Commercial Insurance Pricing Sees Its Sixth Straight Quarter of Increases; D&O Is Leading the Charge

While there is still plenty of risk transfer capacity out there, commercial insurance pricing is becoming painful in some lines.
By: | June 4, 2019

Commercial insurance rates continue to rise across the globe. Average commercial insurance prices rose by 3% in the first quarter of 2019 and marked the sixth consecutive quarter of increases, according to the latest Global Market Insurance Index by Marsh.

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“Globally, it’s a continuation of rate increases, and it has been driven mostly in the property lines and in financial lines, specifically D&O,” said Christopher Lang, managing director at Marsh.

Composite pricing increases were observed in all regions for the second consecutive quarter, and pricing increased in the United States at the highest rate since 2013. The composite price in the UK and Latin America has  increased six consecutive quarters in a row, while pricing in the Pacific region has increased for nine consecutive quarters.

“The challenge in today’s market is to get that risk profile and conversation live and in front of our clients and the underwriters so that there is time to sort the details of the particular risk.” — Christopher Lang, managing director, Marsh

Global property rates increased 4.7% and have also now increased globally every quarter since the catastrophic events of the first quarter of 2017. Financial and professional line pricing, mainly D&O, also continued to accelerate, increasing 5.6% in the first quarter.

D&O Prices Are Up

Aon reported in its Quarterly D&O Pricing Index that the average price for $1 million limits for D&O liability insurance was up 13.8% compared to the prior year’s quarter.

D&O prices are on the rise due to disruption in claim patterns that have “carriers on edge,” wrote Phil Norton, senior managing director, Management Liability Practice, Gallagher, in a recent Risk Insider for Risk & Insurance®.

Security class action claims are on the rise as well, while many claim costs are now higher than anticipated. Claims driven by events, such as cyber breaches and sexual harassment or discrimination, are also on the rise.

Phil Norton, senior managing director, Management Liability Practice, Gallagher

While the average global commercial insurance price increase was the biggest since the index began in 2012, there remains sufficient market capacity in most products and parts of the globe, Lang said.

“There is still plenty of capacity in D&O and in the property markets, so while there is some firming, there are plenty of options to explore,” Lang explained. “Casualty rates, workers’ comp rate, primary casualty are all trending downwards.”

Among the other findings in the Global Insurance Market Index:

  • Globally, property risk pricing increased by almost 5% on average, slightly higher than rates recorded in the previous four quarters.
  • The biggest price increases were in the Pacific, where a 16% price increase in the index marked the eighth consecutive quarterly price increased. Property insurance in the region increased by 14%, while financial and professional liability pricing increased more than 20%.
  • The average pricing in financial and professional lines increased by almost 6%. All global regions experienced a rise, primarily driven by increases in D&O insurance.
  • Casualty rates are trending downwards and declined globally 0.7%, continuing a trend of annual declines going back to 2013.
  • In individual markets, casualty pricing declined 1.7% in the U.S., 2.7% in the U.K., 0.9% in continental Europe and 0.4% in Asia. The one outlier was in Latin America where casualty prices increased by 3.6% and have been on the rise for almost three years as a result of claims frequency and severity in auto pricing.

Time to Differentiate Risks

The disparate trends in pricing by product and geography underline the fact that organizations should be differentiating their risk, Lang said.

“Every risk stands on its own as you would expect,” he said. “The challenge in today’s market is to get that risk profile and conversation live and in front of our clients and the underwriters so that there is time to sort the details of the particular risk,” he added.

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An April report from Willis Towers Watson projected that commercial insurance would see price increases through 2019 as insurers take a more disciplined approach to pricing and underwriting.

The report indicated that the shift in insurer attitude means tightened pricing and underwriting guidelines would be noticeable across different lines. Insurers are taking steps to return to underwriting profitability and “we are seeing price firming almost universally,” said Joe Peiser, head of broking, North America, Willis Towers Watson.

Peiser noted that insurance buyers should expect their advisors to be “more disciplined and proactive” in assisting with analytics, building relationships and driving the risk differentiation that underwriters seek.

“At the end of the day, there is still plenty of capacity. The real opportunity for our clients is to stay out in front of that and have a transparent conversation with their underwriters ahead of time and ensure they’re differentiating themselves,” Lang said. &

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]

Risk Matrix: Presented by Liberty Mutual Insurance

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The R&I Editorial Team can be reached at [email protected]