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Here is our marketplace overview by line of coverage.
2017 brought a lot of heartache and headaches for many of us. The U.S. was hit with a record number of catastrophic weather-related and fire losses, including tenacious hurricanes in the South and Southeast, wind/hail losses throughout the Midwest, and extensive fire damage out West. But due to a well-positioned insurance market, these catastrophic losses resulted in a limited property market rate movement of five to 12 percent across the U.S., whereas the automobile insurance market experienced another six to nine percent rate increase (similar to the past two years).
To date, 2018 has brought more of the same loss activity, including Hurricane Michael, heavy flooding in the Southeast, and more catastrophic fire loss in the West. As a result, property capacity provided by certain domestic insurers, as well as Lloyds of London, has all but dried up in certain key geographical areas such as Coastal and California.
Rates will continue to rise across most geographical jurisdictions for commercial/business vehicle placement, but the personal auto markets should see prices level off. Watch for a change in “no fault” legislation from states requiring that coverage because the model may be too expensive. We also anticipate another commercial vehicle rate change of four percent to eight percent, with a continued constriction of commercial trucking markets due to catastrophic losses.
Rates should level off with the exception of Coastal areas and California. Certain industries will see continued increases (such as Habitational and Dealers Open Lot coverage), but the real industry challenge will come from undervalued or underinsured property. With the cost of labor and materials increasing annually — and property values not changing — the market averages anywhere from 18 percent to 30 percent undervalued (both personal and commercial property). Although property rates may not change, property replacement cost values will ultimately increase premiums.
The insurance industry is particularly focused on both Fire and Water Damage losses and we may start to see increased deductibles as well as utilization of security monitoring technology due to claims specific to sprinkler leakage and frozen pipes.
General Liability/Products Liability:
Trends indicate increases in frequency and severity as well defense expenses and verdicts. On average, the industry is paying out $1.10 for every $1.00 of premium taken in and we anticipate a two- to three-year increase in funding for losses with an average of four percent to six percent rate increases. (An example of severe claims that have taken years to determine ultimate value are the Johnson & Johnson Product Liability claims).
The good news is Workers’ Compensation will continue to see small rate reductions over the two years due primarily to a continued reduction in Pure Premium Rates by state. The bad news is employers’ experience modification factors will continue to increase due to the decreases in Pure Premium Rates.
As the economy continues to improve, the ability to hire talent consistent with employer needs, culture and values will become far more difficult. Experienced workers are exiting the workforce at an average of 10,000 per day, leaving many employers having to settle for inexperience workers at an increased cost.
We anticipate Workers’ Compensation to show decrease in the three to six percent range for the next few years, followed by multiple years of increases due to heightened loss activity and medical cost inflation. Now is the time to assess your risk management needs so you avoid what the future holds for most others.
Pricing for this specific line of coverage will be contingent on your company’s exposure to Auto/Trucking and General Liability losses (Premises and Products Liability, as well as Personal Injury). The more exposure to Auto and General Liability you have, the higher your excess coverage will cost.
Professional Liability, Management Liability, Errors & Omissions, Cybersecurity, Crime, Social Engineering, Employment Practices Liability:
All of these will most likely see higher premiums due to continual increases in loss exposure and loss activity. Trends from Cybersecurity Hacking, the #MeToo Movement, Fraud and Theft of funds directly or through online actions will continue. The one positive here is that more employers now carry insurance for most of these coverages, spreading the risk to a larger pool and keeping pricing competitive.
It will be critical to stay informed and ahead of the game through education of emerging risks and changes driven by technology and the economy.
Insurance is the most economical way to spread and transfer risk, but it can only support about 40 percent of business loss. You need to understand your business risks and manage them to avoid critical financial loss. Change is happening faster and faster these days making continuous risk management education critical. Talk with your Marsh & McLennan Agency representative to learn more.