COVID-19 and long-term trends are contributing to worsening conditions for US and Canadian insurance buyers, speakers during a recent Marsh webcast said.
Globally, commercial insurance prices rose 19% in the second quarter of 2020, according to the Marsh Global Insurance Market Index, the eleventh consecutive quarter of price increases. It’s also the largest year-over-year increase recorded since the index’s inception in 2012.
While the most substantial increases in the US and Canada are occurring in property, directors and officers liability (D&O), auto liability, and umbrella/excess liability, pricing increases are now being seen across most lines. Buyers are also facing capacity constraints and tightening terms and conditions.
“We’re seeing a rebalancing of the marketplace, which is challenging for all parties,” said Nathan Richmond, Marsh’s Global Placement Leader for Canada.
While COVID-19 has significantly affected insurers, the market shift is the result of several ongoing trends, many of which were building long before the pandemic.
Of major concern to insurers is their steadily declining investment income and underwriting leverage, said Kyle LaBarre, an analyst at Dowling & Partners. This has meant that insurers’ ability to improve operating result has increasingly hinged on favorable combined ratios, which have been “nowhere near” the levels needed to generate a return on equity (ROE) of 7% or more. “All said, 2020 is going to represent the 13th straight year that the industry fails to generate a double-digit ROE,” LaBarre said.
What’s particularly troubling for buyers is that insurers are now pressing for rate increases and changes to terms and conditions even for accounts with favorable loss histories:
Despite these trends, panelists highlighted strategies that buyers can use to better manage upcoming renewals. Starting the process early and differentiating risks — through the use of data, the involvement of senior leaders, and other means — remain key.
But it’s important to consider alternatives, said Pat Donnelly, head of Marsh JLT Specialty in the US and Canada. That includes revisiting decisions on program structures, participating insurers, and the adequacy and appropriateness of policy limits and retentions that were made during past renewal cycles.
Insurance buyers could also benefit from pursuing foreign capital options. “We’ve had a lot of success with some insureds, particularly with global exposures, who are getting better results by really exploring the full global marketplace,” Donnelly said.