Insurers expected to hike property rates on 2017 disasters: USIReprints
The property market is likely to see some rates rise as much as 20% in 2018 due to the impact of the 2017 natural disasters while cyber rates are expected to decline 5% to 10% despite attention-grabbing security breaches, according the 2018 USI Insurance Market Outlook.
Near-record-loss activity stemming from hurricanes Harvey, Irma and Maria, two major earthquakes in Mexico and other natural disasters last year could lead to some changes in pricing and terms and conditions in the property market, Valhalla, New York-based broker USI Insurance Services said in the report published Monday.
“Accounts with hurricane-related exposures and losses will almost undoubtedly face renewal situations with increased pricing, potentially less broad terms and perhaps less available capacity,” the report said. “Accounts with large catastrophic exposure footprints and losses will see the most pressure on rates and terms. After 19 consecutive quarters of soft-market pricing, it is reasonable to assume that most carriers will not be offering rate reductions and will likely be looking to increase rates across their portfolios.”
“The biggest question is whether or not the events of 2017 will lead to a ‘regional’ or localized event versus an ‘industry-wide’ event as it relates to pricing,” the report continued.
Cyber rates are expected to decline 5% to 10% with the market remaining competitive and stable despite many headline-grabbing data privacy and ransomware events, according to the report.
“We expect market capacity to remain stable at $500 million to $600 million as new syndicates continue to offer capacity at Lloyd’s, and the Bermuda market expands its appetite for network security and privacy insurance,” the report said. “The increased competition will continue to force rates down for domestic carriers.”
“Barring a catastrophic data privacy event in retail, health care or credit card processing, rates will continue to come down as coverage is expanded,” the report stated.
Meanwhile, the environmental insurance market has easily absorbed American International Group Inc.’s exit of a key product line amid an influx of new players, but that influx will also continue to pressure the sector’s profitability, according to USI’s outlook.
“The marketplace has reached significant maturity after more than 25 years,” the report said. “The market has proven that it could easily absorb the $1 billion+ in AIG expiring premiums since AIG’s announced exit of its pollution legal liability coverage in 2016.”
The environmental insurance market is “highly competitive” with close to 50 insurers and more entering each year, according to the report.
“All signs point to more growth, with over $600 million in capacity and more new players, including some limited London market participation, after decades of no interest,” the report said.
USI predicted that rates for pollution legal liability coverage would fall in the range of a 5% increase to 5% decrease while contractors’ pollution coverage could see up to a 10% decrease and combined general liability/pollution could experience up to a 5% increase, according to the report.
“With a booming construction marketplace, the demand for contractors’ pollution liability continues, making the marketplace highly competitive,” the report said. “Prices are continuing to drop with no floor in sight.”
In the workers comp sector, there is “plentiful capacity” for both loss-sensitive and guaranteed-cost programs, according to the report. Pricing for loss-sensitive programs is likely to be flat to down 5% for clients with clean and/or improving loss experience while those with deteriorating loss experience will see a 5% increase and may need to adjust retention levels accordingly, according to USI.
Guaranteed-cost programs are expected to experience a range of rates, from 10% decreases to 10% increases.
“Specific industries will continue to experience reduced capacity and a smaller marketplace from which to secure alternatives, mainly due to the loss severity and volatility associated with those industries,” the report said.