property risk remains challenging in every market, regardless of occupancy.
Reto Collenberg, head international programmes APAC & EMEA, Swiss Re Corporate Solutions, says the current market situation is complex and there’s not one single state of the market. He says that clearly there are different pressures in different lines of businesses, but generally, the high global economic inflation is driving up the costs of insurance claims significantly.
From a casualty perspective, he sees two main factors shaping the market. The first is exposure to the US, the most challenging environment. “Multinationals with heavy exposure to the US are experiencing significant corrections, particularly non-US-headquartered clients (perhaps because of long-term agreements), which have not yet had the level of rating correction seen by many US-headquartered businesses. The litigation environment in the US is not showing any signs of slowing down, with some extraordinarily high settlements,” he says.
The second factor is large accounts, because the bigger placements, regardless of country, usually have major exposure to the US and other higher-risk legal environments with increased injury and damage awards. “The challenges for brokers remain, with many carriers reducing the limit and looking to secure more rate, given the volatility and perceived underpricing of these deals,” he says.
He adds: “The biggest accounts are still getting rate increases, albeit smaller single digits, so we are seeing a slowdown. We expect this, however, to be challenged by underwriters because of economic inflation.”
Ian Long, head of international programmes proposition at Swiss Re Corporate Solutions, notes that on the casualty side, the main distressed classes are higher-risk segments such as automobiles and automobile suppliers, pharmaceutical, and chemical/agrochemical with latent exposure, while energy remains a challenge exacerbated by ESG dynamics.
On the property side, he says high hazard occupancies are experiencing significant double-digit rate increases, while customers with considerable exposures to natural catastrophes are seeing higher premiums with a heavy emphasis also on secondary nat cat perils, such as flood, hail and wildfire.
Brian Grabek, EVP, multinational leader, Sompo International, notes that multinational insurance business “is typically more complex to service and implement, and therefore is, to some extent, somewhat incubated from volatility in the wider marketplace”, adding: “But these risks are not immune to the pricing changes we are seeing across the industry. While there’s been some moderation in rate increases for less catastrophe-prone property business with a clean loss history, property catastrophe and cyber are two lines where – globally – rates are not moderating.”
He continues: “Property catastrophe and cyber risks are still hardening, with more moderate hardening pretty much across the board. Noteworthy industries here include automotive manufacturing, commercial aviation, and food and beverage. Global supply chains for certain sectors are under duress and that results in material issues for some risks. The real estate sector is also seeing hardening of rates, largely due to the Covid-19 pandemic and its after-effects.”
Hardening market conditions are expected for financial lines, catastrophe-exposed commercial property and cyber, according to Best. “The strongest pricing increases have occurred in cyber, US commercial auto, and certain excess and surplus property and financial lines due to incurred losses,” says AM Best’s Miller. “The general casualty business also appears to have more pronounced rate level increases, at least partly reflecting social inflation in the form of rising jury awards, third-party litigation financing, and legislative actions, especially in the US.”
Miller notes that while inflation is very high globally, a large part of that is being driven by fuel, shipping/trucking and storage costs. “This means it is hitting countries very differently depending on what they happen to import versus what they export. This can affect claims costs and make markets more distinct than usual. Based on feedback we’ve received, insurance markets remain a bit tighter throughout Europe, Latin America and most of Asia, where rate over loss cost trends lag behind the US,” he says.
Terms and conditions
The hard market has not just been about pricing. Just as difficult for companies has been the tightening of terms and conditions, and in particular, exclusions. So has there been any sign of an easing of terms and conditions as prices moderate?
“Terms and conditions tend to erode most significantly only after pricing erosion has run its course, the latter of which has not generally occurred,” explains Miller. “Some of these may be easing a bit due to some more competition and tightening of coverages but rates need to keep up with loss costs, which are showing no signs of abating due to inflation, supply chain, climate risk and social issues.”
Sompo International’s Grabek says that in the property space, “we are seeing a big shift to company forms, away from manuscript forms”, adding: “Companies are starting to focus more on margin clauses and occurrence limits of liability endorsements, for example, especially where valuation is an issue. That is a key concern right now, given the supply chain difficulties that some companies are experiencing and the increased costs of rebuilds and so on. In addition, of course, there is a lot of exclusionary language for countries like Russia, Belarus and Ukraine, currently.”
Capacity remains a challenge as insurers’ appetite for certain lines wanes as losses increase, notably for cyber and ransomware. Swiss Re Corporate Solutions’ Collenberg says capacity remains an issue, and in particular, industries with a greater dependence on supply chains could face capacity challenges.
“But the market isn’t sitting still, and brokers are working hard to provide customers with the capacity needed and exploring different options, and in general we see the major carriers still bringing down exposure by reducing line size,” he says. “We are not seeing new carriers aggressively entering the market, or pure opportunistic capacity at this stage. The market is looking for stability, so the customers have expectations of the nature and quality of capacity in hard market conditions.”
Best’s Miller says that in the global reinsurance market, Best has definitely noticed primary writers holding onto more risk than usual during the January 2022 renewal cycle. He says this was not only due to pricing, but reduced capacity levels with those who deploy capital into the market being more selective and discerning in terms of volume and business lines.
Sompo International’s Grabek says there is still a great deal of capacity available, with new entrants looking to write this business. He says there are pockets where capacity is more scarce, highlighting property catastrophe, cyber and global auto manufacturing. He also notes that the ability to obtain contingent business interruption coverage has also been affected by current events and limits have significantly dried up.
Impact on global programmes
So what impact is all this having on global insurance programmes? Are there signs of programmes being broken up into regions? The answer seems to be that global programmes continue to be popular, even moving into the mid-market sector. But at the same time, there is an element of picking the best coverage available, or taking advantage of local markets in specific areas.
Insurers point to growing interest in companies looking to have controlled master programmes for their exposures overseas, including mid-sized firms looking for programmes that are multi-Latina, pan-European, or pan-Asian. This growing interest is driven by compliance requirements, complex supply chains and a desire for consistency of cover.
Marsh’s Rahr says global programmes remain a key strategy for multinational companies to manage risk consistently, control cost and drive efficiency. “Given the challenges faced by every global company over the last few years, each client is looking for an advantage to improve their cost of risk. We are seeing some clients leverage local market conditions to secure broader coverage and purchase additional limits,” he says.
Examples of this are the local placement of Japanese earthquake coverage, and for some companies doing business in the US, to have a separate liability tower, he explains. “Many foreign underwriters have concern about automobile liability risk in the US and the impact of ‘social inflation’ on claim judgments. In each example, the clients would be pursuing more competitive local solutions, or securing coverage unavailable through the global programme,” says Rahr.
What is clear is that global insurance programmes are becoming more complex as a result of nationalism, war, sanctions and greater compliance requirements. While global programmes remain a leading strategy for multinational corporations, Rahr says: “The Ukraine conflict has taught us, however, that underwriters are prepared to exclude additional countries and add coverage limitations should new conflicts develop in other parts of the world.”
He adds: “We have also seen an increased focus on insurance tax and regulations, with many tax authorities focusing their efforts on auditing global insurance programme structures and reviewing premium allocation methodology. We’ve seen this in a number of countries, including Australia, Belgium, Canada and Germany.”
Sanctions too are making things more complex. Swiss Re Corporate Solutions’ Long says: “Cross-border premium payments in and out of sanctioned countries are not possible, which will impact payments back to a co-/reinsurance panel, unless received prior to imposed controls. Local claim registration and documentation generally is possible for pre-existing policies, with limitation and loss assessment field activity heavily dependent on the availability loss adjusters.”