Managing Your Insurance Program in an Evolving Marketplace

Commercial insurance rates have been rising for several quarters and underwriters are now showing greater discipline and more closely scrutinizing risks than in the past. But the market has not hardened, stressed panelists on Marsh’s The New Reality of Risk® webcast.

The latest edition of Marsh’s Global Insurance Market Index shows that average commercial insurance pricing increased 6% globally and 5% in the US in the second quarter of 2019. Pricing increases across most lines are being driven by a combination of increasing frequency and severity of claims. This is compounded by the fact that rates had gone down following several years of soft market conditions, which had favored buyers, noted Christopher Lang, Marsh’s global placement leader for the US and Canada.

Continuing deterioration in the property market has been driven by large catastrophe and attritional losses. Many property insurers having seen two consecutive years of combined loss ratios above 100%, and reinsurance costs in 2019 are increasing because of loss-impacted treaties. Rate increases are being keenly felt by some buyers, and close to half of respondents to a poll during the webcast said they also have made or expect to make changes to their property insurance program structures due to the transitioning market.

In cyber, pricing for large accounts is stable, said Meredith Schnur, Marsh’s US cyber brokerage leader. Pricing for the corporate segment, which includes many midsize buyers, is highly competitive as insurers consider them to have reduced cyber risk severity than larger organizations. Premiums from the corporate segment are being used to fund substantial losses suffered by some larger companies.

Beyond Pricing Increases

Aside from increasing rates, insurers are being more judicious with their offerings in order to manage volatility, explained Michael Rouse, Marsh’s US property practice leader. Among other actions, insurers are:

• Increasing minimum attachments on difficult industry classes or exiting these classes altogether.
• Increasing minimum deductible requirements in a bid to reduce attritional loss ratios, and implementing additional or higher deductibles for certain perils.
• Insurers are tightening the terms and conditions and reducing sublimits.

Still, while some insureds are finding it difficult to replace non-renewing carriers at similar pricing levels, a portion of buyers have renewed flat or with slight increases. These tend to be organizations with modest risk profiles and catastrophe exposures, favorable loss histories, best-in-class information in their underwriting submissions, and strong two-way relationships with insurers.

Focus on Differentiation

Organizations with upcoming renewals should be aware that discussions with underwriters will likely be different than in prior years, noted Edel McIntyre, Marsh’s corporate segment leader for New York. “You’ll need to compete for capacity in a way that you may not have had to in the past,” she said.

However, while rates are generally going up, not every buyer will face dramatically increased prices, and underwriters will consider every risk independently, on its own merits. Buyers should focus on differentiating themselves and demonstrating to underwriters why their rates should not go up. This requires high-quality submissions and clearly demonstrating an understanding of key exposures and commitment to preventing and minimizing losses.