Commercial insurance buyers are likely to face rate increases for 2018 insurance programs following one of the most active and financially disruptive hurricane seasons in history, according to Willis Towers Watson’s 2018 Marketplace Realities report.
As the industry continues to tally losses, the report indicates underwriters will be pushing for rate increases as they balance what is expected to be a significant earnings hit for many, and for some a potentially material capital hit. The pressure to raise rates will be tested by underwriters who need to dip into capital to fund their losses. For buyers, this may mean the long soft market for commercial property insurance could be over—at least temporarily.
Joseph C. Peiser, head of Broking for WTW North America, recommends that insureds “define their risk tolerances so they know where their ceiling is” if rates and retentions spike.
In the property market, where there is a growing consensus that insured losses from recent catastrophes will exceed $100 billion, WTW experts “expect to see some type of market correction” after insurers have a chance to estimate their ultimate losses. However, the pricing impact to buyers will likely not be apparent until the first or second quarter next year.
Despite the uncertainty, rates are forecast to potentially rise 10% to 20% for catastrophe-exposed risks and 20% to 25% for catastrophe-exposed risks with recent losses.
Remaining rates outlook
Casualty rates are predicted to be flat or increase by small amounts as pressure from the recent catastrophe losses spills over into other lines of business. Auto rates for businesses will maintain their single-digit increases, while workers’ compensation rates are expected to be stable.
Despite the potentially broad impact of natural catastrophe losses, the report anticipates many of the specialty insurance lines of business will follow their own supply and demand curve. For terrorism insurance, buyers should expect flat renewals rather than the decreases they have seen in recent renewals. Meanwhile, in the environmental insurance market, the high double-digit increases for combined environmental-casualty programs have begun to ease.
The cyber liability insurance market remains robust with increased competition buoying market conditions. Despite a string of high-profile breaches, cyber insurance program renewals for both primary and excess cover are averaging only single-digit rate increases. Underwriters have offered premium decreases to organizations that are able to demonstrate increased levels of security and internal policy controls. Experts forecast rate increases of up to 5% for 2018.