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Digital EditionRates Are Going Up; See What Else Is in Store for the 2019 Commercial Insurance Market
The property market was in the hot seat coming out of 2017 and into 2018.
Following a year of catastrophic hurricanes, devastating fires and other natural disasters, the industry was watching to see how the market would react. After all, there had been a few quiet years prior to 2017, with little major natural catastrophes to note.
While the focus was on property, the commercial insurance market overall underwent a “stealth” firming, reported Willis Towers Watson (WTW).
In that report, “Insurance Marketplace Realities 2019,” WTW noted two trends impacting this firming: “The first is a relatively modest but definite rise in rates across most liability lines of insurance in response to relentless loss activity, which, given all the worry over property rates, seemed to sneak up on us. The second trend is a resurgence of mergers and acquisitions among insurers, and particularly ‘mega deals’ (i.e., deals exceeding $1 billion).”
Liability Line Rates Likely to Increase
WTW predicts that 14 commercial lines are expected to see rate increases in 2019, including casualty, with a likely 4 percent increase.
Some other key price predictions for 2019 include:
- Auto — +6 percent to +12 percent
- D&O — Flat to +5 percent
- E&O — Flat to +5 percent
- Energy — Flat to +10 percent
- Environmental — Flat to +15 percent
- Political risk — Flat to +5 percent
- Trade Credit — Flat to +5 percent
“Elsewhere in the casualty market,” said the report, “pricing for general liability, umbrella and excess liability coverage is expected to rise in the low- to mid-single digits as the market is hit by significant catastrophic liability stemming from a range of hazards, including California wildfires, the opioid epidemic, #MeToo litigation and relaxed standards for class action certification.”
International casualty and workers’ compensation, however, are likely to expect rate decreases in the upcoming year, said the report. International could see a 5 to 10 percent decrease, and workers’ comp could be looking at a 4 percent decrease.
The WTW report identified three main areas as to why workers’ comp can expect rate decreases. First, employment increases are being reported across all sectors in the U.S., and in total, the country has seen a 1.8 percent increase in employment over the last two years.
Second, medical care improvements and return-to-work programs have led to a decrease in lost-time claims. Finally, telemedicine should provide quicker, more efficient workers’ comp care, from providing access to high-quality medical care to mitigating medical expenses and lost time from work.
A Trend of Mergers & Acquisitions
The report also identified the upward trend of billion-plus dollar mergers and acquisitions as a contributing factor: “In the largest sense, the news is good. For the most part, insurer M&A … has not had a materially negative impact on capacity or pricing,” WTW wrote.
Altogether, there were 6 primary reasons why there are more M&As happening now:
- Organic growth was hamstrung by the CATs of the last two years. Because of this, the most “natural” place of growth comes from synergies between companies.
- A slight uptick in rates following 2017’s mega losses, relatively lighter losses in 2018 and good performance of investment portfolios have pushed policy holder surplus to record highs.
- The changing U.S. tax structure made U.S.-based companies more attractive to overseas buyers.
- In the same vein, overseas buyers are starting to seek revenue outside their domestic markets.
- Rising interest rates make insurance companies attractive targets, as that capital can earn higher returns and improve overall return on equity.
- Technology and Insurtech are driving innovation.
WTW also noted that another driver for M&A is that these consolidated insurers bring a broader product offering on a greater geographic scale to the market. This, said the report, could prove a tactical and even strategic trend for insurers in 2019.
With all this in mind, however, WTW believes recent M&As will not have a material impact on rates and capacity, but will instead continue to reduce the number of competitors in the field.
“Given the capital fluidity that is the industry’s ‘new normal,’ we don’t foresee a dramatic impact on rates, but we do expect that consolidations will result in more underwriting discipline, which may serve as a backstop against another free fall in rates,” it said.
Read the full report here. &
