What to Expect for Commercial Insurance Pricing for 2018
Experts at the global insurance firm Willis Towers Watson are forecasting an increase in commercial insurance rates in 2018 following one of the most expensive hurricane seasons in modern memory. The firm’s Marketplace Realities report is warning that underwriters will be agitating for an uptick in rates in order to compensate for both material capital and earnings losses.
Pressures on the Commercial Insurance Property Market
WTW believes that firms needing to cover their hurricane-related losses may be forced to dip into capital, thus driving up the price of replenishing rates. Buyers should be on alert that the lengthy soft market in commercial property insurance may be traveling a bumpy road soon. The WTW report also warns of commercial insurance pricing difficulties in other sectors as well.
Total Damage May Exceed $100 Billion
According to WTW, insured losses from the most recent major storm season are in excess of $100 billion. WTW believes that a market correction is, therefore, almost inevitable after insurers finishing tallying up the damage. Early predictions are for commercial insurance pricing increases of up to 25 percent increases for catastrophe-exposed risks with recent losses and up to 20 percent for catastrophe-exposed risks.
Mitigating Factors
There are, however, a few factors exhibiting downward pressure against the foreseen price hikes. Capacity is still extremely abundant, and there is still enthusiastic engagement with alternative forms of capital provision.
Other Sectors Holding Steady
Casualty rates are expected to smooth out following a season of reductions at many firms as a result of the blowback from catastrophe losses. But both auto rates for businesses and workers’ compensation rates have enough buffer to prevent too much overspill from catastrophe losses.
Cyber Liability
The WTW report predicts an increase in the capacity of the cyber liability insurance market as capacity continues to expand at high speed. Surprising some experts, renewals for cyber insurance programs have had single-digit increases despite several well-publicized security breaches. Strong results were seen from firms that offered reduced premium rates for companies that upgraded their internal policies and network security. Indeed, some firms are looking for up to five percent increases in renewal rates in 2018.
Positive Differentiators
Many industry experts are now warning that many organizations urgently need to make changes in order to stay ahead of the curve. Best practices include the use of positive differentiators in order to better manage brand identity when renewal time comes around. Other best practices for nimble firms is to identify and define risk tolerances in order to weather sharp spikes in rates and/or retentions.
By the Numbers
Here are the key predictions for 2018:
- Non-catastrophe property risks – up to 5% increase
- Catastrophe-exposed property risks: – 10-20% increase
- Catastrophoe-exposed property with losses: – 20-25% increase
- General liability (casualty) – up to 3% increase
- Workers comp – no significant change
- Cyber – between -3% up to +5% change
- Auto – between 3-8%
Overall, commercial insurance rates are expected to rise slightly in 2018.