Property and Casualty
What Does 2014 Hold for Insurance Rates?
By: Nancy Germond
What can you expect for property and casualty insurance pricing in 2014? Expect some increases, but watch for significant decreases in at least one line of insurance. According to Willis’s recently published Marketplace Realities 2014, new capacity is flooding the market from “as widespread as China and Omaha.” New capital supply offers a more “inviting marketplace,” Willis executives believe. Others insurance experts across the U.S. agree. Here is what to expect in 2014.
Primary and Excess Casualty
Do not expect huge decreases in casualty prices even with “abundant” capacity and “new market entrances,” according to Willis and other experts. With the loss of the federal terrorism backstop looming in December 2014, carriers hesitate to write exposures with large risk concentrations. Underwriters are also avoiding manuscript endorsements, relying more heavily on Insurance Services Office (ISO) language. Standard ISO language has more court decisions behind it, which equates to more predictable loss experience for underwriters to base their rates, many believe. Willis predicts casualty pricing to increase two to 10 percent in 2014.
Auto and Fleet
Auto liability continues to challenge fleet owners nationwide. Experts predict auto liability pricing increases between two to 10 percent. Underwriters are imposing higher retentions on risks with large fleets, heavy trucks or poor loss experience. Carriers like ACE offer auto liability buffer limits, coverage outside the working layer when primary limits do not meet umbrella attachment points.
There are several emerging issues in workers’ compensation. With the Affordable Care Act expected to bring new insureds into the healthcare system, expect strains on the work comp system. This will put pricing pressure on workers’ compensation premiums. While experts predict that earlier treatment for comorbidities will benefit workers’ compensation experience, we predict this will be a long-term benefit. In the near term, Willis predicts work comp rates will increase from 2.5 to 10 percent. The exception is California, where employer can expect rate increases of up to 20 percent.
Employment Practices Liability (EPL)
Adverse claims experience is placing upward pressure on EPL coverage. Entities domiciled in certain California counties may find themselves unable to obtain coverage, Willis predicts. While overall capacity remains “abundant,” there are no new EPL carriers entering the market. Pricing overall will be flat to a 10 percent increase, with private, nonprofit and smaller employees predicted to face up to 15 percent increases. The Equal Employment Opportunity Commission continues its aggressive enforcement plan despite some staggering trial losses for the EEOC in 2013. There is no time like the present to explore ways to decrease your EPL risks and avoid EEOC scrutiny.
When Cyberrisk gets its own page in a white paper discussing rates, you know it is a hot topic among insurers and risk managers. There were more than eight hacking incident per day in the US in 2012 according to the report. With increased security concerns, coverage is now a “must have” for many organizations. Calling the market for stand-alone Cyberrisk “active,” Willis predicts rates will remain competitive. If your firm has had losses, however, Willis predicts slight changes — between -two to five percent overall. There are many new Cyberrisk buyers in the marketplace and pricing for first-time buyers remains competitive. If you outsource your data to cloud vendors, underwriters will review your existing contracts. Your indemnification language will be a critical factor in underwriting your risk.
Directors & Officers (D&O)
Price increases are moderating with pricing expected to be flat to a high of 20 percent for financial services firms. Homeowner and condominium associations as well as educational institutions should expect premium increases. One carrier has indicated a willingness to provide “mega limits” for Side A coverage, which protects executives against claims not indemnified by the corporation. The non-traditional money that is now flooding the insurance industry may lead to downward pressure on D&O pricing in 2014, Willis contends.
We saved the best news for last. With loss ratios hovering between 75 and 85 percent for many property insurers, Willis and other insurance experts predict a big decrease in property insurance pricing. In non-catastrophe exposed risks, expect a 10 to 12.5 percent decrease in pricing. For cat-exposed property, Willis predicts smaller decreases of between five to 10 percent. Any port in a storm, right?
With 2014 rapidly approaching, contact your broker or consultant now to discuss steps you can take to reduce your 2014 commercial premiums.