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Most casualty renewals flat; commercial auto still seeing rate hikes

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After years of decreases, casualty insurance risks, including directors and officers liability and other specialty lines, generally saw flat renewals on Jan. 1, 2018, with the notable exception of commercial automobile risks where insurers obtained rate increases, experts say.

Speculation that last year’s big property catastrophe losses would drive up rates across insurance lines does not appear to have been borne out but fewer accounts are seeing rate cuts, they say.

“Despite all the noise you hear about insurers pushing for rates, in general I would still characterize it as favorable, at least on a macro level, to buyers of insurance,” said Stephen Hackenburg, New York-based chief broking officer for Aon P.L.C.’s national casualty practice.

Flat rates “are the new norms,” said Brandon Fick, head of casualty for Zurich North America commercial insurance in Philadelphia. Previously, brokers would start conversations with insurers asking for rate decreases and negotiate from there, but “Now, most discussions start with, ‘Can we keep the status quo and keep our renewals as is?’”

Jessica Cullen, managing director, casualty practice, at Arthur J. Gallagher & Co. in New York, said, “The first thing that comes to mind is stable, with an eye towards cautiousness.”

Tony Tam, Marsh L.L.C.’s New York-based U.S. casualty placement leader, said while rates are stable, recent events have raised concerns for liability insurers.

The bombing of New York’s Port Authority in December, the Las Vegas mass shooting in October and growing concerns about mass casualty exposures as large groups of people gather in one place have made underwriters more cautious, he said.

But there is still significant capacity in the umbrella excess market, including from insurers in the United States, Bermuda, London, Dublin and Zurich.

With so much supply, “it’s going to be difficult to see major market corrections, because there’s still so many good risks out there and there’s still so much capacity” despite last year’s hurricanes and wild fires, Mr. Tam said.

Meanwhile, rates in the D&O market also are generally flat, “but you’re beginning to see primary insurers push for rate increase,” although selectively, said Gary Phillips, New York-based executive vice president with Lockton Cos. Inc. “There’s a back and forth negotiation,” he said.

Insurers, however, are increasingly scrutinizing midmarket firms “because that’s where they’ve felt the pain in their books of business in terms of claims payments.  I don’t think too many insurers are making money in primary D&O business from midcap companies,” said Devin Beresheim, managing director and practice leader for Marsh L.L.C.’s FINPRO practice in New York.

For public company D&O risks, insurers are “at least holding the line,” although the excess market remains competitive, said Kevin Lacroix, executive vice president of RT ProExec, a division of R-T Specialty L.L.C., in Beachwood, Ohio.

The private company D&O market remains competitive, Mr. LaCroix said.

But there are a “lots of concerns” in the employment practices liability lines because of the recent, widely-publicized allegations of sexual harassment and misconduct in several sectors, and the expectation is there will be more claims, he said.

Increased rates for commercial auto, particularly for large fleets with losses, are the exception to the overall flattening rates for casualty. 

Large fleets, with poor loss experience could potentially see rate hikes of 20% or more, said Renee Dube, Valhalla, New York-based vice president, national property and casualty practice for USI Insurance Services Inc.

Increased vehicle and repair costs, distracted driving and high jury awards are all contributing to higher claims costs, experts say.

Five years ago, a single plaintiff auto accident typically would not exceed $10 million, said Mr. Hackenburg of Aon. Today, juries are making “completely unprecedented” awards of $30 million or $40 million for single plaintiff auto accidents and the awards are being upheld on appeal, he said.

Distracted driving and robust economic growth that has led to more miles driven per vehicle have also increased exposures, said Mark Moitoso, Atlanta-based senior vice president and national analytics practice leader for Lockton.

The commercial automobile insurance sector is now in its seventh consecutive year of combined ratios of more than 100% said Mr. Fick of Zurich. “It’s something you don’t push under the carpet” by making money on other lines of business, he said.

Mr. Tam said, “There are fewer and fewer carriers that just want to do monoline auto,” and if insurers are asked to write the business on this basis, “more and more they’re saying, ‘Thanks, but no thanks.’”

However, Mr. Hackenburg, who focuses on the largest commercial risks, said, “Most of our clients by now have adjusted, either by increasing retentions, or excess layer attachment points, or both.”

“Clients that have put the right program structure into the marketplace probably won’t see too much uncertainty,” and may experience a single digit rate increase, he added. But those who have not adjusted their program structure “are going to see challenging renewals in 2018,” he said.