While 2017 was mostly a buyers' market for both property and casualty commercial insurance and affiliated lines, rates across lines could rise this year due in large part to the industry's estimated $85 billion to $100 billion in total losses from Hurricanes Harvey, Irma and Maria, not to mention wildfires, hail, and tornadoes, according to USI's “2018 Insurance Market Outlook.”
Now that losses and expenses are outpacing premium growth for many insurers and reinsurers, carriers will likely attempt to push through higher pricing in property and affiliated lines, USI practice leaders predict.
“The question is: How long will this persist before capital sitting on the sidelines is deployed to win new business and thereby begin to reduce or stabilize rates?” they write. “And, will the impact of property losses bleed over to casualty and other lines of insurance?”
While industry surplus reached an all-time high in mid-2017, exceeding $700 billion, last year's catastrophic events' effect on earnings — coupled with multiple years of annual rate decreases — means thin profit margins for many carriers. As a result, underwriters will seek property rate increases overall and they will employ more selective underwriting for property-related lines, USI practice leaders predict.
Overall, they expect the property market to firm up with respect to pricing, terms and conditions, with renewal rates ranging from flat to increase of 20 percent.
Some markets will attempt to apply rate increases beyond the property market and into other lines such as casualty, they predict.
“Ultimately, we do not expect any dramatic increases in casualty rates except for guaranteed-cost buyers with poor loss histories and insureds with medium to large commercial auto fleets,” they write. “While we see this persisting into 2018, any serious attempt to raise casualty rates substantially should be offset quickly.”
For primary casualty, insureds with higher retentions are expected to see a flat to a 10 percent decrease in rates. Guaranteed-cost buyers will see rates impacted +5 percent to -5 percent.
Lead umbrellas are still competitive, so increasing capacity and staunch competition should continue in 2018, according to the USI practice leaders. Expect flat to 5 percent to 10 percent pricing decreases, but with an effort by the market to raise attachment points and reduce limits for auto liability, particularly on tougher auto fleets. Excess liability rates are expected to vary based on the layer, with rates flat to decreasing 10 percent for mid-limit layers and upper-layer rates leveling out at the current pricing.
The USI practice leaders' 2018 forecast for some of the other insurance lines include:
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Workers' comp: Pricing for loss-sensitive programs is likely to be flat to down 5 percent for clients with clean and/or improving loss experience.
Clients with deteriorating loss experience will see a +5 percent rate fluctuation and may need to adjust retention levels accordingly. Guaranteed-cost programs are expected to experience an estimated -10 percent to +10 percent change; exceptions will be for clients with extremely clean loss experience. Guaranteed-cost pricing will also vary by a client's specific state payroll distribution due to states' legislative pressure on adequacy of rates.
International: Primary foreign casualty guaranteed-cost programs should experience stabilized but moderate rate decreases of 5 percent to 15 percent. Primary foreign property programs should experience stabilized but moderate rate increases of 2 percent to 8 percent (with the exception of risks exposed in catastrophic zones).
Environmental: Rates are likely to be fairly stable, but vary by coverage line. For pollution legal liability, USI practice leaders predict 5 percent increase to 5 percent decrease; for contractors' pollution, flat to 10 percent decrease; and for combined general liability/pollution, flat to 5 percent increase.
Public company directors' & officers' liability: In general, a 5 to 10 percent decrease in pricing remains achievable for mainstream risks. Markets can be observed to compete vigorously for favored risks and/or to maintain share on such risks. However, while not uniform, there is an emerging market discipline and push back on continued premium softness. In the absence of significant market volatility, disruption or major triggering event, it is largely expected that current conditions will extend through 2018.
Cyber: USI practice leaders expect market capacity to remain stable at $500 million to $600 million as new syndicates continue to offer capacity at Lloyd's and the Bermuda market expands its appetite for network security and privacy insurance. The increased competition will continue to force rates down for domestic carriers.
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Katie Kuehner-Hebert
Katie Kuehner-Hebert is a freelance writer based in Running Springs, Calif. She has more than three decades of journalism experience, with particular expertise in employee benefits and other human resource topics.
