A Buyer’s Market
Cyber and errors and omissions (E&O) insurance rates will spike in 2016 — some by as much as 150 percent — driven by the growing threat of hacking and data theft, according to the latest market report by Willis.
Overall property and casualty premiums, however, will continue to soften as a result of benign losses and overcapacity, the global insurance broker said in its “2016 Marketplace Realities” report.
In total, Willis expects rates in 2016 to decline in 10 lines, including property, casualty and aviation.
However, cyber and E&O buck that trend, with cyber premiums expected to increase by up to 15 percent in general, and by between 10 percent and 150 percent for point-of-sale retailers and large health care companies.
Smaller organizations with revenues of less than $1 billion face lower increases, said Willis.
Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. at Stifel Financial Corp., said that cyber rates will continue to climb as a result of the high frequency of breaches.
“There’s a recognition that because there’s a high frequency of events there will be more demand for coverage as people realize that they are vulnerable to cyber attacks,” he said.
With total annual cyber premiums expected to reach $20 billion by 2025, according to industry experts, Willis said that underwriting requirements have continued to rise.
“There’s a recognition that because there’s a high frequency of events there will be more demand for coverage as people realize that they are vulnerable to cyber attacks.” — Meyer Shields, managing director, Keefe, Bruyette & Woods Inc.
Insurers are also increasing retentions, reducing capacity and exiting certain lines, the broker said.
Excess cyber losses have also caused some markets to stop writing large accounts, while others have ramped up their premiums in upper layers of $75 million plus placements.
Willis said that those sectors at risk from large claims and litigation will continue to see the most upward pressure on rates, such as large technology companies dealing with expanding global privacy laws.
As a result of increasing cyber exposures, Willis said that some carriers have decided to withdraw from the retail, health care and financial institution sectors, as well as E&O programs that include cyber coverage.
Chris Lang, U.S. placement leader at Marsh, said that while rates were decreasing on an aggregate basis, cyber is the exception.
He said “there is a big uptake in coverage by clients, while carriers are driving some rates up as a result of the recent losses experienced, particularly in the retail space.”
As for other lines, he expects a “modest to single digit rate decrease across the board.”
“In property, it’s probably a higher single digit decrease and some of the casualty lines might be flat, as are financial lines.”
Soft Market Continues
The continued soft market, meanwhile, has been exacerbated by an increase in consolidation, driven by low interest rates and a benign year for catastrophes — a trend that is expected to continue in 2016, said the Willis report.
“Marketplace forces have changed the size and shape of the pieces of the risk management puzzle to an extent we have not seen for some time,” said Matt Keeping, chief broking officer for Willis North America.
“The key force driving this change in the market is consolidation.
“A smaller market with fewer, larger players also opens up the field to newcomers that can focus on smaller, specialized niches in areas of potential growth,” he said.
The report went on to say that while property rates will continue to fall, primary casualty rates for most buyers are declining for the first time in the current soft market.
Premiums for general liability are expected to fall by up to 5 percent and in umbrella/excess by up to 10 percent.
Property rates, on the other hand, should fall by 10 percent to 12.5 percent for non-catastrophe risks and by 12.5 percent to 15 percent for catastrophe risks, said Willis.
Most auto insurance buyers can also expect premium decreases of up to 10 percent, while airline insurance is expected to fall by 15 percent to 20 percent after the industry absorbed the major losses from 2014, according to Willis.
The Council of Insurance Agents & Brokers likewise reported that commercial P&C rates continued to decline across all lines by an average of 3.1 percent during the third quarter of 2015. The biggest decrease was in large accounts, which dropped by 4.1 percent.
“There are going to be more downgrades than upgrades for commercial lines and the vast majority of ratings are going to be affirmations.” — Andrew Colannino, vice president of P&C, A.M. Best
“We continued to hear from our members that this a buyer’s market,” said The Council’s President and CEO Ken Crerar.
Andrew Colannino, vice president of P&C at A.M. Best, said that the rating outlook for commercial lines in 2016 remained negative.
“There are going to be more downgrades than upgrades for commercial lines and the vast majority of ratings are going to be affirmations,” he said.
“There’s a now-widening divide between the strong performers and the underperformers.
“For that second group, there’s going to be an increasing number of reserve charges amongst those carriers — a lot of them haven’t made the proper investments in technology, data and analytics and therefore some are at a competitive disadvantage.”