But evolving threats generated from a range of risks – cyber attacks, political instability and a changing climate – pose risk management challenges for many of these same buyers, according to Willis Group Holdings in its 2015 Marketplace Realities Spring Update.
Soft P/C
Willis expects commercial property rates to fall by an average of 12.5 percent to 15 percent for both non-catastrophe-exposed and catastrophe-exposed risks, due in part to a market flush with capacity, according to the report, which suggests even further softening could occur. Insurance carrier appetite for this risk remains strong and with increased carrier capacity, Willis says buyers are enjoying ample options in determining where to place their business in 2015.For commercial casualty lines, capacity also remains abundant. Here Willis says it expects primary pricing at renewals to be flat. The pricing environment for workers’ compensation is unchanged, with a mix of increases and decreases ranging between -5 percent and +5 percent, though California workers’ compensation rates are expected to climb by 8 percent, which is still low by recent historical standards.
Supply & Demand
The outlook reflects a market that is working as intended, according to Matt Keeping, chief broking officer, Willis North America. “Individual experiences will vary depending on industry, geography and loss history, but overall we anticipate a marketplace that continues to offer opportunities for buyers,” he said. “With weather and other catastrophic losses remaining below average for another year, and capital hungry for a somewhat predictable return, we see the forces of supply and demand working as expected.”But, Keeping added, challenges remain for organizations as risk profiles change. “The threat of cyber-related losses seem to be a matter of not if, but when; the push for global markets is clashing with the realities of political upheaval and war in many places on the planet, making political risks increasingly unavoidable; and even if Nat Cat losses are down in the aggregate, there is the sense that a changing climate brings an increased potential for widespread catastrophe in heavily populated areas.”
Aviation Surprise
According to Willis, the most surprising market softening can be seen in aviation programs, where significant and high-profile catastrophes have caught the world’s attention. There is still ample capacity in the marketplace and excluding these exceptional losses, the industry’s safety experience remains good, says Willis. These factors have combined to reverse Willis’ earlier predictions of sharply increased rates for this sector. Insurance buyers can expect renewals to range between flat and +10 percent for the remainder of 2015.For employee benefits programs, Willis predicts rate increases of 5 percent to 6 percent for organizations with self-insured plans, and 8.5 percent to 9.5 percent for insured plans. Willis brokers say employers remain focused on elements of the health care reform law that will go into effect in the next few years, particularly the Cadillac Tax, effective in 2018, which is expected to affect more employers than originally anticipated due to the increasing cost of health care.
Cyber, Tech E&O Exceptions
Willis notes cyber insurance is among the some exceptions to the broad downward trend. With cyber breaches increasingly, the demand for stand-alone cyber policies is dramatically rising. Willis predicts increases of up to 10 percent for most buyers. However, organizations with point-of-sale (POS) exposures face 10 percent to 100+ percent increases for primary premiums. Additional increases are likely in the excess layers of the program, due to paid claim activity, according to Willis brokers, who say underwriters are increasing their scrutiny of retailers and other organizations with POS systems. Adding to the upward pressure, some carriers in this space have increased their retentions, reduced their capacity or, in some cases, exited certain sectors, the report says.Willis also expects rate increases on errors and omissions coverage for organizations with poor loss experience or difficult industry sectors currently at risk for large claims and litigation, such as technology firms. Some environmental insurance programs, particularly combined environmental plus casualty programs, are experiencing sharp increases as environmental claims against organizations continue to trend upward.
In the executive risks lines, buyers will find a mix of modest increases and decreases.
Keeping said organizations will need to “balance the pressure to keep costs down and the need to maximize resilience for the risk transfer spend – in other words, to make sure that the organization is sufficiently protected so that its greater goals can be met.”
The report is expected to be a basis for discussion among risk management and insurance professionals at the annual Risk & Insurance Management Society’s Annual Conference, which is being held in New Orleans this year April 26-29. Below are the report’s key indications.
Willis: Key Price Predictions for 2015:
| Property | |||
|---|---|---|---|
| Non-CAT Risks: | -12.5% to -15% | ||
| CAT-Exposed Risks: | -12.5% to -15% | ||
| Casualty | |||
| General Liability: | Flat | ||
| Umbrella/Excess: | -10% to flat | ||
| Workers’ Comp: | -2.5% to +2.5%; up to +8% in CA | ||
| Auto: | -10% to flat | ||
| Executive Risks | |||
| Directors & Officers: | -5% to +5% | ||
| Errors & Omissions: | Flat to -5% or more for programs with good loss experience; +5 to +20% for programs with poor loss experience | ||
| Employment Practices Liability: | -3% to +3% | ||
| Fiduciary: | Flat to +5% | ||
| Cyber | |||
| Flat to +5%; +10 to 125% for POS retailers; more competitive for first-time buyers | |||
| Aviation | |||
| Airlines: | Flat to +10% | ||
| Aerospace: | -10% to flat | ||
| Benefits | |||
| Self-Insured plans: | +5% to +6% | ||
| Insured plans: | +8.5% to +9.5% | ||
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