Where do we go from here?
Last year, we called the insurance marketplace a “market in transition” based on variables that typically were outside the control of business, such as:
- Weather patterns and climate change across the U.S.
- No upward interest rate movement (flat investment potential)
- Transitioning from experienced workforces in most industries
- Natural catastrophic property losses: hurricanes, wind, hail, fire, flood, etc.
- Increased litigation and jury awards (social inflation and nuclear verdicts)
- Continuous negative impact of the opioid epidemic
- International trade and tariffs
- Talent acquisition and retention
- Labor and materials availability, and costs to repair or replace
- Political environment
- Emerging risks
According to The Council of Insurance Agents & Brokers (CIAB), the insurance marketplace has changed to a truly “unconventional hard market” that maintains all of these attributes along with the data and analytics and predictive models to support market change.
Although there is more than enough capacity and funding to support risk transfer in the market, the challenge is where insurance companies choose to use that capacity.
The following is an overview of the market conditions by line of coverage as well as a quick view within certain industries.
Market observations by line of coverage
Property rates across the country have steadily increased from an average of four percent early in 2019 to 5 to15 percent, depending on loss experience, location and special hazards such as warehousing, chemical use and storage, welding and open flames use. In some instances, coastal property and property located more than three miles from public fire protection are seeing rates of 25 to 40 percent as well as decreases in capacity and insurance market interest. The toughest CAT-exposed increases can climb as high as 100 percent.
We believe these trends will continue through 2020 and they will be influenced primarily by weather patterns (wind, hail, hurricanes, floods, surface water, fires) as we continue into 2021. The property line of coverage continues to get healthier, which means rate increases should level off and allow the market to create competition by early 2021.
Generally speaking, CIAB also found in their latest survey that “we can see that over the past year, premium pricing has increased at a noticeably larger rate compared to the previous quarters for all-sized accounts,” with the largest accounts experiencing the greatest impact.
And hardest hit is the property market—the toughest in 15 years.
General Liability/Automobile are both experiencing rate increases with automobile posting four percent to upwards of 20 percent rate increases for the eighth straight year. The automobile increases are influenced by fleet type, use, and radius. General Liability coverage is just now starting to see rate increases due to litigation and jury awards.
General liability coverage priced three years ago is seeing loss development resulting in combined loss ratios of more than 105 percent. As a result, general liability premiums are increasing 3 to 8 percent on average.
Umbrella/Excess rates rise dramatically due to social inflation and nuclear verdicts (increased litigation activity and loss values, and excessive jury verdicts), reduced capacity and increased pricing per $1 million of coverage is driving the current market.
Many insurance carriers that provided $25 million of limit capacity last year have reduced limits to $5 to10 million. And in some instances have moved away from providing primary umbrella layers in favor of high excess layers.
The change in the umbrella/excess market has not been like this since the mid-1980s, where capacity completely dried up. Until we see tort reforms in awards, we believe the new umbrella pricing will be here to stay. It is not uncommon to see umbrella rate increases of 10 to 40 percent per $1 million to $5 million layers, with insurance carriers reducing their limit capacity.
Executive and Professional Management Liability lines of coverage rates are also on the rise due to losses and litigation. Premium increases of one percent to upwards of 20 percent are becoming the norm for Directors & Officers (D&O) Liability, Crime, Cybersecurity, Professional Liability, Medical Malpractice, Employment Practice Liability, and Errors & Omissions, with public D&O rates seeing the highest increases including increased retentions.
Workers’ Compensation pricing over the past five years has been on the decline due to favorable loss results and lack of medical cost inflation. Recent data is starting to show a rate decline slowdown that will most likely follow with a leveling out and perhaps a deterioration in underwriting results. We believe 2020 will produce a “close to flat” pricing scenario, which will be impacted by increased trends in individual experience modification factors resulting from five years of reduced pure premium rates by state.
Be sure to align your organization with an agent or broker who has proven expertise in your industry and then aligns you with those insurance carriers who best fit your values, culture, and services requirements.
Industries Most Impacted by the Hard Marketplace
- Agribusiness - Regulatory compliance pressures along with tougher property placement and excessive automobile and trucking use and losses drove rate increases.
- Construction - Contract terms, talent acquisition and retention, as well as the maintenance of a individual experience modification factor under 1.00, kept the construction industry on the higher side of the rate scale.
- Habitational Real Estate - Property and general liability loss results and decreased insurance marketplace interest have plagued habitational real estate, especially wood frame risks. Limits are being reduced, abuse and molestation coverage is constricting, and some carriers are exiting the market entirely.
- Health Care and Human Services - Reduced capacity for sexual abuse and molestation coverage, along with talent acquisition and retention challenges, added to the lack of adequate funding concerns.
- Transportation - Insurance market carrier contraction and available capacity for both primary and excess limits, coupled with challenges in talent acquisition and retention (at a time when demand was at a peak), spiked premium rates.
- Vehicle Dealerships - Limited- to no-market for inventory, as well as increased auto/garage pricing due to excessive loss activity, have further escalated pricing for dealerships.
How to Manage a Hard Market —
Align with your broker
- Make sure your leadership team is up-to-speed on market change
- Start the renewal process early and use ongoing communications to avoid surprises
- Strengthen any weaknesses in your risk management program
- Prepare data and analytics to present to decision makers (know how risk is priced)
- Highlight your loss prevention processes and protocols with continuous communications
- Differentiate yourself from other peer companies
- Decide what options and strategies to pursue in both insurance and risk management.Consider using alternative funding mechanisms such as captives and higher retentions
- Establish face-to-face meetings with underwriters whenever possible
- Explore insurers you may not have used, but be sure they are aligned with your values, culture, and services requirements
- Mend bridges with former insurers that fit your values, culture, and requirements
- Be savvy in negotiations with underwriters and know what you are willing to give up
What to Expect from MMA
When you work with MMA to create an aligned strategic plan that is supported by industry expertise, data, required services and industry-specific insurance carrier experience — and practice successful high-end risk management techniques — your business is less likely to be impacted substantially by the hard market.
Rate comparison charts courtesy of our partners at CIAB.