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COLORADO SPRINGS, Colo. — Insurers and brokers are closely monitoring developments in key lines of business, particularly directors and officers liability, as merger objection lawsuits start to trigger rate increases.
Meanwhile, the automobile insurance sector continues to see increases driven by loss history, with casualty lines potentially seeing some rate hikes, although ample capacity in the market could put a damper on any upward momentum, they say.
“I wouldn’t call it hard, but I would say some firming — flat to upward trends in some of our products,” Mike Rice, Denver-based executive chairman of JLT Specialty USA, a unit of Jardine Lloyd Thompson Group PLC, told Business Insurance last month on the sidelines of the Insurance Leadership Forum sponsored by the Council of Insurance Agents & Brokers in Colorado Springs, Colorado. “What clients are beginning to see is there’s more underwriting going on right now, which I would tell you is always a good thing. I just think you have to keep your clients educated as to what to expect.”
Dissatisfied shareholders of soon-to-be or recently acquired companies have increasingly filed merger objection lawsuits, which is having an impact on the D&O market, experts say.
“In an economy that’s characterized by high activity and growth and acquisition … the D&O space and merger objection claims are an increasing dynamic that’s having a negative impact on public companies and public D&O cover,” said Matthew Dolan, president of North American specialty for Liberty Mutual Insurance Co. based in Simsbury, Connecticut. “We’re watching that pretty closely.”
With D&O coverage, “I think you’re seeing a tale of two cities,” said Paul Horgan, Zurich Insurance Group Ltd.’s head of North America commercial insurance in New York. “The large-accounts space continues to be one that’s challenged on profitability. I think you’ll see underwriters pushing for rate or terms on that. In the middle market, there still tends to be a lot of competitors out there. While the profitability has become a bit more challenging in that space, there is still a lot of capacity, a lot of people trying to diversify into the middle market. I think you’ll see continued pressure on the larger side and probably more stability on the middle market (side).”
But the D&O market remains “very competitive,” said Tom Fitzgerald, CEO of Aon PLC’s global broking division in Chicago.
“There are certain industries inside the financial lines world that are experiencing worse claims results that then translate into worse underwriting results, and that’s pushing for greater rate,” he said. “You can’t just broad-brush D&O, because D&O remains very competitive with the notion that a lot of people want to write it. (Financial institutions is) a difficult industry, fraught with regulation. It can be an easy target.”
Meanwhile, the challenges in the automobile market will continue to persist, insurers and brokers say.
“Auto has had multiple quarters of double-digit rate,” Mr. Horgan said. “The rate has not caught up with the existing loss patterns. I know it’s disappointing for our customers, but we expect the rate to continue to challenge the auto market.”
Transportation is the only relatively hard market right now, said Daniel Kaufman, senior vice president of H.W. Kaufman Financial Group Inc. in Farmington Hills, Michigan.
“It’s all relative these days,” he said. “There still are very limited markets in there, but the markets that are in there have changed appetite, they’ve changed underwriting and obviously they’ve raised rates. With all of that combined, I assume they will perform better, and perhaps we’ll see some new entrants into the market. You’re also seeing a lot more trucks on the road because the economy is so good.”
The distracted driving phenomenon is contributing to the challenges in the transportation line, Mr. Kaufman said.
“It’s also driving new technology, so over time that could decrease accidents, but for now technology is causing accidents,” he said.
Joe Peiser, New York-based executive vice president and head of broking for Willis Towers Watson PLC, said he “wouldn’t be surprised if the umbrella business starts to follow the auto line,” but with single-digit rate increases.
“We are seeing some major casualty insurers, particularly on umbrella business, significantly cut back,” he said. But “there’s still ample capacity. I don’t expect anything dramatic because I think the days of dramatic turns are over, but it wouldn’t surprise me that in a year or two we start to see a steady increase in pricing in casualty.”
Cyber still a hot topic
Cyber also continues to dominate market conversations as both the risk and product solutions expand, insurers and brokers say.
“In cyber, there’s continuing increases in capacity,” Mr. Peiser said. “Most companies are seeing slight increases in price on the order of 1% to 5%. You’ll get the occasional risk that will still see a slight decrease. The pricing environment isn’t bad and the capacity is good.”
A key unresolved question is whether cyber should be solely a stand-alone product or continue to be intertwined with other coverages. In particular, which policies should respond to business interruption claims following a cyber event has yet to be determined, experts say.
“The market doesn’t seem to have settled on where that belongs,” Mr. Peiser said.
Predictions of a widespread increase in property rates following last year’s natural catastrophes have not materialized, with insurers and brokers reporting rate hikes that are generally confined to areas with vulnerability or losses related to wind and flood.