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COLORADO SPRINGS, Colorado – Many insurance buyers will likely face demands for more premium hikes at upcoming renewals with insurers pushing for rate increases in a continuing tough market for several major lines of coverage.
Property rates, which saw double-digit average increases earlier this year, are likely to rise further as little new capacity has entered the market and insurers point to sustained higher catastrophe losses, though increases likely won’t match last year’s hikes.
Several liability lines, which saw less pronounced increases, are also likely to experience higher rates as insurers report worsening losses, brokers and insurers say.
Only in some specialty lines — such as directors and officers liability and cyber liability, which have seen an inflow of new capacity over the past two to three years — are rates likely to fall, they said during meetings at the Insurance Leadership Forum held in Colorado Springs last week.
The conference, organized annually by the Washington-based Council of Insurance Agents & Brokers, is a key market meeting and draws top executives from insurers, brokers, reinsurers and other industry companies.
The meeting came about three weeks after the Rendez-Vous de Septembre in Monte Carlo where reinsurers indicated they will seek to impose further rate hikes on ceding insurers.
At the ILF, brokers and insurers generally indicated that at least some of those increased reinsurance costs would be passed on to primary insurance customers.
Higher property values and higher reinsurance costs will continue to drive increased rates for property, said Sierra Signorelli, Zurich-based CEO of commercial insurance at Zurich Insurance Co. Ltd.
“But we have readjusted values pretty significantly, so I would expect it’s going to be far less than it was in the last year,” Ms. Signorelli said.
Property and property cat rates remain stable to hard for primary and reinsurance placements, because, unlike in previous hard markets, little new capital is entering the sector, said Steve McGill, CEO of London-based McGill and Partners Ltd.
“There’s a concern that, if you’re a new player coming in, the volatility is significant and you aren’t going to get the returns commensurate with the level of volatility,” he said.
Policyholders with minimal losses and low catastrophe exposures will likely see low- to mid-single-digit increases, said Marc Kunney, San Francisco-based president-risk management at EPIC Insurance Brokers & Consultants.
“But for everybody else – those with bad loss histories or significant cat-exposed portfolios – they will probably continue to get double-digit increases,” he said.
Much of the trend of rising rates is being driven by reinsurance pricing and the restructuring of reinsurance programs where primary insurers have had to retain more risk, said Trevor Baldwin, CEO of Tampa, Florida-based BRP Group Inc.
“I think the primary guys still have another 18-plus months of rate action,” Mr. Baldwin said. Rate increases over the next year will likely range from about 8% to about 17%, depending on the account, he said.
Policyholders are increasingly establishing captives and buying coverage through alternative risk transfer structures to handle property risks, said Michael Chang, New York-based head of corporate risk and broking, North America, at Willis Towers Watson PLC.
“That’s the bigger box structures that allow them to take some of the risk, cede off some of the risk and balance it out over a three-year period. We’ve seen a lot of that happening today, particularly around real estate and hospitality,” he said.
In addition, policyholders are buying parametric coverages.
“We’re putting more parametric solutions to work this year by a factor of multiples compared with any year in the past,” Mr. Baldwin said.
Parametrics and other alternative coverages that were previously viewed as expensive are now priced at comparative levels to traditional coverage, Mr. Kunney said.
“For our large clients, it’s absolutely part of the purchasing mix. It’s direct, it’s facultative, it’s reinsurance, it’s parametric, it’s ILS, it’s everything,” he said.
The rising prices may eventually attract more capital to the market, Mr. Chang said.
“I am hearing more people say they want to take advantage of the rates that are in property, so as more people want to take advantage and more supply becomes available, you’re going to start to see some relief over time on pricing,” he said.
Increases in liability rates will likely be driven by commercial auto, where losses are increasing, insurers and brokers say. According to a report issued last week by A.M. Best Co. Inc., commercial auto losses soared from break even in 2021, which was affected by less driving during the pandemic, to $3.3 billion in 2022.
The commercial auto sector is being hit hard by “social inflation,” or higher court awards and settlements, said Mike Karmilowicz, New York-based president and CEO of Everest Insurance, a unit of Everest Group Ltd.
“We’ve been getting rate on commercial auto for eight-plus years; it’s more than a rate issue, it’s the overall inflation and severity and frequency,” he said.
“When you look at motor, which is a leading indicator from a casualty perspective, it’s very difficult, even with all the rate that’s coming through on the motor portfolio,” Ms. Signorelli of Zurich said.
But the market acknowledges that buyers have paid cumulative increases for commercial auto coverage, she said.
“We are well aware that there’s a significant amount of fatigue in the system and rates have been increasing for a long period of time, so we want to be focused on where we need to take steps to address portfolio and profitability,” Ms. Signorelli said.
Increased awards for auto-related injuries and deaths related to large trucking fleets are causing concerns, said Mike Rice, Denver-based CEO of CAC Specialty.
“It’s forcing buyers of insurance to take much bigger self-insured retentions. They are transferring cat, but they’re taking on huge amounts of potential loss and paying more money for it,” he said.
Policyholders that invest in loss controls, such as improved driver training and telematics, are getting some relief from underwriters, but it remains a tough market for most auto policyholders, said Mr. Kunney of EPIC.
Commercial auto policyholders with poor loss experience will “almost certainly” see double-digit rate hikes, he said.
In tough casualty lines in general, policyholders will likely have to take higher retentions, similar to the higher retentions that have been taken on property coverage, and look to alternative risk transfer structures, said Mr. Karmilowicz of Everest.
Casualty rates are creeping up from the low- to mid-single-digit increases imposed earlier this year, as insurers see higher loss cost trends, said Mr. Baldwin of BRP.
Even though insurers benefit from higher interest rates on longer tail business, price increases will likely be in the mid- to high single digits, he said.
Policyholders are seeing rate relief in D&O and cyber and that is likely to continue, executives said.
“This is more of a story of the traditional insurance market cycle,” Mr. Kunney said. Some policyholders are seeing 25% rate cuts on D&O, and rates for cyber liability insurance are also falling as capacity has increased, he said.
Sharp increases in D&O rates prior to last year attracted a significant amount of new capacity to the market with numerous insurers, MGAs and MGUs building up underwriting teams that are still looking to write business, executives said.
While D&O capacity has increased over the past couple of years, transactions, such as initial public offerings, that generate demand for coverage have decreased, said Anthony Tatulli, New York-based head of executive and professional lines for North America at Berkshire Hathaway Specialty Insurance Co.
“You have more capacity, and you don’t have that IPO business going on right now, and because of that folks are chasing business and they’re behaving in a way I don’t think is sustainable,” he said.
With securities class actions filings up sharply this year rates should begin to stabilize, Mr. Tatulli said.
Rates will likely continue to fall, and the bottom of the market may be in sight, said Mr. Rice of CAC Specialty.
“What we’re hearing is flat to minus-10, so it’s still a good market for buyers, but we’re hearing that people are getting ready to draw a line in the sand on the D&O side,” Mr. Rice said.
Inigo Ltd., which was founded with private equity backing in 2020 to write reinsurance and large commercial insurance through its Lloyd’s of London syndicate, is reducing its D&O business as rates fall, said Richard Watson, CEO of the London-based company.
“Our D&O income this year will be less than last year, and next year will be less than this year. So, we are pulling that part of the book back, but we’re still trying to invest in understanding the risk,” he said.
Inigo will look to expand its direct and facultative property business, Mr. Watson said.
The rapid decrease in D&O rates is “a bit concerning,” said Ms. Signorelli. “We’re looking at it account by account and trying to be very thoughtful in our approach.”
Cyber rates are also falling despite increased cybersecurity incidents, executives said.
“Even though there seems to have been a heightened level of ransomware claims as of late, you’re still finding new entrants and more capital coming into cyber,” said Mr. Chang of WTW.
Inigo recently hired another cyber underwriter but is not looking to immediately expand its book, said Matthew Rolph, head of distribution and capital partners at Inigo.
“We’re looking at where the rate is and there’s heavy rate erosion on the excess, so we’re measured in our approach,” he said.