P/C Rate Outlook
From a risk perspective, 2014 will be characterized by competitive property rates, a hard market for marine risks, and continued challenges in the terrorism-risk space, according to Marsh executives.
During 2013, the U.S. property/casualty insurance market benefited from lower catastrophe losses, an influx of new capacity, and four quarters of profitable underwriting results, said Dean Klisura, Marsh’s U.S. Risk Practices and Specialties leader, during a webinar on Jan. 29.
While today’s low-interest rate environment remains a challenge for insurers, the P&C market is essentially one of “abundant capacity and competitive terms and pricing,” said Klisura.
With some exceptions, risk purchasers will see 2013’s competitive rates and policy terms continue into 2014, Marsh officials agreed.
For example, Klisura said, surplus capacity among insurers and reinsurers alike kept pricing relatively stable for property risks, even in the aftermath of Superstorm Sandy, in the third quarter of 2012.
“Property insurance pricing has generally increased after a major catastrophe such as Hurricanes Katrina and Ike,” he said. Following Hurricane Sandy, however, only those with flood zone exposures or organizations in local areas directly impacted by Sandy saw rates increase significantly.
Moreover, in the reinsurance space, Jan. 1, 2014 treaty renewals saw average rates “fall significantly across nearly all regions and business segments” due to low loss experience and the influx of “billions” of dollars in new capital of late, he added.
Nevertheless, there will be challenges this year for catastrophe-exposed risks with flood zone exposures, as well as for those with large transportation fleets or rail exposures, according to Marsh.
Another challenge may be terrorism coverage, which will undoubtedly be in short supply if Congress does not reauthorize the Terrorism Risk Insurance Reauthorization Act (TRIPRA), said Duncan Ellis, Marsh’s U.S. Property Practice leader.
The private insurance market is unlikely to be an adequate substitute to the federal program, he said, suggesting price increases and property shortages if the federal reinsurance program — first instituted as a response to September 11, 2001 attacks — is not extended.
“As they address the uncertainty of TRIPRA, organizations may consider alternative solutions for terrorism coverage, including stand-alone terrorism placements, reservation of capacity, sunset provision discussions, and captive insurer strategies,” Ellis told Risk & Insurance®.
There are several areas risk managers should keep an eye on, Marsh leaders said:
- Auto liability, where insurers may call for larger attachment points this year.
- Marine liability, where the market hardened in 2013, and will likely continue that trend this year, with 5 percent to 20 percent premium increases for insureds with good loss histories.
- Limited capacity for property insurers in catastrophe-prone regions. Property rates began to trend downward second part of 2013. While that should continue into 2014, those with insured values concentrated in catastrophe-prone areas could see rates that are flat to 10 percent higher going forward.
- Those with windstorm exposures located in the Southeastern or inland Texas and mid-Atlantic United States will want to remodel their risks this year to incorporate the impact of Risk Management Solutions’ newest version 13 model.
Finally, whereas most casualty lines should see only low-single digit increases this year, according to Steve Kempsey, Marsh’s U.S. Casualty leader, workers compensation remains a difficult risk for some.
Fortunately, however, many organizations are apparently serious about keeping medical costs in check.
Nearly two-thirds (63 percent) of 200 or so webinar participants said their organization “regularly monitors the programs used for medical cost management (such as bill review, nurse case management, and utilization review) in order to assess return on investment.”
Three in10 said they felt they did a good job monitoring returns, and one-third said they were doing some monitoring, but could still do a better job.