Worsening conditions for US and Canadian insurance buyers – Marsh webcast

US and Canadian insurance buyers are facing worsening conditions as a result of Covid-19 and long-term trends, according to speakers during a recent Marsh webcast. Marsh pointed to its Global Insurance Market Index, which revealed that globally, commercial insurance prices rose 19% in the second quarter of 2020 – the 11th consecutive quarter of price increases and the largest year-over-year increase recorded since the index’s inception in 2012. Marsh explained that while the most substantial increases in the US and Canada are occurring in property, directors and officers (D&O) liability, auto liability, and umbrella/excess liability, pricing increases are now being seen across most lines. It added that buyers are also facing capacity constraints and tightening terms and conditions. “We’re seeing a rebalancing of the marketplace, which is challenging for all parties,” said Nathan Richmond, Marsh’s global placement leader for Canada. It is not just Covid-19 that is shifting the market, but a number of factors, many of which were building long before the pandemic, the webcast heard. Of major concern to insurers is their steadily declining investment income and underwriting leverage, said Kyle LaBarre, an analyst at Dowling & Partners. This has meant that insurers’ ability to improve operating results has increasingly hinged on favourable combined ratios, which have been “nowhere near” the levels needed to generate a return on equity of 7% or more. “All said, 2020 is going to represent the 13th straight year that the industry fails to generate a double-digit ROE,” Mr LaBarre said. The webcast revealed that insurers are now pressing for rate increases and changes to terms and conditions even for accounts with favourable loss histories. On the property side, Marsh noted: “Entering 2020, buyers in the US had already faced nine straight quarters of price increases, driven by severe losses from wildfires, hurricanes, flooding, convective storms, and other catastrophes in recent years. While insurers were often focused on pricing entering 2020, Covid-19 has prompted greater scrutiny of terms and conditions, especially time element extensions. In Canada, meanwhile, pricing increases are accelerating as underwriters grow concerned about the aggregation of earthquake risks in Alberta and British Columbia.” Webcast panellists noted that the liability market continues to deteriorate, and large loss settlements are leading insurers to increase attachment points and reduce the amount of limits they are willing to deploy to umbrella and excess towers. As for D&O, insurers are more concerned about the potential “avalanche” of bankruptcy claims as a result of the pandemic’s economic effects, panellists said. Despite these trends, panellists highlighted strategies that buyers can use to better manage upcoming renewals, suggesting that starting the process early and differentiating risks – through the use of data, the involvement of senior leaders, and other means – remain key. Pat Donnelly, head of Marsh JLT Specialty in the US and Canada, said it is important to consider alternatives. That includes revisiting decisions on programme structures, participating insurers, and the adequacy and appropriateness of policy limits and retentions that were made during past renewal cycles, he said. He added that insurance buyers could also benefit from pursuing foreign capital options: “We’ve had a lot of success with some insureds, particularly with global exposures, who are getting better results by really exploring the full global marketplace.”

Worsening conditions for US and Canadian insurance buyers – Marsh webcast

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