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COLORADO SPRINGS, Colorado – Commercial insurance buyers likely won’t see much let up in insurers’ drive for increased rates through the rest of this year, into next year and possibly beyond, industry experts say.
Price hikes, which started in some lines last year or earlier and took hold in many other lines in the spring and summer of 2019, are gaining momentum despite plentiful capacity as insurers look for increased revenue following accelerating liability awards and two years of big property losses, they say.
Led by global insurers, most underwriters in the market appear to be holding ranks as they say unsustainable claims levels and the low interest rate environment are driving the need for more premium, lower limits and narrower coverage.
While some areas of the market, such as workers compensation and smaller cyber accounts are still relatively soft, and other areas are seeing only modest increases, the overall trend is for more expensive coverage and decreased limits available from single insurers, they say.
They were speaking at the Insurance Leadership Forum, the annual marketplace meeting sponsored by The Council of Insurance Agents & Brokers and held in Colorado Springs, Colorado, last week.
Rate increases started in lines of business that have seen significant losses, such as property, excess casualty and directors and officers liability, but the hardening has spread to most lines, especially for large accounts, said Brian S. Wanat, New York-based chief broking officer at Aon PLC.
“With each passing month, rates have gone up more. We’re looking preliminarily at Q3 being greater than Q2 and we see it gaining momentum at this point,” he said. “I think everything outside of workers comp is going up double digits right now, certainly for the larger accounts.”
And little new capacity is entering the market, outside of Stephen Catlin’s recently formed Convex Group Ltd. in Bermuda, “so there’s really no new markets that are looking at this as an opportunity and cutting rates,” Mr. Wanat said.
Rates are increasing, but it’s still too early to call it a hard market, said Mike Rice, chairman and CEO of RSG Underwriting Managers, a division of Ryan Specialty Group LLC in Chicago.
“I don’t think it’s necessarily a hard market; it’s a firming market, but it’s spotty,” he said.
On the wholesale side, business that previously left the surplus lines market for the admitted market and is now returning is seeing significant rates increases, Mr. Rice said. Elsewhere, the most significant changes are in D&O, he said. At RSGUM’s D&O facility in London, which writes mainly excess coverage for large corporations, “we’re seeing increases anywhere from 50% to 100%,” he said.
“It’s a market in correction in multiple lines of business,” said David Perez, chief underwriting officer, North America, for Global Risk Solutions, Liberty Mutual’s global commercial and specialty lines insurer and reinsurer.
“Brokers have accepted the fact that rates need to change,” after years of rates cuts, he said.
Excess casualty loss trends are increasing “anywhere between 12 and 20 points and most markets are just trying to keep up with that so they don’t slip backwards,” he said.
In addition, the low interest environment is affecting pricing for long-tail lines, Mr. Perez said.
“The issue with loss trends but also what we can generate from our premium are two factors that we have to keep up with,” he said.
Workers comp and small cyber accounts are still seeing soft pricing, but most other lines are seeing increases, said Michael Rice, CEO of CAC Specialty, which formed earlier this year and was one of several organizations with new operations, offerings or strategies at the ILF.
“Larger cyber is getting more expensive and D&O is going through the roof right now, and property/casualty is getting tougher and tougher,” he said.
Even on Side A D&O coverage, “which used to be a real benign product where a lot of people bought as much as they could,” insurers are cutting limits and increasing rates in the face of some large claims, he said.
Umbrella and excess casualty and public D&O risks are experiencing the most disruption, said David Bresnahan, executive vice president at Berkshire Hathaway Specialty Insurance Co. in Boston.
And market conditions are changing rapidly, he said, with more insurers cutting limits on excess casualty placements from $25 million to $15 million to $10 million and in some cases, over the past several weeks, to $5 million.
Berkshire Hathaway is offering less capacity on new business but is still offering $25 million to existing policyholders, where it is satisfied with the profitability of the account, he said.
“Our comfort level for new clients is more in the $10 million to $15 million range and maybe offer more as we get to know a client,” Mr. Bresnahan said.
The reduction in limits available in the market is largely driven by increased jury awards and liability settlements, which have increased by multiples over the past several years, he said.
Property insurance rates have been increasing since last year, as a result of significant catastrophe losses in 2017 and 2018, and the increases are gaining momentum, industry executives say.
Rate increases in property lines began about 18 months ago but have accelerated since April this year, said Sanjay Godhwani, executive vice president at Berkshire Hathaway Specialty.
“What may have been a high single-digit/low double-digit rate increase started turning into mid double digits and now you are hearing 15-, 20- or 25-point rate increases as averages in the market,” he said.
Rate increases and higher deductibles are motivated by higher catastrophe losses over the past several years, Mr. Godhwani said. “There’s not enough money being collected to pay the loss cost; it’s just as simple as that.”
For large risks, some property accounts are seeing 30% or 40% increases, said Mr. Perez of Liberty Mutual.
The property rate increases are being felt throughout the insurance and reinsurance markets but are being led by primary insurers and retrocessional reinsurers, said Wade Gulbransen, partner and head of North America at reinsurance brokerage TigerRisk Partners LLC in Edina, Minnesota.
“The primary market is firming at a quicker pace than the reinsurance space, aside from retro,” he said.
But reinsurance rates increased at Jan. 1, 2019, and during mid-year renewals, “led by losses in the Southeast,” he said.
Much of the rate firming across property/casualty markets will last in 2020 and possibly beyond, executives say.
“It sounds as if this may have some legs on it,” said Denis Brady, San Francisco-based president of Burns & Wilcox Brokerage, an H.W. Kaufman Financial Group Inc. unit. “In the past, we’ve had blips, but I think with everything that’s happened with Lloyd’s and some of the catastrophes, the fact that some lines have had low rates for a while and there’s not much new capacity coming into the market, I think this could go on for some time.”
The expectation from insurers is that increases will be imposed for at least one and probably two renewal cycles, said Mr. Wanat of Aon. “Over time, if rates go up enough, I think you’ll see additional capital coming in.”
Especially for long-tail specialty coverages, the hard market could last several years, Mr. Rice of CAC Specialty said.
“The problem underwriters have right now is that there’s a high frequency of high-severity events,” Mr. Rice said. “There are so many big claims out there.”
The increases will likely continue at least through 2020, said Mr. Perez of Liberty Mutual. “After the market gets through the cycle of remediation, we still have to keep up with loss trends so it’s not like rates will be flat.”
For example, commercial auto has seen increases for several years “and it’s still not profitable,” Mr. Perez said.
For excess liability and D&O, “my advice to customers is that ‘you should be planning on rate increases every year for the next five years’ because there is no sign of tort reform or anything else coming that would stem this tide,” Mr. Bresnahan said.
Aside from the pricing, insurers are also changing terms and conditions, said Mr. Rice of RSGUM. “They are tightening up the coverage … and I think that’s probably going to be more meaningful in the long term.”
February premium renewal rates increased across all major commercial lines of business in February except for workers compensation, Ivans Insurance Solutions said Tuesday in its monthly report.