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Politics may change landscape for insurance buyers

Posted On: Apr. 20, 2017 9:47 AM CST

The commercial insurance marketplace remains stable and favorable to buyers even as it braces for potential changes from Washington, Willis Towers Watson P.L.C. said Thursday. 

The broker’s 2017 Marketplace Realities report provides line-by-line predictions for the remainder of 2017 and shows a mix of increases, decreases and flat rates.

Joseph C. Peiser, head of casualty broking for Willis Towers Watson North America, wrote in the report’s introduction that change could be coming to trade, taxes, infrastructure and regulation “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,” Mr. Peiser wrote, “change is one thing we haven’t seen in a while. Will the transformation at hand turn this long, soft market?”

The report said 10 lines of business are expected to see rate decreases: property, casualty, aviation, directors and officers, energy, fidelity, health care professional, international, marine, political risks and terrorism.

The six lines expected to see increases are: auto, cyber, employee benefits, employment practices liability, errors and omissions, and trade credit. 

The property market’s abundant capital continues to sustain an attractive market for buyers, despite deteriorating underwriting results and a 32% increase in catastrophe losses year over year, Willis Towers Watson said. Catastrophe-exposed programs continue to lead the softening cycle.

The report forecasts property rates to decline 5% to 10% for companies without significant exposure to natural disasters, and 5% to 12.5% for those more exposed. 

Global catastrophe losses were $49 billion for 2016 compared with $37 billion for 2015, which translates into a claim increase of 32%, the broker said.

Buyers can also explore new opportunities to expand coverage under their property program to include some cyber events and nonphysical damage, Willis Towers Watson said.

Casualty continues to be a buyer’s market for most companies and most industries. Rates have generally been flat with some single-digit increases or decreases, although auto has consistently seen rate increases in the 3% to 7% range.

Total annual cyber premiums reached $2.5 billion in 2016, the report said, and are set to climb in 2017, with some industry observers expecting premiums to reach $10 billion by 2020.

“Cyber renewals continue to see primary and excess premium increases in the 5% to 10% range for most buyers,” the report said. “(Point of sale) retailers and large health care companies are still seeing increases, but nowhere near the level following the mega breaches in 2014 and 2015. In 2016, a few clients with strong controls saw either no premium increase or a slight premium reduction. Increased competition in the marketplace has also played a factor.”

In the financial and executive risk lines, Willis Towers Watson said ample capacity and competition continue to drive a soft D&O liability market. 

With innovation, buyers have an opportunity to get more value out of their D&O coverage, particularly in the areas of investigations, cyber-related D&O protections and mergers and acquisitions exposures. However, the report said the record number of first-quarter securities class action filings could potentially reverse the soft market.

Despite rising political risk exposures across the globe, the political risk insurance market remains open and competitive due to the continued influx of capital, with some exceptions in the riskiest locales. 

However, the report warned multinational companies to consider buying political risk coverage on operations worldwide — particularly for select regions —while it is still available, as coverage will tighten considerably after an event.