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The primary and excess casualty markets in the United States showed signs of firming rates in the first half of this year, but industry experts say most rate increases have been modest.
While policy terms and conditions have remained mostly unchanged in the primary and excess markets, experts say fewer casualty buyers—even those with favorable loss histories in relatively low-risk industries—are renewing or securing coverage at reduced or flat rates this year compared with last year.
“Generally speaking, the market is headed in an upward trend, though I wouldn't describe it as a very steep trend,” said Tony DeFelice, New York-based national casualty practice managing director at Aon Risk Solutions.
On average, rates have risen for primary and excess general liability, workers compensation and commercial automotive coverage by 1% to 5% over rates a year ago, Mr. DeFelice said.
“Some of these rate increases are not necessarily all that large,” he said. “However, it's the first time clients may be seeing price increases in almost a decade. So in many cases, we've seen clients reject or at least object to those kinds of increases.”
And while most rate firming among casualty markets has been modest, experts said, many primary and excess buyers in higher-risk industries such as energy, transportation, construction and life sciences have been presented with rate increases of 10 % to 15% over 2011.
“Underwriters are clearly focused on correcting those parts of their book that haven't been as profitable as they need to be,” said Tracey Caffrey Ant, primary casualty placement leader at New York-based Marsh Inc. “There's still a lot of capacity in the marketplace, but we're definitely seeing trends of rates that are firmer than they were at this time last year.”
The worst-performing risks among the primary coverage segments continue to be workers comp products, particularly guaranteed-cost policies, experts said.
Nationwide, workers comp insurance rates at the end of May increased by an average of 5% over 2011, according to Dallas-based electronic insurance exchange MarketScout. Experts said some buyers likely experienced rate increases as high as 15%, depending on their industry, geographical concentration of workers and previous loss history (see related story).
“There are customers in the guaranteed cost workers comp space that are seeing very wide variations in terms of rate increases,” said Russ Johnston, New York-based U.S. casualty product line executive for Chartis Inc. “Some of them might only see a benign increase, but some of them could see rate hikes of 10% to 15%, all the way up to 30% or 40%.”
Experts also noted significant firming in the commercial auto markets, particularly among lead umbrella lines for large fleet accounts.
“What we've seen is that the lead umbrella market is putting a little bit of pressure on where it wants to attach,” said Pamela Ferrandino, New York-based casualty practice leader for Willis North America Inc. Where insurers might have offered attachment points between $2 million and $3 million to large fleet accounts as recently as last year, those accounts are more likely today to encounter attachment points of $5 million to $10 million.
“It's not so much that accidents themselves are increasing, but the size of court awards and liability settlements associated with those accidents are adding severity into the line,” Ms. Ferrandino said. Coupled with a multiyear soft market and flattened investment returns, “carriers don't have the income that they would need to temper the amount of rate and premium they require to meet profitability goals.”
Across all coverage segments, lead umbrella casualty accounts have experienced rate increases ranging from 3% to 10%, depending on their specific risk profile, experts said.
“Sometimes, we do see flat renewals, but they're getting fewer and further between than they were a year ago,” Ms. Ferrandino said.
More pronounced than any strengthening of rates, experts said, has been primary and excess underwriters' increasing focus on risk selection. Insurers are applying greater scrutiny to potential accounts, and more policy agreements are being filtered through upper-level management prior to finalization. In particular, that greater scrutiny is being applied to energy companies and their subcontractors involved in hydraulic fracturing operations, as well as nearly any type of building, manufacturing, logging or transportation operations being conducted in areas prone to wildfires, experts said.
“The more information you can provide to an underwriter about the risk that they're taking, the better and smoother the transaction is going to go,” Mr. Johnston said, adding that high-risk buyers especially should be prepared with an executable plan to improve their company's risk profile.
“Otherwise, you're going to find yourself subject to what the market is doing right now to risks that are performing in that adverse fashion,” he said. “If you're doing things to make changes, be very clear about what they are and exactly how you plan to get them done, as opposed to the more generic sort of commentary.”