The report, designed to be a guide for North American insurance buyers preparing for upcoming insurance program renewals, cited a relatively modest but definite rise in rates across most liability lines of insurance "in response to relentless loss activity...."
Across most lines of insurance, insurance buyers can expect increases in the low single-digit to low double-digit ranges, said the report titled "Marketplace Realities 2019.
This trend, most consistent in the liability lines -- auto, umbrella, directors and officers (D&O), employment practices liability (EPL), professional, environmental, etc. -- is loss driven, the report added. "Increases in frequency driven in part by rising economic activity and increases in severity driven in part by changing societal views on corporate accountability, and the success of what's often called 'reptile' tactics by plaintiffs' attorneys, have forced rates upward."
In casualty lines, these increases should be in the low single digits, while for property, increases could be a bit higher for programs affected by losses, the report affirmed.
WTW predicted that auto liability premiums will continue to rise in 2019 for the third consecutive year, with auto rates expected to increase between 6 percent and 12 percent, as the sector tries to overcome deteriorating loss costs.
"The loss costs are driven in part by improving economic conditions, which are pushing more vehicles onto the road — resulting in an uptick in frequency of auto claims while a volatile legal environment has made those claims more costly to manage," the report said.
Elsewhere in the casualty market, pricing for general liability, umbrella and excess liability coverage is expected to rise in the low- to mid-single digits as the market is hit by significant catastrophic liability stemming from a range of hazards, including California wildfires, the opioid epidemic, #MeToo litigation and relaxed standards for class action certification.
Workers compensation and international casualty coverage are two notable exceptions to rising prices in the casualty market – with both lines expected to continue to be soft, said the WTW report. International casualty rates were expected to drop by 5 percent to 10 percent, while workers compensation rates were expected to range from flat to a decrease of 4 percent.
The report listed key price predictions for 2019, including 14 lines with expected price increases:
- Auto (+6 percent to +12 percent).
- Cargo (flat to +15 percent),
- Casualty (flat to +4 percent),
- Directors and officers (flat to +5 percent.
- Employment practices liability (flat to +5 percent). Shifting views on corporate accountability are putting upward pressure on rates, which are expected to to range between flat to +5 percent overall, although California accounts could see price increases of 5 percent to 10 percent. Media entertainment accounts, where many of the recent high-profile losses have occurred, could face increases as high as 30 percent.
- Energy (flat to +10 percent),
- Environmental (flat to +15 percent). In the environmental market, additional hardening is expected as high frequency and severity losses have been seen across all classes of business, especially for indoor air quality exposures.
- Errors and omissions (flat to +5 percent),
- Marine (flat to +15 percent),
- Political risk (flat to +5 percent). Political risks saw a reversal, from small decreases to single-digit increases, due to the heating up of international tensions.
- Product recall (flat to +5 percent),
- Property (flat to +10 percent). Following the record setting catastrophic events of 2017 and 2018, underwriters will take a more critical look at exposures. Pricing for non-catastrophe-exposed programs is expected to be flat to +2.5 percent. Catastrophe-exposed programs are likely to face increases of 2.5 percent to 7.5 percent, and catastrophe-exposed programs with heavy losses could face price increases of 10% or higher.
- Senior living and long-term care (+5 to +30 percent). Prices in this market continue to harden due in part to a rising frequency and severity of claims, which is leading some carriers to exit the market.
- Trade credit (Flat to +5 percent).
Nine lines are predicted to deliver a mix of small increases and decreases or flat rates:
- Aviation (–10 percent to +10 percent). The brief respite in price declines is over and buyers now can expect a mix of declines and increases.
- Cyber risk (–3 percent to +5 percent). In the cyber insurance market, where global ransomware and extortion claims continue to dominate the headlines, large-account buyers are facing roughly 5 percent increases for both primary and excess cover. Insurers have tightened pricing and retention guidelines for companies that have not addressed cyber security vulnerabilities. The market continues to evolve to cover regulatory risk, reputational damage and other gap exposures.
- Construction (–5 percent to +20 percent)
- Fidelity and crime (flat)
- Fiduciary (–5 percent to +5 percent)
- Health care professional liability (–7 percent to +10 percent). Health care professional rates are expected to offer a mix of decreases and increases, a departure from a long period of steady incline.
- Kidnap and ransom (–5 percent to +5 percent)
- Surety (flat)
- Terrorism and political violence (flat).
Effects of Resurgent M&As
Beyond firming market conditions, the other notable trend expected to affect risk transfer strategies for buyers in 2019 is the resurgence of mergers and acquisitions (M&A) as insurance carriers pursue inorganic growth, new technology platforms and talent, according to the report.
"So far, recent M&A has not had a material impact on rates and capacity, but it is reducing the number of competitors in the field. Given the capital fluidity that is the industry's new normal, we don't foresee a dramatic impact on rates but do expect consolidations will result in more underwriting discipline, which may serve as a backstop against another free fall in rates," said Joe Peiser, head of North America broking, in a statement.
"Another important consideration for buyers confronting new carrier combinations is a potential change in an insurer's claim handling philosophy and the strictness with which policy language is enforced," he noted.
"Navigating this changing and dynamic marketplace demands a strategic approach, and buyers facing renewals should focus on creating submissions using distinguishing data and narratives to set themselves apart from their peers," Peiser added.
Willis Towers Watson's Insurance Marketplace Realities series is published in the fall and updated every spring.
Source: Willis Towers Watson