Low Losses and New Capital Sources Fuel Downward Pressure on Property Market; Easing of Upward Pressure on Casualty Market
2015 Marketplace Forecast for North American Insurance Buyers Published Today
NEW YORK, Oct. 21, 2014 (GLOBE NEWSWIRE) -- Willis Group Holdings plc (NYSE:WSH), the global risk advisor insurance and reinsurance broker, expects commercial insurance buyers to face improving pricing conditions throughout 2015, due in part to further softening in the Property insurance line, an influx of new capital from non-traditional sources and an easing of pricing pressure on the Casualty market. Meanwhile, organizations funding employee benefit programs continue to face upward pricing pressure as escalating specialty drug costs combine with additional taxes and fees as a result of health care reform. These are key findings in Willis's semiannual 2014 Marketplace Realities report, published today as a guide for North American insurance buyers preparing for upcoming 2015 insurance program renewals.
Willis expects commercial Property rates to fall by an average of 10–15% for both non-catastrophe-exposed and catastrophe-exposed risks. Property Rates have been falling for several consecutive quarters and Willis does not see an end to this trend. Apart from the recent earthquake in Napa, California, losses have been benign in 2014. Meanwhile, the influx of new capital to the reinsurance market remains steady, and is now pressing on the primary insurance market.
For commercial Casualty lines, capacity remains abundant but carriers continue to redefine their appetites. Willis expects primary Casualty pricing to range between -10% and +10%. The pricing environment for Workers' Compensation is improving although some states remain challenging, including New York, Massachusetts, Pennsylvania and California. Willis is forecasting workers compensation rates to range between -5% and +5% and as much as +8% in California. However, California Workers' Compensation is seeing its lowest increases in years and other states are applying for lower rates for 2015.
In the Employee Benefits space, Willis predicts rate increases holding at 5%–6% for organizations with self-insured plans and 9.5%–10.5% for insured plans. Possible cost savings from marketplace options such as public and private exchanges are balanced for the moment by the steadily rising cost of treating widespread chronic disease conditions, increased costs and prevalence of specialty drugs and expenses associated with health care reform.
The stand-alone Terrorism insurance market has experienced a capacity boost, which is driving rates down in low-risk zones, another notable sign of marketplace softening. However, the forecast for 2015 is contingent on Congress extending the federal terrorism insurance backstop established by the Terrorism Risk Insurance Act (TRIA) of 2002. The proposal is now under review by legislators faced with competing bills from the Senate and the House of Representatives. If the extension is not passed, rates could rise sharply.
In the Executive Risks lines, Directors & Officers Liability coverage may see some price declines for the first time in several years.
Willis experts note some exceptions to the overall downward trend. For example, in the Aviation market, where large industry losses have put the brakes on several years of tumbling prices, Willis forecasts rates to rise 20%–30%. The Cyber insurance market is largely favorable for most buyers, except for some "point of sale" retailers, where large losses have changed marketplace dynamics and rates are expected to climb as much as 20%.
Willis product line experts see rates declining in five commercial insurance lines for most buyers: Property, Marine, Surety, Terrorism and Trade Credit. Flat rates or a mix of increases and decreases are expected in seven lines: Casualty, Workers' Compensation, Auto, Environmental, Directors & Officers, Errors & Omissions and Health Care Professional, or Medical Malpractice. Modest increases are predicted in seven lines: Aviation, Construction, Political Risks, Employment Practices Liability, Fidelity, Fiduciary and Employee Benefits.
Changes in Traditional Marketplace Dynamics
In analyzing macro insurance marketplace trends, Willis notes the insurance marketplace is evolving and the changing dynamics currently underway may spell the end of traditional market cycles. For example, Willis experts see the possibility that in the face of a mega disaster today, a softening market could actually turn softer, or at least maintain its downward turn. And in the absence of a major loss, this softening could accelerate – hence the publication's subtitle for the current issues: Edge of a Cliff? Willis cites several factors for this, emphasizing abundant alternative sources of capital that do not appear poised to withdraw in the event of a large-scale catastrophe event. A large event could in fact attract more non-traditional investors seeking higher returns based on the expectation of rising rates, helping to maintain downward pressure on the market.
Commenting on the report's theme, Matt Keeping, Chief Placement Officer of Willis North America said, "With policyholder surplus at record levels, insurers are increasingly in position to compete for business on price. With opportunistic capital continuing to show interest in the insurance sector, we wonder if the traditional cycles of hard and soft market might be changing. A mega disaster with insured losses of $50 billion, or even more, might not turn the market, with eager capacity flooding in to take advantage of what would normally be a rate hike following such a loss. Absent such an event, we can easily imagine scenarios where rate softening accelerates and rates go over a cliff – or at least approach the edge."
"For insurance buyers and risk professionals, now is the time to think about the strategic possibilities as renewals approach. Work with your insurance broker to optimize your risk management investment and protect your business," he added.
| Key Price Predictions for 2015: | |
| Property | |
| Non-CAT Risks: | -10% to -15% |
| CAT-Exposed Risks: | -10% to -15% |
| Casualty | |
| General Liability: | -10 to +10% |
| Umbrella/Excess: | -10% to +5% |
| Workers' Comp: | -5% to +5%; up to +8% in CA |
| Auto: | -10% to +10% |
| Executive Risks | |
| Directors & Officers: | -5% to +5% |
| Errors & Omissions: | Flat to -5% or more for programs with good loss experience; +5 to +20% for programs with poor loss experience |
| Employment Practices Liability: | Flat to +5% |
| Fiduciary: | Flat to +5% |
| Cyber | |
| -2% to +5%; Flat to 20% for POS retailers; more competitive for first-time buyers | |
| Aviation | |
| Airlines: | +20% to +30% |
| Aerospace: | Flat to +10% |
| Benefits | |
| Self-Insured plans: | +5% to +6% |
| Insured plans: | +9.5% to +10.5% |
*Rate predictions by Willis subject matter experts relate to property/casualty business placed for clients larger than SMEs, other than in Employee Benefits where clients of all sizes are included.
The Marketplace Realities series, which is published in the fall and updated every spring, features market snapshots of Property, Casualty, Workers' Compensation, Employee Benefits and all Executive Risks insurance lines, as well as key specialty lines: Aerospace, Cyber Risks, Construction, Energy (upstream and downstream), Environmental, Health Care Professional, Kidnap & Ransom, Marine, Political Risk, Surety, Terrorism and Trade Credit.
The publication is available free of charge on the Publications page of the Willis website, http://www.willis.com/What_We_Think/Publications/. To view a video interview with Matt Keeping, click here.
About Willis
Willis Group Holdings plc is a leading global risk advisor, insurance and reinsurance broker. With roots dating to 1828, Willis operates today on every continent with more than 18,000 employees in over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world's leading authorities on analytics, modelling and mitigation strategies at the intersection of global commerce and extreme events. Find more information at our Website, www.Willis.com, our leadership journal, Resilience, or our up-to-the-minute blog on breaking news, WilllisWire. Across geographies, industries and specialisms, Willis provides its local and multinational clients with resilience for a risky world.