Commercial liability rate increases slow as more insurers vie for businessReprints
The commercial liability insurance market remains competitive going into Jan. 1 renewals, with most experts forecasting low single-digit increases amid increasing insurer competition.
However, pricing depends on the line of business as well as the history of the account.
In addition, the market was jolted last month when the U.S. Senate's inaction allowed the federal terrorism reinsurance backstop to expire, setting off a wave of last-minute placements. Construction and real estate accounts were expected to be the most affected by the expiration.
Still, “some accounts might get an above-average increase, some may get below-average; it could even be a negative, depending on the characteristics of the risk,” said Greg Massey, New York-based senior vice president and head of casualty at Zurich North America.
Accounts with a more proactive approach to risk engineering and safety management will likely see rates that are better than average, he said.
“Primary insurance pricing continues to go up, however, at a lower rate,” said Taoufik Gharib, New York-based director of financial services ratings for North American insurance at Standard & Poor's Corp.
Commercial liability rate increases during 2014 were about 2% to 3% in aggregate, said Mr. Gharib, “but if you track those rates monthly or quarterly, they've been declining.”
“In many cases, we are still seeing positive rate traction for our (insurer) clients,” said David Dee, Princeton, New Jersey-based head of casualty underwriting for national clients at Munich Re America. “In some cases on the largest accounts, we're seeing some rate cuts, but across the board, there is still a very small but positive rate traction” for primary insurers.
Mr. Massey agreed rates in general look to increase in the low to mid-single digits for the January renewals but said there will be differentiation depending on the types of risks and loss history.
Improved analytics and more robust data are allowing insurers to more precisely price risk for each client, leading to greater rate differentiation, he said.
Account size is one point of potential differentiation, experts say.
Midsize accounts are likely to see flat renewals after three years of rate increases, said Pam Ferrandino, New York-based national casualty practice leader of placement at Willis North America Inc.
“We expect the rate trend for middle-market (accounts) to shift and put us in a flat range,” Ms. Ferrandino said.
While larger accounts still will see single-digit pricing hikes, “by no means are those increases looking like those we were seeing a couple of years ago,” she said.
Increased competition in 2014 came from workers compensation insurers diversifying into other lines of business to improve their combined ratios, she said. That “generated competition, and competition often results in lower pricing,” Ms. Ferrandino said.
“The primary general liability marketplace remains very competitive and has been so throughout the year” said Peter Wilson, New York-based CEO of Axis Insurance Co.
“The reality is that the market remains robust. Clearly, there are instances where prices have firmed for individual insureds, but there are equally others that are softer,” Mr. Wilson said.
Amid this highly competitive market, some clients are bringing new challenges to the table for insurers.
“We are seeing more and more requests for international” general liability coverage from U.S-based firms and overseas companies doing business in North America, said Mr. Massey.
“Cyber is the big new product that everybody is talking about now,” said Jason Porter, New York-based director of financial services ratings for North American insurance at S&P.
“It's the new growing exposure, so obviously it's an opportunity for growth, but it's being approached rather cautiously by most companies because the understanding of the risk and the loss history are not very mature,” he said.