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Pending changes could add volatility to property/casualty market


The commercial property/casualty insurance market might not end 2016 as buyer-friendly as it began, according to a report by Willis Towers Watson P.L.C.

“At the macro level, the satellite view, much remains the same for insurance buyers: capacity remains plentiful, low interest rates invite alternative sources of capital to explore the insurance industry (which further increases overall capacity) and so far, 2016 appears to be another relatively light year for catastrophic loss,” Willis Towers Watson said in “Marketplace Realities Spring 2016: Bringing the Pieces Together.” The result for most buyers is soft market conditions, according to the report that was released last week.

The report said that while more lines of insurance — nine — are now expected to post decreases than the eight that are expected to experience increases, last October the lines with decreases outnumbered those with increases by 11 to five.

“Property and casualty rates are still trending downward, but not as steeply,” said the report.

And the report says that a closer look at the marketplace results in a more complicated picture, “one in which several of the key pieces in the risk management puzzle are changing.” For example, American International Group Inc., which the report called a “super-carrier” is “poised to get smaller, and perhaps in the coming years, the still-giant company may divide, as some have been urging, into several pieces.”

The acquisition of Chubb Corp. by Ace Ltd., creating Chubb Ltd. has created another supercarrier, the report said.

“Those two changes alone can add a healthy dose of complexity to a company's renewal strategy,” said Willis Towers Watson in the report.

There's additional complexity on a line-by-line basis, the report said. “While a slight majority of lines are still seeing decreases, the level of those decreases is smaller,” according to Willis Towers Watson. “In property insurance, for example, rates are expected to fall for most buyers, but some will find decreases in the single digits, where last year they might have enjoyed double-digit reductions. In the case of auto coverage for businesses, decreases have given way to small increases for the typical buyer.” In addition, rate increases for cyber and errors and omissions policies are getting steeper, the report says.

The changing marketplace “will force some insurance buyers to consider moves they might otherwise have been content to ignore (for the simple fact that a risk manager cannot choose to stay with a carrier if that carrier no longer exists),” said the report.

“That in turn will raise the question of how carrier partners are chosen in the first place. In most cases (and certainly for leading firms with billions in revenue), the selection process involves many considerations,” including price. “But also key is the financial stability of the company that will have to pay the claims should a loss occur, and so are the “culture and personality of the people and institution involved in the transaction,” said the report.

“In other words, the choice of a carrier involves the variables, tangible and otherwise, that inform this important strategic relationship,” according to Willis Towers Watson. “Many pieces must fit to solve that puzzle.”