Market Forecast

Broker Forecasts Mixed Pricing Bag

Environmental, property and primary auto liability are some lines expected to see hikes.
By: | March 5, 2018 • 4 min read

Brokerage USI Insurance Services, which made headlines in December by merging with Wells Fargo Insurance, released a market forecast for 2018 that predicts a mixed bag in commercial insurance pricing. Out of 29 lines that the broker analyzed, nine of them could be in line for flat to increased pricing, according to the brokerage.

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Lines where insureds can expect significantly higher pricing include commercial construction project risk, which USI said could see premium price hikes of between 5 percent and 10 percent. Primary auto liability, which many predict will be an ongoing pain point, could also see increases between 5 percent and 10 percent.

Other lines expected to see increases are environmental (combined general liability), fiduciary liability, employment practices liability and medical malpractice, according to USI.

But the areas with the highest chance of increases are property and CAT property, which USI pegged at flat to 15 percent and 5 percent to 20 percent, respectively.

“Accounts with hurricane-related exposures and losses will almost undoubtedly face renewal situations with increased pricing, potentially less broad terms, and perhaps less available capacity,” according to the report, which was put together with the help of 17 USI executives.

The biggest question the USI report poses is whether the massive hurricane losses in the third quarter of 2017 will lead to a “regional or localized event versus an industry-wide event as it relates to pricing.”

Doug O’Brien, national casualty and alternative risk practice leader, USI Insurance Services

Owners of truck and auto fleets can still achieve favorable pricing, according to USI, if they deploy telematics to guard against the threats of fatigued and distracted driving.

The brokerage also said establishing longer-term relationships with underwriters should help ward off the price increases many industry players are predicting for this line.

One of the bright spots in the market is workers’ compensation, according to USI’s research. That line is being positively impacted, at least from the insurance buyer’s perspective, by ample capacity and in general, stronger risk mitigation measures being taken by clients.

The use of analytics, as in many other lines, not only holds promise but is also achieving results, according to the USI authors.

“Analytics relative to past and future loss data are becoming an absolute necessity to intelligently negotiate optimal pricing, program design and collateral,” USI detailed in the report.

“Predictive modeling has become a key underwriting tool for pricing and post-loss mitigation.”

Anecdotal evidence is that carriers are displaying a keen interest in international coverage, and that was also reflected in the USI findings.

“We have seen some carriers that historically did not participate on controlled master programs or in the international marketplace enhance their product offerings and aggressively price new business,” USI found.

“This has resulted in rates being reduced by as much as 15 percent at renewal,” the USI authors said.

In addition to workers’ compensation and international programs, lines expected to see continued price erosion include environmental (contractors’ pollution) — down up to 10 percent; public company directors’ and officers’ liability — pegged for a 5 percent to 10 percent decrease; reps and warranties — down 5 percent to 10 percent; and cyber, which despite concerns that many underwriters still don’t adequately understand the risk, could see price decreases in the 5 percent to 10 percent range, according to USI.

One area that drew extended commentary from USI was environmental. Describing the market as significantly mature, the USI writers noted that despite AIG’s announced departure from pollution legal liability coverage in 2016, other carriers were willing to assume the more than $1 billion in expiring AIG premiums.

“We have seen some carriers that historically did not participate on controlled master programs or in the international marketplace enhance their product offerings and aggressively price new business. This has resulted in rates being reduced by as much as 15 percent at renewal.” — USI Insurance Services, 2018 Insurance Market Outlook

The USI authors expect the environmental market to significantly outpace the overall commercial property/casualty market going forward.

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They estimate the market as being at more than $2 billion in premiums currently and in line for double-digit growth.

But then they add this caveat:

“If, after 30 years of actuarial data, AIG couldn’t be profitable in this space, what carrier might be next and, more importantly, when will the ‘musical chairs’ stop and rates start to rise?”

Adding to the uncertainty for this line, despite the capacity pouring into it, is the massive hurricane damage of 2017 and the possible environmental damage resulting from it.

“Frequency and severity of environmental claims are expected to continue in 2018,” USI said.

“With significant hurricane and flooding in 2017, toxic release and mold claims are still being adjusted, but these don’t seem to have much bearing on future coverage or rates, except that underwriters will examine more closely those risks with exposure to coastlines or flooding.”

The entire USI report is available online. &

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.