Webcast: Insurance Markets 2017: Midyear Update
Recent natural catastrophes will lead to property rate increases in parts of the US and Caribbean, but will not likely change the overall commercial insurance market, according to panelists on Marsh’s The New Reality of Risk®webcast.
The high end of current estimates from modeling firms and reinsurers indicate that Hurricanes Harvey and Irma will result in $50 billion to $100 billion in insured losses. More modest losses will result from Typhoon Hato and the 7 September Mexico earthquake, with the effects of Hurricane Maria and the 19 September Mexico earthquake not yet known. When added to an estimated $23 billion in insured catastrophe losses globally in the first half of 2017, according to Swiss Re, these events will likely make 2017 the most costly year in terms of catastrophes since 2011.
“These will certainly be earnings events, but insurers will be able to pay these claims,” said Duncan Ellis, leader of Marsh’s US Property Practice. “But I don’t think these will be all-market-changing events.” Even prior to Hurricanes Harvey and Irma, there were indications that the property market is moving toward flat renewals, Mr. Ellis said. There are two primary reasons for this: Continual rate reductions affecting insurers’ profitability and accumulating attritional, or non-catastrophe losses.
Still, Harvey and Irma will likely lead to regional stresses in Texas and or coastal properties as compared to all regions. Insurers will also seek to alter terms and conditions in property policies, including deductibles, sublimits, and definitions of flood, storm surge, and named windstorm.
Claims from Harvey, Irma, and other recent catastrophes are generally divided into two categories, property damage and business interruption/time element, said Rob Powell, international leader of Marsh’s Claim Practice. As with previous catastrophes, these events will raise important coverage questions — including whether damage is caused by a windstorm or flood event after the storm.
Globally, insurance markets remain generally favourable to buyers. The second quarter of 2017 marked the 17th consecutive quarter in which commercial rates declined, according to Marsh’s Global Insurance Market Index. But despite most buyers still being able to secure rate decreases, the size of those rate decreases is shrinking.
“Globally, the trend is moderating rate decreases, especially in property and financial and professional lines,” said Tom Davies, CEO of Bowring Marsh. “But we’ve seen larger rate decreases in casualty in the second quarter, largely driven by favourable trends in the US.”
Strong capacity and slowly increasing interest rates are keeping casualty markets competitive, said Tony Tam, placement leader in Marsh’s US Casualty Practice. “In order to compete, insurers continue to price targeted new business opportunities more aggressively and offer more favourable coverage terms.”
Workers’ compensation insurers continue to offer multiyear agreements to buyers; meanwhile, the market for UK employer’s liability remains competitive, despite rising combined ratios. The general liability market remains competitive, although insurers are scrutinizing tougher segments and adding exclusions for cyber, drones, and other exposures.
A sharp increase in securities class-action lawsuits this year could eventually have an adverse effect on the directors and officers liability market, but for now conditions are favourable to buyers. “In part because of pricing competition from newer entrants, 10% of Marsh’s public D&O clients switched primary carriers in the first half of this year, the highest percentage since 2011,” said Sarah Downey, D&O product leader within Marsh’s US FINPRO Practice.
Rates for cyber insurance, meanwhile, have plateaued, with new capital helping to spur competition. But large-scale cyber events this year are beginning to have a cumulative effect on the marketplace and to increase pricing volatility for some individual accounts.