Among property insurers, rates could fall 10 percent for CAT-exposed risks in 2014 and drop more steeply (up to 12.5 percent) for non-CAT risks due to improved CAT modeling, an ongoing oversupply of capacity, decreasing reinsurance rates and light 2013 loss activity, which has been a big part of combined loss ratios between 75 and 85 percent for many insurers, according to a new Willis report, titled “Marketplace Realities 2014: Innovation and Continuity.”
Workers’ compensation rates, on the other hand, are expected to rise 2.5 to 10 percent, and up to 20 percent in California, as questions surrounding health care reform’s effects on medical pricing offsets the sector’s efforts to reform and fine-tune state-specific operations.
The report also outlined a competitive market for cyber risk insurance for first-time buyers, citing a new record-high 3,100 U.S. incidents reported in 2012. Given the active market, which has insurers introducing cyber policies overseas as well, Willis expects rates to remain consistent, with renewals bringing slight reductions and potential increases in losses bringing slight increases over expiring premiums.
Auto liability rates are expected to rise 2 to 10 percent, as underwriters continue to push for higher primary auto retentions for policyholders with large fleets, difficult auto exposures such as heavy trucks, and unfavorable loss experience, according to the report.
D&O rates overall are expected to remain flat or experience marginal growth of up to 5 percent. Also, E&O capacity is expected to reach new heights in 2014, while upward pressure on rates seen early in 2013 has weakened as a result of competition from new carriers and traditional carriers seeking to expand market share. Willis expects the remainder of 2013 and early 2014 to continue along similar lines.
Aside from the line-by-line rate predictions provided above, the report contained an introduction from Eric Joost, COO of Willis North America, wherein he discussed big data’s role in the arrival of new capital in the form of cat bonds, insurance-linked securities, new property capacity abroad and at home, new vehicles sponsored by brokers, etc.
“From our perspective, we see clear benefits to these new vehicles. For our clients insurance buyers the increase in supply of capital makes a more inviting marketplace,” said Joost in the report. “These vehicles also offer administrative advantages and claim-handling benefits through their simplicity. But at the same time, we too have been wondering what this all will mean in the long run. Is this new capacity a game-changer or not?”
Potential evidence of this new capital being a “game-changer” cited by Joost in the report include insurers’ costs dropping over time as much as 20 percent, also noting that freeing up capital tends to soften the market. Naysayers, on the other hand, note that for the most part, the new sources of capacity have been with us before, though perhaps not in such quantity.
Joost, in noting big data’s role as a catalyst, also commented on the future roles of risk advisers and brokers. “The role of the risk adviser and broker is changing as well,” he said. “Our task now is to lead the charge into the world of big data, to be what we call the analytical broker. The understanding and analysis of data will be increasingly important to our clients, whatever game changers may or may not come along. Wherever the capital is, new or old, it is our job to help our clients find the most efficient way to it. Big data will be part of that effort.”
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